As filed with the Securities and Exchange Commission on April 30, 2021

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
x
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, ~~2018~~2020


OR
¨
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


OR
¨
o	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

~~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)

Maria Elena Rodriguez Asain (maelena.asain@volaris.com) +52-55-5261-6400

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)~~ 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

~~None~~

(Title of Class)

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

None

~~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):	~~810,853,707~~		983,608,177
Series A shares of common stock, no par value per share:	~~923,824,804~~		1,077,924,804

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

xYes ¨oNo

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.

o¨Yes xNo

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.

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.

xYes ¨oNo

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).

xYes ¨oNo

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 ox

Accelerated filer x¨

Non-accelerated filer o¨

Emerging growth company o¨

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. o¨

†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. x

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP o¨

International Financial Reporting Standards as issued
by the
International Accounting Standards Board x

Other o¨

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.

o¨Item 17 ¨oItem 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).

o¨Yes xNo

(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

o ~~Yes~~ o No

Table of Contents

~~TABLE OF CONTENTS~~

		Page
~~Part I~~PART I.		9

	8
ITEM 1	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	8 9
	ITEM 2	OFFER STATISTICS AND EXPECTED TIMETABLE	8 9
	ITEM 3	KEY INFORMATION	8 9

A.	Selected Consolidated Financial Data	8 9
B.	Capitalization and Indebtedness	10 12
C.	Reasons for the Offer and Use of Proceeds	11 12
D.	Risk Factors	11 12


	ITEM 4	INFORMATION ON THE COMPANY	35 39

A.	History and Development of the Company	35 39
B.	Business Overview	42 46
C.	Organizational Structure	59 65
D.	Property, Plants and Equipment	61 68

ITEM 4A

UNRESOLVED STAFF COMMENTS

	ITEM 5	~~ITEM 5~~ OPERATING AND FINANCIAL REVIEW AND PROSPECTS	62 68

	ITEM 6	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	89 101

A.	Directors and Senior Management	89 101
B.	Compensation	94 106
C.	Board Practices	97 109
D.	Employees	98 111
E.	Share Ownership	99 112

	ITEM 7	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	~~100~~ 112

A.	Major Shareholders	~~100~~ 112
B.	Related Party Transactions	~~102~~ 114
C.	Interests of Experts and Counsel	~~103~~ 116

	ITEM 8	FINANCIAL INFORMATION	~~103~~ 116

	A.	Consolidated Statements and Other Financial Information	~~103~~ 116
	B.	Significant changes	~~105~~ 117

	ITEM 9	THE OFFER AND LISTING	~~105~~ 117

A.	Offer and Listing Details	~~105~~ 117
B.	Plan of Distribution	~~105~~ 117
C.	Markets	~~105~~ 117
D.	Selling Shareholders	~~113~~ 125
E.	Dilution	~~113~~ 125
F.	Expenses of the Issue	~~113~~ 125

	ITEM 10	ADDITIONAL INFORMATION	~~113~~ 125

A.	Share Capital	~~113~~ 125
B.	Memorandum and Articles of Association	~~113~~ 126
C.	Material Contracts	~~124~~ 136
D.	Exchange Controls	~~124~~ 136
E.	Taxation	~~124~~ 136
F.	Dividends and Paying Agents	~~131~~ 143
G.	Statement by Experts	~~131~~ 143
H.	Documents on Display	~~131~~ 143
I.	Subsidiary Information	~~132~~ 144

~~Table of Contents~~

	ITEM 11	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	~~132~~ 144
	ITEM 12	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	~~133~~ 146

	A.	Debt Securities	~~133~~ 146
	B.	Warrants and Rights	~~133~~ 146
	C.	Other Securities	~~133~~ 146
	D.	American Depositary Shares	~~133~~ 146
~~Part II~~

PART II.

~~139~~

152

	ITEM 13	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	~~139~~ 152
	~~ITEM~~Item 14	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	~~139~~ 152

Use of Proceeds

~~139~~

152

	ITEM 15	CONTROLS AND PROCEDURES	~~139~~ 152
	ITEM 16	[Reserved]	~~140~~ 153

~~Part III~~

~~145~~

PART III.

158

ITEM 17	FINANCIAL STATEMENTS	~~145~~ 158
ITEM 18	FINANCIAL STATEMENTS	~~145~~ 158
ITEM 19	EXHIBITS	~~146~~ 159

~~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-ticket 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;~~

the competitive environment in our industry;

· ~~ability to keep costs low;~~

ability to keep costs low;

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

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;~~

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;~~

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

· ~~ability to generate non-ticket revenues;~~

ability to generate non-ticket revenues;

· ~~external conditions, including air traffic congestion, weather conditions and outbreak of disease;~~

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 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;~~

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

· ~~air travel substitutes;~~

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;~~

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

· ~~loss of key personnel;~~

ability to attract and retain qualified personnel;

· ~~aircraft-related fixed obligations;~~

loss of key personnel;

· ~~dependence on cash balances and operating cash flows;~~

aircraft-related fixed obligations;

· ~~our aircraft utilization rate;~~

dependence on cash balances and operating cash flows;

· ~~maintenance costs;~~

our aircraft utilization rate;

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

maintenance costs;

· ~~use of personal data;~~

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

· ~~lack of marketing alliances;~~

use of personal data;

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

lack of marketing alliances;

· ~~maintaining and renewing our permits and concessions;~~

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

· ~~our ability to execute our growth strategy;~~

maintaining and renewing our permits and concessions;

· ~~operational disruptions;~~

our ability to execute our growth strategy;

· ~~our indebtedness;~~

operational disruptions;

· ~~our liquidity;~~

our indebtedness;

· ~~our reliance on third-party vendors and partners;~~

currency fluctuations or the devaluation and depreciation of the peso;

· ~~our reliance on a single fuel provider in Mexico;~~

our liquidity;

· ~~an aircraft accident or incident;~~

our reliance on third-party vendors and partners;

· ~~our aircraft and engine suppliers;~~

our reliance on a single fuel provider in Mexico;

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

an aircraft accident or incident;

· ~~insurance costs;~~

our aircraft and engine suppliers;

· ~~environmental regulations;~~

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

· ~~cyber-attacks; and~~

insurance costs;

environmental regulations;

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

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.

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. 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.

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: As a result of the COVID-19 pandemic, the Mexican economy, which was initially expected to grow between 0.5% and 1.5%, shrank 8.2% in 2020. These adverse conditions may result in lower demand for our flights, lower fares or a shift to ground transportation options, which may in turn adversely affect our business, results of operations and financial condition.

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 subsequent 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. In 2020, approximately 69.0% of our total operating costs and 44.2% of our collections were U.S. dollar-linked or denominated. The remainder of our expenses was denominated in pesos. If the peso declines in value against the U.S. dollar, our revenues, expressed in U.S. dollars, and our operating margin would be adversely affected.

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 and Central American governmental concessions or authorizations necessary for our operations. 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.

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.

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. In addition, 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 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.

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-ticket revenue to remain profitable, and we may not be able to maintain or increase our non-ticket 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 5.3 years as of December 31, 2020, 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 Cancún airports, which make up a large portion of the balance of our routes. The Mexico City 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.

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.

GLOSSARY OF AIRLINES AND AIRLINE TERMS

Set forth below is a glossary of industry terms used in this annual report:

“~~Aerocalifornia” means Aerocalifornia, S.A. de C.V.~~

“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.

~~“Aladia” means Aladia Airlines, S.A. de C.V.~~

“Alaska Air” means Alaska Air Group, Inc.

“Allegiant” means Allegiant Travel Company.

~~“Alma” means Aerolíneas Mesoamericanas, S.A. de C.V.~~

“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 ticket 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.

“~~Aviacsa” means Consorcio Aviaxsa, S.A. de C.V.~~

~~“Avianca” means Avianca Holding S.A.~~

~~“Avolar” means Avolar Aerolíneas, S.A. de C.V.~~

~~“Azteca” means Líneas Aéreas Azteca, S.A. de C.V.~~

“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 United States Customs and Border Protection.

“CEO” means current engine option.

“Copa” means Copa Holding S.A.

“Delta” means Delta Air Lines, Inc.

~~“DGAC” means the Mexican Civil Aeronautic Authority (~~~~Dirección General de Aeronáutica Civil~~).

“DOT” means the United States Department of Transportation.

“EPA” means the United States Environmental Protection Agency.

“FAA” means the United States Federal Aviation Administration.

“FCC” means the United States 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 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.

“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 aircraft scheduling efficiency and flexibility and minimize inventory and aircraft maintenance costs.

“NEO” means new engine option.

~~“Nova Air” means Polar Airlines de Mexico, S.A. de C.V.~~

“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 miles” or “RPMs” means the number of miles flown by passengers.

“Ryanair” means Ryanair Holdings plc.

“SCT” means the Mexican Communications and Transportation Ministry (Secretaría de 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 United States Transportation Security Administration.

“~~Trip” means TRIP Linhas Aéreas S.A.~~

~~��~~ULCC” or “ultra-low-cost carrier” 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, Spirit Airlines, Inc. and Allegiant 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, 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.

“~~Webjet” means Linhas Aéreas Econômicas.~~

“Wizz” means Wizz Air Holdings Plc.

PRESENTATION OF FINANCIAL INFORMATION AND OTHER INFORMATION

This annual report includes our audited consolidated financial statements at December 31, ~~2017~~2019 and ~~2018,~~2020, and for each of the three years in the period ended December 31, ~~2018,~~2020, which have been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board (IASB), referred hereinafter as IFRS.

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. 19.9487~~19.6829~~ 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, ~~2018.~~2020.

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 Mexican Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía), or INEGI, reports from the Mexican Federal Civil ~~Aeronautic Authority~~Aviation Agency (~~Dirección General~~Agencia Federal de ~~Aeronáutica~~Aviación Civil), or the ~~DGAC,~~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.

~~Part I.~~

~~ITEM 1~~~~IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS~~Part I.

Item 1

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

~~ITEM 2~~~~OFFER STATISTICS AND EXPECTED TIMETABLE~~

Item 2

OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

Item 3

KEY INFORMATION

~~ITEM 3~~~~KEY INFORMATION~~

Selected Consolidated Financial Data

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, 2018, 2019 and 2020 and the selected consolidated statements of financial position data as of December 31, 2019 and 2020 from our audited financial statements included in this annual report. The selected consolidated statements of operations data for the years ended December 31, 2016, 2017 and 2018 and the selected consolidated statements of financial position data as of December 31, 2016, 2017 and 2018 from our audited financial statements included in this annual report. The selected consolidated statements of operations data for the years ended December 31, 2014 and 2015 and the selected consolidated statements of financial position data as of December 31, 2014, 2015, and 2016 were 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.

For the Years ended December 31,

2014

2015

2016

2017

2018

2018

Adjusted(1)

(in thousands of pesos, except share and per share data and operating data)

(in thousands
of U.S.
dollars)(2)

CONSOLIDATED STATEMENTS OF OPERATIONS

Operating revenues:

Passenger revenues:

Fare revenues

11,303,327

14,130,365

17,790,130

17,791,317

18,487,858

939,285

Other passenger revenues

—

—

4,919,452

6,098,504

7,892,497

400,982

Non-ticket revenue

2,733,415

4,049,339

—

—

—

—

Non-passenger revenues:

Other non-passenger revenues

—

—

590,355

727,392

697,357

35,430

Cargo

—

—

171,623

170,973

227,438

11,555

14,036,742

18,179,704

23,471,560

24,788,186

27,305,150

1,387,252

Other operating income

(22,107
)
(193,155
)
(496,742
)
(96,765
)
(621,973
)
(31,600
)
Fuel

5,363,864

4,721,108

5,741,403

7,255,636

10,134,982

514,913

Aircraft and engine rent expense

2,534,522

3,525,336

5,590,058

6,072,502

6,314,930

320,833

Landing, take-off and navigation expenses

2,065,501

2,595,413

3,272,051

4,009,915

4,582,967

232,840

Salaries and benefits

1,576,517

1,902,748

2,419,537

2,823,647

3,125,393

158,787

Sales, marketing and distribution expenses

817,281

1,088,805

1,413,348

1,691,524

1,501,203

76,269

Maintenance expenses(3)

664,608

874,613

1,344,110

1,433,147

1,517,626

77,104

Other operating expenses

489,938

697,786

952,452

1,088,440

1,129,911

57,406

Depreciation and amortization(4)

342,515

456,717

536,543

548,687

500,641

25,435

13,832,639

15,669,371

20,772,760

24,826,733

28,185,680

1,431,987

For the Years ended December 31,

2014

2015

2016

2017

2018

2018

Adjusted(1)

(in thousands of pesos, except share and per share data and operating data)

(in thousands
of U.S.
dollars)(2)

Operating income

204,103

2,510,333

2,698,800

(38,547
)
(880,530
)
(44,735
)
Finance income

23,464

47,034

102,591

105,795

152,603

7,753

Finance cost

(32,335
)
(21,703
)
(35,116
)
(86,357
)
(120,334
)
(6,114
)
Exchange gain (loss), net

448,672

966,554

2,169,505

(793,854
)
(72,475
)
(3,682
)
Income (loss) before income tax

643,904

3,502,218

4,935,780

(812,963
)
(920,736
)
(46,778
)
Income tax (expense) benefit

(38,720
)
(1,038,348
)
(1,457,182
)
161,175

238,236

12,104

Net income (loss)

605,184

2,463,870

3,478,598

(651,788
)
(682,500
)
(34,674
)

For the Years ended December 31,

2014

2015

2016

2017

2018

2018

Adjusted(1)

(in thousands of pesos, except share and per share data and operating data)

(in thousands of
U.S. dollars)(2)

Attributable to:

Equity holders of the parent

605,184

2,463,870

3,478,598

(651,788
)
(682,500
)
(34,674
)
Non-controlling interest

—

—

—

—

—

—

Net income (loss)

605,184

2,463,870

3,478,598

(651,788
)
(682,500
)
(34,674
)
Weighted average shares outstanding Basic and diluted

1,011,876,677

1,011,876,677

1,011,876,677

1,011,876,677

1,011,876,677

1,011,876,677

Earnings per share Basic and diluted(5)

0.60

2.43

3.44

(0.64
)
(0.67
)
(0.03
)
Earnings per ADS Basic and diluted(6)

6.00

24.35

34.38

(6.44
)
(6.74
)
(0.34
)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (as of December 31,)

Cash and cash equivalents

2,264,857

5,157,313

7,071,251

6,950,879

5,862,942

297,870

Accounts receivable, net

448,560

434,955

962,718

1,449,292

1,466,690

74,516

Guarantee deposits—current portion

545,192

873,022

1,167,209

1,352,893

790,635

40,169

Total current assets

3,688,669

7,223,762

11,551,116

11,313,030

9,189,728

466,889

Total assets

9,905,040

15,231,504

21,781,771

22,666,267

22,310,651

1,133,504

Total short-term liabilities

4,768,367

7,073,372

7,962,382

9,503,496

9,249,260

469,913

Long-term liabilities

666,893

1,333,301

3,099,797

3,131,273

3,889,711

197,619

Total liabilities

5,435,260

8,406,673

11,062,179

12,634,769

13,138,971

667,532

Capital stock

2,973,559

2,973,559

2,973,559

2,973,559

2,973,559

151,073

Total equity

4,469,780

6,824,831

10,719,592

10,031,498

9,171,680

465,972

CASH FLOW DATA

Net cash flows provided by operating activities

333,783

3,069,613

978,732

985,869

565,800

28,746

Net cash flow used in investing activities

(1,184,968
)
(601,277
)
(27,958
)
(2,260,440
)
(1,389,395
)
(70,590
)
Net cash flow provided by (used in) financing activities

204,103

65,086

10,765

1,398,300

(235,152
)
(11,946
)
FINANCIAL DATA

Operating income

204,103

2,510,333

2,698,800

(38,547
)
(880,530
)
(44,735
)
Depreciation and amortization

342,515

456,717

536,543

548,687

500,641

25,435

Aircraft and engine rent expense

2,534,522

3,525,336

5,590,058

6,072,502

6,314,930

320,833

OPERATING DATA(9)

Aircraft at end of period

50

56

69

71

77

—

Average daily aircraft utilization (block hours)

12.42

12.68

12.80

12.57

13.21

—

Average daily aircraft utilization (flight hours)

10.25

10.34

10.24

10.02

10.56

—

Average pesos/U.S. dollar exchange rate

13.30

15.85

18.66

18.93

19.24

—

End of period pesos/U.S. dollar exchange rate

14.72

17.21

20.66

19.74

19.68

—

For the Years ended December 31,

2014

2015

2016

2017

2018

2018

Adjusted(1)

(in thousands of pesos, except share and per share data and operating data)

(in thousands of
U.S. dollars)(2)

Airports served at end of period

53

61

65

69

69

—

Departures(7)

74,659

87,931

101,811

108,060

117,920

—

Passenger flight segments (thousands)(7)

9,346

11,477

14,394

15,670

17,478

—

Booked passengers (thousands)(7)

9,809

11,983

15,005

16,427

18,396

—

Revenue passenger miles (RPMs) (thousands)(7)

9,722,538

11,561,859

14,325,898

15,917,246

17,748,408

—

Available seat miles (ASMs) (thousands)(7)

11,829,865

14,052,298

16,703,949

18,860,950

21,009,545

—

Load factor(8)

82
%
82
%
86
%
84
%
85
%
—

Average ticket revenue per booked passenger(8)

1,152

1,181

1,189

1,086

1,006

51

Average other passenger revenue per booked passenger

—

—

328

371

429

22

Total ancillary revenue per booked passenger

279

338

379

426

479

24

Total operating revenue per ASM (TRASM) (cents)

118.7

129.4

140.5

131.4

130.0

6.6

Passenger revenue per ASM (RASM) (cents)

95.5

100.6

106.5

94.3

88.0

4.5

Operating expenses per ASM (CASM) (cents)

116.9

111.5

124.4

131.6

134.2

6.8

CASM ex fuel (cents)

71.6

77.9

90.0

93.2

85.9

4.4

Fuel gallons consumed (thousands)

138,533

164,033

196,709

210,536

227,436

—

Average economic fuel cost per gallon

38.7

28.8

29.2

34.5

44.56

2.26

Employees per aircraft at end of period

56

59

66

67

60

—

	For the Years ended December 31,
	2016			2017			2018			2019			2020			2020
	Adjusted			Adjusted⁽¹⁾			Adjusted⁽¹⁾
	(in thousands of pesos, except share and per share data and operating data)															(in thousands of U.S. dollars)⁽²⁾
CONSOLIDATED STATEMENTS OF OPERATIONS
Operating revenues:
Passenger revenues:
Fare revenues		17,790,130			17,791,317			18,487,858			23,129,991			12,873,174			645,314
Other passenger revenues		4,919,452			6,098,504			7,892,497			10,569,208			8,613,398			431,777
Non-ticket revenue		—			—			—			—			—			—
Non-passenger revenues:
Other non-passenger revenues		590,355			727,392			697,357			897,586			882,360			44,231
Cargo		171,623			170,973			227,438			228,836			201,881			10,120
Non-derivative financial instruments		—			—			—			(72,949	)		(411,222	)		(20,614	)
		23,471,560			24,788,186			27,305,150			34,752,672			22,159,591			1,110,828
Other operating income		(496,742	)		(96,765	)		(621,973	)		(327,208	)		(730,333	)		(36,611	)
Fuel expense, net		5,741,403			7,255,636			10,134,982			11,626,069			6,640,820			332,895
Aircraft and engine rent expense		5,590,058			—			—			—			—			—
Aircraft and engine variable lease expenses		—			1,429,595			956,010			961,657			1,845,254			92,500
Landing, take-off and navigation expenses		3,272,051			4,002,744			4,573,319			5,108,489			4,090,864			205,069
Depreciation of right of use assets		—			3,437,903			4,043,691			4,702,971			5,048,976			253,098
Salaries and benefits		2,419,537			2,823,647			3,125,393			3,600,762			3,453,382			173,113
Sales, marketing and distribution expenses		1,413,348			1,691,524			1,501,203			1,447,637			1,840,819			92,278
Maintenance expenses⁽³⁾		1,344,110			1,418,253			1,497,989			1,488,431			1,167,720			58,536
Other operating expenses		952,452			1,034,258			1,059,098			1,112,927			1,157,240			58,011
Depreciation and amortization⁽⁴⁾		536,543			548,687			500,641			675,514			898,445			45,038
		20,772,760			23,545,482			26,770,353			30,397,249			25,413,187			1,273,927
Operating income		2,698,800			1,242,704			534,797			4,355,423			(3,253,596	)		(163,099	)
Finance income		102,591			105,795			152,603			207,799			101,511			5,089
Finance cost		(35,116	)		(1,515,281	)		(1,876,312	)		(2,269,829	)		(3,018,484	)		(151,313	)
Exchange gain (loss), net		2,169,505			683,039			(103,790	)		1,440,501			470,594			23,591
Income (loss) before income tax		4,935,780			516,257			(1,292,702	)		3,733,894			(5,699,975	)		(285,732	)
Income tax (expense) benefit		(1,457,182	)		(237,586	)		349,820			(1,094,831	)		1,406,184			70,490
Net income (loss)		3,478,598			278,671			(942,882	)		2,639,063			(4,293,791	)		(215,242	)
Attributable to:
Equity holders of the parent		3,478,598			278,671			(942,882	)		2,639,063			(4,293,791	)		(215,242	)
Net income (loss)		3,478,598			278,671			(942,882	)		2,639,063			(4,293,791	)		(215,242	)
Weighted average shares outstanding Basic and diluted		1,011,876,677			1,011,876,677			1,011,876,677			1,011,876,677			1,021,560,557			1,021,560,557
Earnings (loss) per share Basic and diluted⁽⁵⁾		3.44			0.28			(0.93	)		2.61			(4.20	)		(0.21	)
Earnings (loss) per ADS Basic and diluted⁽⁶⁾		34.38			2.75			(9.32	)		26.08			(42.03	)		(2.10	)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (as of December 31,)
Cash and cash equivalents		7,071,251			6,950,879			5,862,942			7,979,972			10,103,385			506,468
Accounts receivable, net		962,718			1,449,292			1,466,690			2,320,334			2,027,379			101,630
Guarantee deposits—current portion		1,167,209			1,352,893			790,635			600,327			1,141,956			57,245
Total current assets		11,551,116			11,046,071			8,922,769			12,117,239			14,402,310			721,968
Total assets		21,781,771			49,952,973			56,724,683			63,295,127			68,189,113			3,418,223
Total short-term liabilities		7,962,382			13,555,372			14,083,029			17,324,216			20,965,950			1,050,994
Long-term liabilities		3,099,797			32,572,248			39,936,501			40,441,228			44,426,978			2,227,061
Total liabilities		11,062,179			46,127,620			54,019,530			57,765,444			65,392,928			3,278,055
Capital stock		2,973,559			2,973,559			2,973,559			2,973,559			3,426,406			171,761
Total equity		10,719,592			3,825,353			2,705,153			5,529,683			2,796,185			140,168
CASH FLOW DATA
Net cash flows provided by operating activities		978,732			6,018,767			6,276,707			9,509,643			4,359,445			218,534
Net cash flow used in investing activities		(27,958	)		(2,260,440	)		(1,389,395	)		(1,879,341	)		(67,757	)		(3,396	)

~~(1)~~ As of January 1, 2018, we adopted IFRS 15 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, 2016.

	For the Years ended December 31,
	2016			2017			2018			2019			2020			2020
	Adjusted			Adjusted⁽¹⁾			Adjusted⁽¹⁾

	(in thousands of pesos, except share and per share data and operating data)															(in thousands of U.S. dollars)⁽²⁾
Net cash flow provided by (used in) financing activities		10,765			(3,634,598	)		(5,946,059	)		(5,238,840	)		(3,040,840	)		(152,432	)
FINANCIAL DATA
Operating income		2,698,800			1,242,704			534,797			4,355,423			(3,253,596	)		(163,099	)
Depreciation of right of use assets		—			3,437,903			4,043,691			4,702,971			5,048,976			253,098
Depreciation and amortization		536,543			548,687			500,641			675,514			898,445			45,038
Aircraft and engine rent expense		5,590,058			—			—			—			—			—
Aircraft and engine variable lease expenses		—			1,429,595			956,010			961,657			1,845,254			92,500
OPERATING DATA⁽⁹⁾
Aircraft at end of period		69			71			77			82			86			—
Average daily aircraft utilization (block hours)		12.80			12.57			13.21			12.94			11.30			—
Average daily aircraft utilization (flight hours)		10.24			10.02			10.56			10.90			9.73			—
Average pesos/U.S. dollar exchange rate		18.66			18.93			19.24			19.26			21.50			—
End of period pesos/U.S. dollar exchange rate		20.66			19.74			19.68			18.85			19.95			—
Airports served at end of period		65			69			69			65			68			—
Departures⁽⁷⁾		101,811			108,060			117,920			138,084			97,819			—
Passenger flight segments (thousands)⁽⁷⁾		14,394			15,670			17,478			20,917			13,153			—
Booked passengers (thousands)⁽⁷⁾		15,005			16,427			18,396			21,975			14,712			—
Revenue passenger miles (RPMs) (thousands)⁽⁷⁾		14,325,898			15,917,246			17,748,408			21,032,364			14,596,745			—
Available seat miles (ASMs) (thousands)⁽⁷⁾		16,703,949			18,860,950			21,009,545			24,498,893			18,274,946			—
Load factor⁽⁸⁾		86	%		84	%		85	%		86	%		80	%		—
Average fare revenue per booked passenger⁽⁸⁾		1,189			1,086			1,006			1,054			875			44
Average other passenger revenue per booked passenger⁽⁷⁾⁽⁹⁾		328			371			429			481			585			29
Total ancillary revenue per booked passenger⁽⁷⁾⁽⁹⁾		379			426			479			532			659			33
Total operating revenue per ASM (TRASM) (cents)⁽⁷⁾⁽⁹⁾		140.5			131.4			130.0			142.2			123.5			6.2
Passenger revenue per ASM (RASM) (cents)⁽⁷⁾⁽⁹⁾		106.5			94.3			88.0			94.4			70.4			3.5
Operating expenses per ASM (CASM) (cents)⁽⁷⁾⁽⁹⁾		124.4			124.8			127.4			124.3			141.3			7.1
CASM ex fuel (cents) ⁽⁷⁾⁽⁹⁾		90.0			86.4			79.2			76.6			102.7			5.1
Fuel gallons consumed (thousands)		196,709			210,536			227,436			251,802			176,645			—
Average economic fuel cost per gallon⁽⁹⁾		29.2			34.5			44.6			46.4			39.9			2.0
Employees per aircraft at end of period		66			67			60			60			54			—

~~(2)~~ Peso amounts were converted to U.S. dollars solely for the convenience of the reader at the rate of Ps.19.6829 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, 2018. 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 share purchase plans outstanding during the year, this is because the shares are entitled to a dividend if and when one is declared by the Company.

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

(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, 2016, 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. 19.9487 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, 2020. 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.

(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.

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 (RPMs); Average ticket revenue per booked passenger; Average non-ticket revenue per booked passenger, Total operating revenue per ASM (TRASM); Passenger Revenue per ASMS (RASM); Operating expenses per ASM (CASM); CASM ex fuel, and Average economic fuel cost per gallon. Average ticket 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~~

Capitalization and Indebtedness

Not Applicable.

Reasons for the Offer and Use of Proceeds

D.~~Risk Factors~~

Not Applicable.

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.

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 Movimiento Regeneración Nacional (National Regeneration Movement), was elected President of Mexico and took office on December 1, 2018. The ~~President´s~~President’s party ~~holds~~and its allies currently hold the majority of the Chamber of Deputies and the Senate. Elections for the Chamber of Deputies will be held on June 6, 2021. 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 ~~2016, 2017~~2018, 2019, and ~~2018,~~2020, the Mexican economy grew ~~2.3%~~2.1%, ~~2.1~~%decreased 0.1% and ~~2.0%~~shrank 8.2%, 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 historically has 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 ~~3.36% for 2016, 6.77% for 2017 and~~ 4.83% for ~~2018.~~2018, 2.83% for 2019 and 3.15% for 2020. 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 result 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, ~~and~~ accounts ~~receivable). Because historically our U.S. dollar-denominated monetary assets (including cash,~~receivable, security deposits and aircraft maintenance deposits). Because after the implementation of IFRS 16 our U.S. dollar-denominated monetary liabilities have exceeded our U.S. dollar-denominated ~~liabilities,~~assets, the devaluation and appreciation of the peso resulted in exchange ~~gains~~losses and ~~losses,~~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 ~~depreciated 16.9% and 20.1%~~appreciated 4.5%, appreciated 0.3% and appreciated ~~4.5%~~4.3% against the U.S. dollar in nominal terms in ~~2015, 2016,~~2017, 2018 and ~~2017~~2019, respectively. As of December 31, ~~2018,~~2020, the peso ~~appreciated 0.3%~~depreciated 5.8% against the U.S. dollar in nominal terms since December 31, ~~2017.~~2019.

In ~~2018,~~2020, approximately ~~73%~~69.0% of our total operating costs and ~~38%~~44.2% of our collections were U.S. dollar-linked or denominated. The remainder of our expenses was denominated in pesos. If the peso declines in value against the U.S. dollar, our revenues, expressed in U.S. dollars, and our operating margin would be adversely affected. We may not be able to adjust our fares denominated in pesos to offset any increases in U.S. dollar-denominated expenses, increases in interest or rental expense or exchange losses on fixed obligations. In addition, ~~87%~~as of December 31, 2020, most of our outstanding financial debt and ~~100%~~all of our aircraft lease payments ~~as of December 31, 2018,~~ are denominated in U.S. dollars. Severe devaluation or depreciation of the peso could also result in governmental intervention or disruption of foreign exchange markets. For example, the Mexican government could institute restrictive exchange control policies in the future, as it has done in the past. This would limit our ability to convert and transfer pesos into U.S. dollars for purposes of purchasing or leasing aircraft and other parts and equipment necessary to operate and expand and upgrade our fleet, paying amounts due under some of our maintenance contracts and servicing our U.S. dollar-denominated indebtedness.

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). However, Donald Trump’s victory in the U.S. presidential election, as well as the Republican Party maintaining control of both the House of Representatives and Senate of the United States in the congressional election, has generated volatility in the currency and capital markets of emerging markets, such as Mexico and may create uncertainty regarding the future of NAFTA and trade between the United States and Mexico. On ~~January 20, 2017, Donald Trump became president of the United States. President Trump and the Trump administration began a process to renegotiate NAFTA. As a result of such negotiations on~~ November 30, 2018, Mexico, the United States and Canada signed the ~~new trade agreement denominated~~ USMCA that will replace NAFTA, however the USMCA must be ratified by the Mexican Senate, the United States Congress and the House of Commons in Canada. We cannot assure that the USMCA will be ratified by the respective legislative bodies of the three countries and this could have(United States-Mexico-Canada Agreement), which entered into force on July 1, 2020 as a ~~material adverse effect on the Mexican economy, which, in turn, could affect our financial condition and results of operations. Furthermore,~~replacement for NAFTA. During his presidency, President Trump ~~has already~~ implemented immigration policies that have ~~already~~ adversely affected ~~the~~ United States—Mexico travel behavior, especially in the VFR and leisure ~~markets, and there is a possibility that further immigration policy changes are to come.~~markets. President Trump’s immigration policies had a negative impact on our results of operations during ~~2018 and this negative impact can be~~2020. 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.” President Trump was not elected to a second term. On January 20, 2021, Joseph Biden became the president of the United States. While President Biden is expected to ~~continue~~reverse many of President Trump’s immigration policies, we can offer no assurance of the extent to which his administration will do so. In addition, even if ~~the Trump administration continues to carry out such~~President Biden reverses President Trump’s immigration ~~policies.~~

~~These events~~policies, subsequent presidential administrations could reimpose them, which could have a material adverse effect on our operations and revenues ~~which could~~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, alcoholic 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 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 ~~28%~~38%, ~~29%~~38% and ~~36%~~26% (including non-derivative financial instruments) of our total operating costs in ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, 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 and very sharply beginning in 2008. 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). On April 3, 2019 we filed a request with the SCT to extend the term of our Concession for an additional period of 30 years. Although we expect to apply for, and to comply with, all necessary conditions to renew our Concession from time to time and as may be required, we cannot assure you that our Concession will be renewed, or what terms will apply to the renewal, as the SCT has discretion over the final approval and may determine for any reason or without reason, not to extend our Concession. 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.

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 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;

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 and concerns with safety;~~

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

· ~~depressed housing and stock market prices; and~~

health outbreaks, pandemics and concerns with safety;

depressed housing and stock market prices; and

· ~~lower levels of actual or perceived consumer confidence.~~

lower levels of actual or perceived consumer confidence.

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.

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 and Central 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 ~~DGAC,~~AFAC, the U.S. Federal Aviation Administration, or FAA, and some of the aviation authorities in the Central 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 ~~DGAC,~~AFAC, FAA or the aviation authorities in the Central 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 ~~DGAC,~~AFAC, the FAA and some of the aviation authorities in the Central 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 and Central American governmental concessions or authorizations 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 ~~(CO~~2)(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 Environmental Protection Agency 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 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. ~~Governmental authorities~~

Furthermore, in ~~several cities~~2016 the International Civil Aviation Organization (ICAO) adopted a resolution creating the Carbon Offsetting and Reduction Scheme for International Aviation (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 after 2020. To the extent most of the countries in which we operate continue to be ICAO member states, in the ~~United States and abroad are also considering or have already implemented~~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 ~~noise reduction programs, including~~engines designed to implement the ~~imposition of nighttime curfews and limitations~~ICAO standards on ~~daytime take-offs and landings. We~~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.

Growing recognition among consumers of the dangers of climate change may translate into some customers choosing 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 ~~accommodate local noise restrictions imposed to date, but our operations could be adversely affected if locally-imposed regulations become more restrictive~~predict accurately the materiality of any potential losses or ~~widespread.~~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 and Central 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 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 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 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 America in which we operate control their respective airspace and airlines are completely dependent on the ~~DGAC,~~AFAC, the FAA and the aviation authorities in Central America to operate these airspaces in a safe, efficient and affordable manner. The air traffic control system, which is operated by Servicios a la Navegación en el Espacio Aéreo Mexicano in Mexico, the FAA in the United States and theCorporación Centroamericana de Servicios de Navegación Aérea in Central America, 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 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~~the future. Any consolidation or significant alliance activity within the airline industry could increase the size and resources of our competitors. ~~The~~In particular, the airline industry in Mexico has seen a sharp contraction, with the exit of eight Mexican airlines since 2007 (Aerocalifornia, Aladia, Alma, Aviacsa, Avolar, Azteca, Nova Air and Grupo Mexicana). Prior to ceasing operations, Grupo Mexicana was one of our most significant competitors. In December 2016, the DOT issued a final order granting approval of, and antitrust immunity for, the proposed alliance between Delta and Aeromexico and the Mexican Antitrust Commission has also granted approval. Aeromexico and Delta will use the antitrust immunity to operate a joint venture between the U.S. and Mexico and will coordinate their network planning, pricing, and sales activities, as well as enhance the alignment of their respective frequent flyer programs. On March 15, 2017, Delta completed a public offering for the purchase of 32% of the capital stock of Aeromexico. On May 8, 2017 Aeromexico and Delta announced they began their joint cooperation agreement to operate transborder flights between the United States and Mexico. Additionally, on July 27, 2017 Delta exercised an option to acquire an additional 12.8% ownership interest for a total of 49% of the outstanding shares of Aeromexico.2007. In addition, air carriers involved in reorganizations have historically engaged in substantial fare discounting in order to maintain cash flows and to enhance continued customer loyalty. Such fare discounting could lower yields for all carriers, including us.

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, 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. ~~Increases~~

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.~~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 Department of Homeland Security and the TSA in the United States have implemented numerous security 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 (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.~~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 since 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.

The first case of COVID-19 in Mexico was confirmed on February 28, 2020. In the following weeks, the Mexican government took various measures in order to prepare the country for a mass contagion, including declaring a national health emergency, asking the public to stay home, closing schools and imposing restrictions on non-essential activities in the public, private and social sectors. As a result of the national health emergency and health security measures imposed by the Mexican government in the spring of 2020, we reduced our capacity as measured by ASMs. In April and May of 2020, our capacity as measured by ASMs was reduced by up to 80% and 90%, respectively, and remained reduced from June to November of 2020. Additionally, we suspended service on certain routes. Costa Rica, Guatemala and El Salvador imposed operational and migratory restrictions that made it impossible to operate international passenger flights to those countries. While a gradual opening of the economy and easing of lockdown measures in Mexico and the other countries in which we operate led to a recovery in our ASMs and route operation during the second half of the year, with our capacity returning to over 100% of 2019 levels for the month of December, 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. For example, on January 26, 2021, an order issued by the United States Center for Disease Control came into effect requiring all international air passengers arriving to the United States to be tested for COVID-19 no more than 72 hours prior to departure, which may have an adverse effect on demand for travel to the United States. In addition, if the Mexican government imposes total or partial lockdowns in all or part of Mexico or shuts 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. While other countries, including the United States, have passed legislation to bail out airlines devastated by the impacts of the COVID-19 pandemic, we can offer no assurance that the Mexican government will provide Mexican airlines, including us, with financial assistance.

From a macroeconomic point of view, the impact of COVID-19 in Mexico is uncertain. Mexico’s GDP, previously predicted to grow between 0.5% and 1.5% in 2020, contracted by 8.2% as a result of the pandemic. Initial estimates indicate that Mexico’s GDP, previously expected to grow between 1.1% and 2.1% in 2021, could increase 4.8% mainly as a result of the COVID-19 pandemic’s adverse impact on the GDP in 2020. However, as the full effects of the pandemic have yet to be realized, Mexican GDP may contract in an amount that is not yet possible to estimate. Economic stagnation, the depreciation of the peso, contraction and decreased income levels and increased unemployment levels could result in decreased passenger demand and lower net income in the long term, even after any potential COVID-19-related travel restrictions and border closures are lifted. For example, for the period from March 31, 2020 to December 31, 2020, 709,211 jobs were lost in Mexico. 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.

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 ~~impossible~~not yet possible to determine ~~if and when health threats, similar to the H1N1 flu or the Zika virus, or perceived health threats, will occur,~~ when the ~~resulting~~ 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.

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 profitability;

· ~~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;~~

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

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

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;

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

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

· ~~obtain authorization of new routes;~~

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

· ~~renew or maintain our Concession;~~

obtain authorization of new routes;

· ~~gain access to international routes; and~~

renew or maintain our Concession;

gain access to international routes; and

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

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

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, ~~2018,~~2020, we had hedged approximately ~~18%~~6% of our projected fuel requirements for the year ended December 31, ~~2019.~~2021. However, we cannot provide any assurance that our fuel hedging program is sufficient to protect us against significant increases in the price of fuel. Furthermore, we have downside risk on our hedging portfolio, with potential losses or collateral requests if prices decrease considerably. There is no assurance that we will be able to secure new fuel derivative contracts 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 ultra low-cost, low-fare business model.

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. ~~$289.2~~$279.3 million and U.S. ~~$67.0~~$63.4 million, respectively, in ~~2018,~~2020, and have future operating lease obligations aggregating approximately U.S. ~~$2.3~~$2.2 billion over the next 1413 years. In addition, we have significant obligations for aircraft and engines that we have ordered from Airbus, IAE International Aero Engines AG (IAE) and Pratt & Whitney (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;

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 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;~~

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;

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

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.

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.

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 Cancún 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 Cancún airports. Routes through Mexico City, Tijuana, Guadalajara and Cancún make up a large portion of the balance of our routes. The Mexico City 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. 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, ~~2018,~~2020, the average age of our 7786 aircraft in service was approximately ~~4.6~~5.3 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.

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, particularly in light of increased competition, 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 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 ~~12.80 block hours in 2016, 12.57 block hours in 2017 and~~ 13.21 block hours in ~~2018.~~2018, 12.94 block hours in 2019 and 11.30 block hours in 2020. 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 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 December 2010, Mexico’s and in February 2021, Costa Rica’s, IASA ~~rating was~~ratings were upgraded back to Category 1 from Category 2, six and 21 months, respectively, after itthey had been downgraded due to alleged deficiencies in Mexican and Costa Rican air safety standards. We cannot assure you that the ~~government~~governments of Mexico and Costa Rica, and the ~~DGAC~~AFAC and General Direction of Civil Aviation (“Dirección General de Aviación Civil”) of Costa Rica in particular, or the aviation authorities in the Central 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 Mexico’s, Costa Rica’s or the Central American ~~countries’~~countries in which we ~~operate~~operate’s IASA ~~rating~~ratings 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, 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 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, 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 personal information received from customers and have put in place security measures to protect against unauthorized access to such information. Personal information is further protected under applicable Mexican and United States law. Personal 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.

In addition, our automated systems cannot be completely protected against events that are beyond our control, including natural disasters, computer viruses 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 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-ticket revenue to remain profitable, and we may not be able to maintain or increase our non-ticket revenue base.

Our business strategy significantly relies upon our portfolio of non-ticket 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-ticket 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-ticket 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-ticket 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-ticket 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-air-travel-related services 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 increasing significantly the amount and scope of compensation payable to passengers involuntarily denied boarding due to ~~oversales.~~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-ticket 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 Mexican 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;~~

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;~~

international travel regulations such as customs and immigration;

· ~~increases in taxes;~~

increases in taxes;

· ~~changes in the law that affect the services that can be offered by airlines in particular markets and at particular airports;~~

allocation of slots;

· ~~strikes and other similar disruptions affecting airports;~~

changes in the law that affect the services that can be offered by airlines in particular markets and at particular airports;

· ~~restrictions on competitive practices;~~

strikes and other similar disruptions affecting airports;

· ~~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~~

restrictions on competitive practices;

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.~~

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 number of single suppliers for our fuel, aircraft and engines.

We purchase fuel from 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 ~~in June 2019~~on May 31, 2021 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 more competitive price or with more advantageous 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.~~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 IAE and P&W.

We currently intend to continue to rely exclusively on these aircraft and engine manufacturers for the foreseeable future. If Airbus, IAE or P&W becomes 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 aircrafts 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 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. ~~During~~Since 2017, ~~and 2018,~~ P&W’s PW1100G-JM engines have experienced technical and production issues worldwide. As a result, several A320 NEO 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 A321 NEO aircraft. We cannot assure you when such problems will be resolved by P&W.

Cyber-attacks or other ~~breaches of~~cyber-incidents involving network or information technology security, including breaches in data privacy, could have an adverse effect on our ~~business~~business.

Cyber-attacks or other ~~breaches of~~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 ~~the use of~~ malware, computer viruses, phishing, denial of service and other means ~~for~~of disruption or unauthorized access to companies, have increased in frequency, scope and potential harm in recent years. ~~The~~We take preventive response and virus recovery actions ~~we take~~ to reduce the risk of cyber incidents and protect our information technology and networks, but there is always a risk that we may ~~be insufficient to repel~~suffer a major cyber-attack ~~in the future.~~that we are unable to repel. The costs associated with a major cyber-attack on us could ~~include increased~~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, ~~about us,~~ 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 (LFPDP), the European Union’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (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 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. In addition, as is common with most of our competitors, we have faced considerable turnover of our employees. 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 affected adversely and we may be unable to complete our growth plans.

In addition, as we hire more people and grow, we believe it may be increasingly challenging to continue to hire people who will 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 we 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. Our company culture could otherwise be adversely affected by our growing operations and geographic diversity. If we fail to maintain the strength of our company culture, our competitive ability and 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 approximately 12%, ~~11%~~12% and ~~11%~~14% of our total operating costs for the fiscal years ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, respectively. As of December 31, ~~2018,~~2020, approximately ~~73%~~76% 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 collective bargaining agreements were ratified by the STIAS union in January 2021. In March 2021, the Mexican Ministry of Labor and Social Welfare granted a certification of ratification of our collective bargaining agreements to the STIAS union. Our current agreements with this union will expire in February ~~2020~~2022 with respect to ~~both~~ 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.

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.

~~Because we have a limited operating history, it is difficult to evaluate an investment in the ADSs.~~

We began flight operations in March 2006. It is difficult to evaluate our future prospects and an investment in the ADSs because of our limited operating history. Our prospects are uncertain and must be considered in light of the risks, uncertainties and difficulties frequently encountered by companies in the early stage of operations. Historically, there has been a high failure rate among start-up airlines, particularly in Mexico. Our future performance will depend upon a number of factors, including our ability to implement our growth strategy, choose new markets successfully, maintain our ultra-low-cost structure, provide high-quality customer service at low prices, attract, retain and motivate qualified personnel, hedge against fuel price, react to customer and market demands, operate at airports providing adequate service, and maintain the safety of our operations. We cannot assure you that we will successfully address any of these factors, and our failure to do so could adversely affect our business, financial condition, results of operations and the market price of the ADSs.

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;~~

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;~~

changes in fuel, security, health and insurance costs;

· ~~increases in personnel, marketing, aircraft ownership and other operating expenses to support our anticipated growth; and~~

increases in personnel, marketing, aircraft ownership and other operating expenses to support our anticipated growth; and

· ~~the timing and amount of maintenance expenditures.~~

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.

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.~~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. For example, IFRS 15 “Revenue from Contracts with Customers,” was issued in May 2014 and applies to annual reporting periods beginning on or after January 1, 2018.

The main impact of IFRS 15 on us is the timing of recognition of certain air travel-related ancillary services. Under the new standard, certain ancillary services are recognized when we satisfy our performance obligations, which is typically when the air transportation service is rendered (at the time of the flight). In addition, these ancillary services do not constitute separate performance obligations or represent administrative tasks that do not represent a different promised service and therefore should be accounted for together with the air fare as a single performance obligation of providing passenger transportation. Therefore, the classification of certain ancillary fees in our statement of operations changed with adoption of IFRS 15, since they are part of the single performance obligation of providing passenger transportation. We have recasted our financial statements as of January 1, 2016 and 2017 for comparability purposes. See notes 1d1d) and 1x1x) to our Audited Consolidated Financial Statements for more details.

In addition, IFRS 16 was issued in January 2016 and replaces 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 similar to the accounting for finance leases under IAS 17. Under IFRS 16, at the commencement date of a lease, a lessee ~~will recognize~~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 ~~will be~~are required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees ~~will be~~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 ~~will~~ generally ~~recognize~~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 (which is the Mexican Peso) 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 adoption effect on our statement of financial position as of January 1, 2017. This led to approximately ~~Ps.23.7~~Ps. 23.5 billion of right-of-use assets and ~~Ps.32.6~~Ps. 32.7 billion in lease liabilities as of such date. ~~See note 1x to our Audited Consolidated Financial Statements for more details.~~

Any other changes 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;~~

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;~~

economic, regulatory, political and market conditions in Mexico, the United States and other countries;

· ~~industry conditions or trends;~~

industry conditions or trends;

· ~~availability of routes and airport space;~~

availability of routes and airport space;

· ~~the introduction of new services by us or by our competitors;~~

the introduction of new services by us or by our competitors;

· ~~our historical and anticipated quarterly and annual operating results;~~

real or perceived health and safety standards in air travel and related services;

· ~~variations between our actual or anticipated results and analyst and investor expectations;~~

our historical and anticipated quarterly and annual operating results;

· ~~announcements by us or others and developments affecting our business;~~

· ~~changes in technology affecting our aircraft;~~

variations between our actual or anticipated results and analyst and investor expectations;

· ~~announcements, results or actions taken by our competitors;~~

announcements by us or others and developments affecting our business;

· ~~investors’ perceptions of our company or the services we provide;~~

changes in technology affecting our aircraft;

· ~~changes in financial or economic estimates by securities analysts;~~

announcements, results or actions taken by our competitors;

· ~~our announcement of significant transactions or capital commitments;~~

investors’ perceptions of our company or the services we provide;

· ~~currency devaluations and imposition of capital controls;~~

changes in financial or economic estimates by securities analysts;

· ~~additions or departures of key management;~~

our announcement of significant transactions or capital commitments;

· ~~future sales of the ADSs and Series A shares;~~

currency devaluations and imposition of capital controls;

· ~~strategic actions by us or our competitors, such as acquisitions or restructurings;~~

additions or departures of key management;

· ~~accidents, health concerns and other events affecting airline operations;~~

future sales of the ADSs and Series A shares;

· ~~media reports and publications about the safety of our aircraft or the aircraft type we operate;~~

strategic actions by us or our competitors, such as acquisitions or restructurings;

· ~~changes in the price of fuel;~~

accidents, health concerns, pandemics, and other events affecting airline operations;

· ~~announcements concerning the availability of the type of aircraft we use;~~

media reports and publications about the safety of our aircraft or the aircraft type we operate;

· ~~changes in financial estimates or recommendations by securities analysts or failure to meet analysts’ performance expectations; or~~

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 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~~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 ~~November 16, 2015, certain of our principal shareholders, including affiliates of Discovery Americas, and Blue Sky Investments, exercised registration rights~~December 11, 2020 we completed a primary follow-on equity offering in ~~the form of ADS’s, pursuant to our shelf registration statement on Form F-3 filed with the Securities and Exchange Commission (the “SEC”), and sold 99,000,000~~which we offered 134,000,000 CPOs, in the form of ADSs, at a price to the public of U.S. ~~$16.00~~$11.25 per ADS in the United States and ~~the~~ other countries outside of ~~Mexico.~~Mexico, pursuant to our shelf registration statement filed with the SEC. In connection with that offering, the underwriters ~~also~~ exercised their option ~~in full~~ to purchase ~~9,900,000~~up to 20,100,000 additional CPOs in the form of ADSs, ~~to cover over-allotments,~~ for a total offering of ~~108,900,000~~154,100,000 CPOs in the form of ADSs. ~~This exercise of their registration rights, and any future exercise, with respect~~The securities issued pursuant to ~~such shares, means that there~~the offering are ~~Series A shares~~ 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 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 ~~any~~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 ~~will~~ 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.~~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 ~~issued~~released only if the CPO deed permits the ~~issuance~~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.”

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 ~~unpaid~~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)~~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.

~~ITEM 4~~Our interest rate expense for any particular period will fluctuate based on LIBOR and other variable interest rates~~INFORMATION ON THE COMPANY~~

A.~~History~~A substantial portion of our long-term indebtedness/derivative instruments bear interest at fluctuating interest rates, primarily based on the London interbank offered rate (LIBOR). LIBOR tends to fluctuate based on general short-term interest rates, rates set by the U.S. Federal Reserve and ~~Development~~other central banks, the supply of and demand for credit in the ~~Company~~London interbank market and general economic conditions. We have not hedged our interest rate exposure with respect to our floating rate debt. Accordingly, our interest expense for any particular period will fluctuate based on LIBOR 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) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become acceptable alternatives to LIBOR, 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.”

Item 4

INFORMATION ON THE COMPANY

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.

In July 2010, we underwent a change in our ownership with the incorporation of Mexican investors, certain investment funds managed by Discovery Americas (including Discovery Air), Blue Sky Investments and Indigo as new equity shareholders with expertise in the aviation industry.

On July 16, 2010, we became a sociedad anónima promotora de inversión de capital variable, or variable capital investment promotion stock corporation. In June 2013, we became a sociedad anónima bursátil de capital variable, or variable capital public stock corporation, 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~~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~~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.

~~Overview~~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 an ultra-low-cost carrier, or 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, 13th13th 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 ~~197~~170 and grown our cost-efficient Airbus A320 family aircraft from four to 7786 as of December 31, ~~2018.~~2020. We currently operate up to ~~394~~410 daily flight segments on routes that connect 4043 cities in Mexico as well as 2622 cities in the United States and three in Central America. We have substantial market presence in the top five airports in Mexico, based on number of passengers, comprising Cancún, 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. We seek to replicate our ~~ultra-low cost~~ultra-low-cost model in Central 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. ultra-low-cost carrier Frontier, which started operations on August 23, 2018. We expect this agreement, one of the first ever between ~~ULCC’s,~~ULCCs, to open additional ultra-low fare travel options between Mexico and the United States. In particular, we currently serve 2322 destinations in the U.S. and 4043 in Mexico, of which 2326 coincide with Frontier destinations in both countries. We believe that the codeshare agreement will enhance the potential for connecting itineraries.

We are one of the lowest unit cost ~~carrier~~operators worldwide, based on ~~CASM among the other Latin American publicly traded airlines.~~CASM. In ~~2018,~~2020, our CASM was ~~Ps.134.2~~Ps. 141.3 cents (U.S. ~~$6.8~~$6.6 cents), compared to an average non-stage-length adjusted CASM of U.S. ~~$11.33~~$16.37 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 and United, which had an average non-stage-length adjusted CASM of U.S. ~~$13.29~~$14.75 cents in ~~2018.~~2020. With our ULCC business model, we have grown significantly while maintaining a low CASM over the last ~~five~~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 sharklet technology equipped Airbus A320 aircraft and leveraging our existing infrastructure to drive economies of scale. We believe that further reductions to our CASM will allow us to continue to lower base fares, stimulate market demand and increase non-ticket 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 ~~2018,~~2020, our average base fare was ~~Ps.964~~Ps. 875 (U.S. ~~$52)~~$57.00) and we regularly offer promotional base fares of down to ~~Ps.390~~Ps. 299 (U.S. ~~$21.13)~~$44.99). 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-ticket 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 ~~2018,~~2020, our average load factor was ~~84.5%~~79.9%, compared to an average load factor of ~~82.25%~~76.6% for the other Latin American publicly traded airlines and ~~83.83%~~57.2% for our U.S.-based publicly traded target market competitors. Higher load factors help us generate additional non-ticket and total revenue, which in turn, allow us to further lower base fares and stimulate new demand.

In addition to low fares, we also aim to deliver a ~~high quality~~high-quality flying experience to our passengers. We strive to deliver on-time performance to our customers, with an ~~82.28%~~87.9% on-time performance rate in ~~2018.~~2020. 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, ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, we incurred capital expenditures of ~~Ps.2.3~~Ps. 2.8 billion, ~~Ps.2.7~~Ps. 3.6 billion and ~~Ps.2.8~~Ps. 3.5 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 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 ~~DGAC.~~AFAC.

Pursuant to the Mexican Aviation Law, the SCT, through the ~~DGAC,~~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 aircrafts 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 ~~DGAC~~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.

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 ~~April 3, 2019 we filed a request with the SCT to extend the term of~~February 21, 2020 our Concession was extended for ~~an additional period of 30 years.~~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 ~~DGAC,~~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 ~~DGAC~~AFAC before carrying out any charter flight.

The permit for international charter air transportation of passengers was granted by the ~~DGAC~~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 ~~DGAC,~~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 ~~DGAC.~~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 ~~DGAC.~~AFAC. The ~~DGAC~~AFAC has authority to inspect our aircraft, their maintenance records and our safety procedures. Based on such inspections, the ~~DGAC~~AFAC may declare our aircraft unfit to fly and in certain cases revoke our Concession.

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 ~~DGAC.~~AFAC. Domestic ~~Routes~~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 ~~DGAC,~~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 ~~25%~~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 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 General Law of Ecological Balance and Environmental Protection (Ley General del Equilibrio Ecológico y la Protección al Ambiente), the regulations of the 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 General Law for Prevention and Handling of Wastes (Ley General de Prevención y Gestión Integral de Riesgos) and the 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.

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.”

On April 23, 2021, a decree was published in the Official Gazette of the Federation (Diario Oficial de la Federación) amending provisions of the Federal Labor Act; the Social Security Act, the National Workers Housing Fund Institute Act; the Federal Tax Code; the Income Tax Act; and the Value Added Tax Act, among others, regarding labor subcontracting in Mexico. We are currently analyzing the impact of these reforms to determine the actions we must take, if any, in order to comply with the new regulations.

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 ~~general exemption~~Foreign Air Carrier Permit issued by the DOT that authorizes us to engage in scheduled air transportation of passengers, property and mail tobetween Mexico and ~~from any destination in~~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.

As of the date of this annual report, we had FAA airworthiness certificates for 2741 of our aircraft (the remainder being registered with the ~~DGAC)~~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 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 America.

International Regulation

Our service to the U.S. is also subject to U.S. Customs and Border Protection, or CBP (a law enforcement agency that is part of the U.S. Department of Homeland Security), 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.~~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. ~~$2.50 per passenger flight segment, subject to a U.S. $5~~$5.60 per one-way trip ~~cap.~~for air transportation that originates at an airport in the United States (cap U.S. $11.20 per round trip). 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. ~~The TSA also assess an Aviation Security Infrastructure Fee, or ASIF, on each airline.~~

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 Environmental Protection Agency, or 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 gases 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 ~~problems~~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 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 U.S., 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 Federal Communications Commission, or FCC. To the extent we are subject to FCC requirements, we ~~will~~ 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.

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~~

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, 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 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. Low-cost carriers have made a significant emergence in the Latin American market in recent years, particularly in Brazil, where Gol, Webjet (merged with Gol in 2012), Azul, and Trip (merged with Azul in 2012) have started operations in the last ten 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 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, 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 ~~between 1.1%~~4.5% in 2021 and ~~2.1% in 2019 and between 1.7% to~~ 2.7% in ~~2020~~2022 according to the central scenario of the Mexican Central Bank. These estimates are ~~in line with the estimates for the United States for 2019, when American GDP growth is expected to be between 1.9% and 2.2%, but are higher than~~only slightly below the expected growth of American GDP for ~~2020~~2021 of between ~~1.8%~~5.0% and ~~2.0%~~7.3% and are in line with the expected growth of American GDP for 2022 of between 2.5% and 4.4%, according to the Federal Reserve. This projected GDP growth is expected to result in the continuing growth trend of middle-income homes, having already grown from 12.0 million in 2000 to 15.2 million in 2010, according to information derived from the Mexican Association of Market Research and Public Opinion Agencies (Asociación Mexicana de Agencias de Investigación de Mercado y Opinión Pública, A.C.) and the INEGI. As of 2015, according to the INEGI intercensal survey, approximately 33.3% 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 ~~22.8%~~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 are, on average ~~0.42~~0.6 annual trips per capita, whereas in Mexico the number is roughly a portion of that.

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 ~~2018,~~2019 (the latest year for which date is available as of the date of this annual report), bus companies transported over ~~3.09~~3.07 billion passengers in Mexico, of which approximately ~~83.4~~82.9 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 ~~recent years~~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 (AICM), 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 Airport and introduced plans to invest in the expansion of the existing airport and is ~~analyzing the possibility of introducing~~building a new airport in the Mexico City metropolitan area.

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 ~~airline industry will have a higher growth rate than that of the global industry over the next 19 years, with an average passenger~~LCCs continue to ~~economic growth ratio (RPK/GDP) of 2.8 times. As a result, a GDP growth of 3%~~grow their service in ~~the next 19 years could imply an industry growth rate of around 33% by 2021 and over 75% by 2026.~~this flow.

The Mexican aviation industry has undergone a significant transformation due to the emergence of low-cost carriers, including us, Interjet and VivaAerobús, and the exit of eight ~~carriers (Aerocalifornia, Aladia, Alma, Aviacsa, Avolar, Azteca, Nova Air and Grupo Mexicana).~~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 in developed markets, this positive trend will likely drive greater profitability among the remaining airlines in Mexico. This dramatic capacity reduction and its low-fare strategy allowed Volaris to increase load factor to ~~84.5%~~79.9% in ~~2018.~~2020.

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 and Central 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 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-ticket 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 ~~6.9%~~0.2% and international volumes have ~~grown~~decreased by a CAGR of ~~4.7%~~(2.3)% from ~~2006~~2007 to ~~2018~~2020 according to the ~~DGAC.~~AFAC. The following table sets forth the historical passenger volumes on international and domestic routes in Mexico from ~~2006~~2007 to ~~2018:~~2020:

Passenger Volumes	2006		2007		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018		2007			2008			2009			2010			2011			2012			2013			2014			2015			2016			2017			2018			2019			2020
(millions of segment passengers)
International	27.4		27.2		27.9		24.2		25.8		26.8		28.5		30.9		33.6		37.5		40.8		45.1		47.6			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
% growth (decreased)	6.1	%	(0.5	)%	2.5	%	(13.2	)%	6.3	%	4.1	%	6.5	%	8.1	%	8.8	%	11.7	%	8.9	%	10.4	%	5.6	%		(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	)%
Domestic	22.2		27.4		27.6		24.4		24.5		25.5		28.1		30.5		32.9		37.1		41.8		45.2		49.5			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
% growth (decreased)	11.8	%	23.6	%	0.9	%	(11.6	)%	0.3	%	3.9	%	10.3	%	8.6	%	8.0	%	12.9	%	12.5	%	8.2	%	9.5	%		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	)%
Total	49.6		54.6		55.5		48.6		50.3		52.3		56.6		61.4		66.5		74.6		82.3		90.2		97.1			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
% growth (decreased)	8.6	%	10.3	%	1.8	%	(12.4	)%	3.5	%	4.0	%	8.2	%	8.5	%	8.3	%	12.2	%	10.7	%	9.3	%	7.5	%		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	)%

Source: ~~DGAC~~AFAC

Our international growth strategy has focused on targeting markets in the United States with large Mexican and Mexican-American communities in order to stimulate VFR demand and leisure traffic in those markets. Approximately ~~60%~~72% 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 ~~include Chicago,~~are generally located in and near to counties with Hispanic populations of over one million as of 2019; including Los Angeles ~~San Antonio~~(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, 1.3 million); Ontario, California (Riverside County, 1.2 million) and ~~San Francisco-Oakland, with Mexicans and Mexican-Americans in each of them amounting to 1.5 million, 4.6 million, 0.9 million and 0.7 million, respectively,~~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 America.

In ~~2018,~~2020, the Mexican low-cost and ULCCs (Interjet, VivaAerobus and Volaris) together maintained ~~67.3%~~71.5% of the domestic market, based on passenger flight segments, according to the ~~DGAC.~~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	2006		2007		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
Volaris(2)	4.04	%	7.94	%	12.16	%	12.82	%	14.79	%	18.05	%	20.48	%	23.15	%	23.31	%	24.76	%	27.50	%	27.49	%	28.38	%
Market Share⁽¹⁾ Domestic																											2007			2008			2009			2010			2011			2012			2013			2014			2015			2016			2017			2018			2019			2020
Volaris⁽²⁾																												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	%
Grupo Aeroméxico	32.91	%	28.58	%	28.01	%	32.28	%	36.20	%	40.10	%	37.73	%	35.74	%	36.08	%	33.81	%	31.19	%	29.05	%	27.67	%		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	%
Grupo Mexicana(3)	26.99	%	24.07	%	24.05	%	27.16	%	18.55	%	—		—		—		—		—		—		—		—
Interjet(4)	5.65	%	7.04	%	10.83	%	12.71	%	16.35	%	24.90	%	23.92	%	24.46	%	23.75	%	24.61	%	21.69	%	21.24	%	20.52	%
Viva Aerobus(5)	0.30	%	4.44	%	4.83	%	5.83	%	8.85	%	11.54	%	12.53	%	12.25	%	11.85	%	11.74	%	14.30	%	16.92	%	18.40	%
Grupo Mexicana⁽³⁾																												24.07	%		24.05	%		27.16	%		18.55	%		—			—			—			—			—			—			—			—			—			—
Interjet⁽⁴⁾																												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⁽⁵⁾																												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	%

Source: ~~DGAC~~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.~~

(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)Began operations in March 2006.~~

(2)

Began operations in March 2006.

~~(3)Ceased operations in August 2010.~~

(3)

Ceased operations in August 2010.

~~(4)Began operations in December 2005.~~

(4)

Began operations in December 2005.

~~(5)Began operations in November 2006.~~

(5)

Began operations in November 2006.

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

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	2006		2007		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
Volaris(2)	—		—		—		2.92	%	9.38	%	21.95	%	21.91	%	20.84	%	21.73	%	23.08	%	24.79	%	22.64	%	19.64	%
Market Share⁽¹⁾ International																											2007			2008			2009			2010			2011			2012			2013			2014			2015			2016			2017			2018			2019			2020
Volaris⁽²⁾																												—			—			2.92	%		9.38	%		21.11	%		21.45	%		20.42	%		21.24	%		22.75	%		24.70	%		22.80	%		19.63	%		21.83	%		35.96	%
Grupo Aeroméxico	31.68	%	34.05	%	31.73	%	31.06	%	39.83	%	74.87	%	66.96	%	64.46	%	65.71	%	61.59	%	56.82	%	55.96	%	53.58	%		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	%
Grupo Mexicana(3)	64.56	%	63.85	%	66.08	%	65.36	%	49.94	%	—		—		—		—		—		—		—		—
Interjet(4)	—		0.10	%	0.28	%	—		—		1.56	%	8.95	%	13.68	%	11.31	%	13.67	%	17.86	%	20.83	%	24.71	%
Viva Aerobus(5)	—		—		0.85	%	0.43	%	0.84	%	1.60	%	2.18	%	0.68	%	0.93	%	1.55	%	0.40	%	0.41	%	1.96	%
Grupo Mexicana⁽³⁾																												63.85	%		66.08	%		65.36	%		49.94	%		—			—			—			—			—			—			—			—			—			—
Interjet⁽⁴⁾																												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⁽⁵⁾																												—			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	%

Source: ~~DGAC~~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.~~

(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)Began operations in March 2006.~~

(2)

Began operations in March 2006.

~~(3)Ceased operation in August 2010.~~

(3)

Ceased operation in August 2010.

~~(4)Began operations in December 2005.~~

(4)

Began operations in December 2005.

~~(5)Began operations in November 2006.~~

(5)

Began operations in November 2006

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, ~~2018,~~2020, we were the ~~sixth~~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 substantially due to the Grupo ~~Méxicana~~Mexicana reorganization 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 ~~28.33%~~22% from 2006 to ~~2018,~~2020, with approximately ~~0.9~~0.9 million booked passengers in 2006 and ~~18.3~~14.7 million booked passengers in 2018. We attribute the rapid growth of our business to the favorable economic environment in Mexico, our dedicated ULCC strategy targeted at VFR and leisure travelers, our strong focus on delivering high quality customer service, and our tremendous brand recognition among domestic and international travelers in Mexico and the United States.2020.

Our Business Model

Our business model is based on that of other ULCCs operating elsewhere in the world, such as Allegiant 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 high quality 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.

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-ticket 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-ticket 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 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 high quality 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 ~~2018~~2020 we had the lowest cost structure of any of the other Latin American publicly traded airlines, with CASM of ~~Ps.134.2~~Ps. 141.30 cents (U.S. ~~$6.8~~$6.60 cents), compared to Avianca at U.S. ~~$14.25~~$26.11 cents, Azul at U.S. ~~$12.95~~$10.75 cents, Copa at U.S. ~~$9.8~~$17.29 cents, Gol at U.S. ~~$9.0~~$8.78 cents, Grupo Aeroméxico at U.S. ~~$11.1~~$17.98 cents and LATAM at U.S. ~~$10.9~~$17.33 cents. We also have lower costs than our U.S.-based publicly traded target market competitors, including Alaska Air at U.S. ~~$11.66~~$14.33 cents, American at U.S. ~~$14.85~~$19.39 cents, Delta at U.S. ~~$14.88~~$22.01 cents, Jet Blue at U.S. ~~$12.85~~$14.29 cents, Southwest Airlines at U.S. ~~$11.74~~ $12.44 cents, Frontier at U.S. $9.53 cents, Spirit at U.S. $8.36 cents and United at U.S. ~~$13.81~~$17.68 cents in ~~2018,~~2020, 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 the youngest fleet in Mexico, with an average aircraft age of 5.3 years as of December 31, 2020.

·~~Efficient and Uniform Fleet.~~ ~~We operate a uniform and efficient fleet of Airbus A320 family aircraft, which is the youngest fleet in Mexico, with an average aircraft age of 4.6 years as of December 31, 2018.~~

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 11.3 block hours per day in 2020.

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 80.3% 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.

·~~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 13.21 block hours per day in 2018.~~

·~~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 74% 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-ticket revenue by allowing our passengers to choose what additional products and services they purchase and use. Thanks to our “Tú Decides” (“You Decide”) strategy, we have increased average non-ticket revenue per passenger flight segment from approximately U.S. ~~$6.92~~$9.61 in ~~2009~~2010 to U.S. ~~$24.4~~$33.00 in ~~2018~~2020 by, among other things:

charging for excess baggage;

· charging for excess baggage (over the 25 kilograms of free checked luggage required by Mexican regulations on domestic flights), and starting March 1, 2017, we began charging for the first checked luggage on routes to/from the United States);

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 ticketing 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.

· ~~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 ticketing 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 ~~these people represent~~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.390~~Ps. 299 (U.S. ~~$21.13).~~$44.99) or. Ps. 249 (U.S. $39.99) 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 ~~20,000~~64,000 points of payment throughout Mexico, ~~and~~ the United States, Guatemala, El Salvador and Costa Rica 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.

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, ~~2018,~~2020, we had more than 50% passenger market share in ~~122~~111 of our ~~190~~178 routes. As of December 31, ~~2018~~2020 we faced no competition from any other carrier on ~~15%~~25% of our domestic seat capacity. ~~We entered the U.S. market in July 2009 and by 2018 derived 29%~~In 2020, 33.9% of our passenger revenues derived from our U.S. routes and ~~attributed~~ 27% 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 ~~2018,~~2020, we achieved an average passenger load factor of ~~84.5%~~79.9% and an average aircraft utilization rate of ~~13.21~~11.3 block hours per day with a standard turnaround time between flights of approximately 6365 minutes. For our fleet type, our average aircraft utilization rate of ~~10.47~~9.3 flight hours per day was among the highest worldwide and was ~~20%~~53% higher than the industry average of ~~8.17~~5.13 flight hours per day for all Airbus A319 aircraft, ~~18%~~61% higher than the ~~9.17~~5.89 flight hours per day for all Airbus A320 aircraft and 3%33% higher than the ~~9.38~~6.18 flight hours per day for all Airbus A321 aircraft, according to information for the year ended December 31, ~~2018~~2020 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 ~~82.28%~~87.9% on-time performance rate, ~~99.4%~~94.6% flight completion rate and a mishandled baggage rate of only ~~0.70~~0.64 bags per 1,000 passengers in ~~2018.~~2020.

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, ~~2018,~~2020, we had approximately ~~3.7~~4.38 million fans on Facebook and 1.9 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 (“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, ~~2018,~~2020, we had a balance of ~~Ps.5.9~~Ps. 10.1 billion in unrestricted cash and cash equivalents, representing ~~21%~~46% of ~~the~~our last twelve ~~month~~months operating revenues. As of December 31, ~~2018, we had~~2020, our cash and cash equivalents were approximately Ps. 10.1 billion. Additionally, at December 31, 2020, our credit lines totaled Ps. 9.3 billion, of which Ps. 6.9 billion were related to financial debt and Ps. 2.4 billion were related to letters of ~~approximately Ps.3.5 billion.~~credit (and of which Ps. 1.7 billion were undisbursed).

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 Low Cost Carrier of Choice. We believe that by deploying additional cost-efficient Airbus A320 and A321 aircraft with higher seat density, spreading our low fixed cost infrastructure over a larger scale of operations, outsourcing operating functions 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 and high quality travel experience to our customers across our expanding operations in Mexico, the United States and Central America.

Grow Non-ticket Revenue while Maintaining Low Base Fare to Stimulate Demand. We intend to increase our non-ticket 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. ~~In June 2012, we started~~We provide a ~~membership based~~membership-based ultra-low-fare subscription service called V-Club which had approximately ~~790,000~~395,940 members as of December 31, ~~2018. We intend~~2020. The number of V-Club members decreased by 32% in 2020 compared to ~~generate additional fees from proprietary brand-based services such as~~2019, mainly due to the ~~Volaris affinity card which was introduced~~impact of the COVID-19 pandemic. However, we are working to strengthen our customer programs and recover members in ~~January 2013.~~2021. 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-ticket 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 ~~109~~98 Airbus A320 family aircraft equipped with sharklet technology that will be delivered over the next eight years, including 6858 of the next generation Airbus A320 NEO and 4140 of the next generation Airbus A321 NEO, the delivery of which commenced in 2016 and 2018, respectively. We have obtained committed financing for the pre-delivery payments for the deliveries through ~~2021.~~2022. During ~~2018,~~2020, we incorporated ~~six~~seven A320 NEO ~~and four A321 NEO aircraft~~ 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 fleet 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 fleet deliveries between 2020 and 2022.

Our fleet reached 7886 aircraft as of the date of this annual report. ~~Consistent with our ULCC model, our new Airbus A320 aircraft offers 19% more passenger seats than Interjet, one of our competitors that offers 150 passenger seats per Airbus A320 aircraft.~~ 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 ~~2018,~~2020, we added ~~the following 35~~13 new ~~routes: four domestic~~ routes, ~~and two international routes from Guadalajara, nine domestic routes from Mexico City, one international route from El Salvador,~~including five domestic routes ~~from Tijuana, two~~(Ciudad del Carmen, Campeche to Mexico City, Mexico City to Campeche, Campeche; Mexico City to Torreón, Coahuila, Mexico City to Villahermosa, Tabasco and Cancún, Quintana Roo to Oaxaca, Oaxaca) and eight international routes (Bajío, Guanajuato to Chicago O´Hare, Illinois; Mexico City to Dallas, Texas; Mexico City to Houston, Texas; Mexico City to Fresno, California; Mexico City to Ontario, California; Mexico City to San José, California; Mexico City to Sacramento, California; and ~~five domestic routes from Bajio, and seven domestic routes from other cities within Mexico.~~Morelia, Michoacán to Chicago O´Hare, Illinois). 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 6771 routes within Mexico serving markets in excess of 250,000 inhabitants and other leisure destinations, and that have stage lengths of at least ~~170~~180 miles, and approximately ~~117~~143 routes internationally that have stage lengths of at least ~~400~~410 miles. Additionally, our operating subsidiary in Costa Rica, Vuela Aviación, began operations on December 1, 2016. Additionally, in December 2017, Vuela Aviación was awarded a Foreign Air Carrier Permit by the Department of Transportation of the United States of America which allows Vuela Aviación to operate to and from the United States of America. Vuela Aviación initiated sales of three routes from Central America to the following U.S. destinations: Los Angeles (LAX), New York (JFK), and Washington D.C. (IAD). On March 15, 2018 Vuela Aviación, started service from Costa Rica to Los Angeles; on April 17, 2018 Vuela Aviación started service from Costa Rica to New York and on May 16, 2018 started service from Costa Rica to Washington D.C. We seek to replicate our ultra-low cost model in Central America by offering low base fares and point-to-point service in the region.

Our Operations

~~Our Operations~~

Operating revenues

As of January 1, 2018, we adopted IFRS 15 “Revenue from Contracts with Customers” using the full retrospective method of adoption. The main impact of IFRS 15 on us is the timing of recognition of certain air travel-related ancillary services. Under the new standard, certain ancillary services are recognized when we satisfy our performance obligations, which is typically when the air transportation service is rendered (at the time of the flight). In addition, these ancillary services do not constitute separate performance obligations or represent administrative tasks that do not represent a different promised service and therefore should be accounted for together with the air fare as a single performance obligation of providing passenger transportation.

Therefore, the classification of certain ancillary fees in our statement of operations, such as advanced seat selection, fees charged for excess baggage, itinerary changes and other air travel-related services, changed with adoption of IFRS 15, since they are part of the single performance obligation of providing passenger transportation. We have recasted our financial statements as of January 1, ~~2016~~2017 and ~~2017~~2018 for comparability purposes. See ~~notes~~note 1d ~~and 1x~~ to our Audited Consolidated Financial Statements for more details.

Passenger Revenues

Passenger revenues accounted for approximately ~~Ps.26.4~~Ps. 21.5 billion or 97% of our total operating revenues in ~~2018.~~2020. 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 our subscription service V-Club by charging an individual annual membership of U.S. ~~54.99~~$24.99 or a group annual membership of U.S. ~~219.99.~~$84.99. V-Club subscriptions accounted for approximately 2%0.7% of our other passenger revenues in ~~2018.~~ 2020.

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 approximately 3%2.31% of our non-ticket revenues as of December 31, ~~2018.~~2020. As of December 31, ~~2018,~~2020, we had approximately ~~790,000~~395,940 V-Club members and ~~235,000~~294,000 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 ~~2018,~~2020, we derived approximately ~~Ps.924.8 million,~~Ps. 0.7 billion, or ~~3.4%~~3.0% of our total operating revenues from ~~non-passenger revenues.~~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. ~~$9.99~~$2.49 to U.S. ~~$27.99,~~$20.99, U.S. ~~$19.99~~$12.99 to U.S. ~~$30,~~$39.99, U.S. ~~$74.99~~$70.00 to U.S. ~~$130,~~$140.00, U.S. ~~$89.99~~$95.00 to U.S. ~~$140~~$105.00 and U.S. ~~$74.99~~$75.00 to U.S. ~~$100,~~$100.00, respectively and we generate such fees in Mexico, the United States and Central 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 clients. 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.

Route Network

We currently serve 6668 cities throughout Mexico, the United States and Central America and operate up to ~~394~~419 daily segments on routes that connect 4043 cities in Mexico, including highly demanded destinations such as Cancún, Guadalajara, Mexico City, Monterrey and Tijuana, and 2625 cities in the United States and Central America, including: Albuquerque, Charlotte, Chicago, Dallas, Denver, Fresno, Houston, Las Vegas, Los Angeles, Miami, ~~Milwaukee,~~ 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) and San Salvador (El Salvador). 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. Additionally, our operating subsidiary in Costa Rica, Vuela Aviación, began operations on December 1, 2016. Vuela Aviación currently serves 3 cities throughout Central America and operates 16.8 daily segments on routes that connect Central America. Additionally, in December 2017, Vuela Aviación was awarded a Foreign Air Carrier Permit by the Department of Transportation of the United States of America which allows Vuela Aviación to operate to and from the United States of America. Vuela Aviación initiated sales of four routes from Central America to the following U.S. destinations: Los Angeles (LAX), New York (JFK), and Washington D.C. (IAD). Vuela Aviación started service from Costa Rica to Los Angeles (LAX) on March 17, 2018, from Costa Rica to New York on April 17, 2018 and from Costa Rica to Washington D.C. on May 16, 2018.

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 ~~a morning bank and an evening bank of flights, with~~ 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.

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 ~~2018~~2020 per distribution source and applicable fees:

Distribution Source	% of tickets Sold in 2018		Fee in pesos(1)	% of tickets Sold in 2020			Fee in pesos⁽¹⁾
Website and mobile app	61	%	921		73.8	%		0
Call center	11	%	1,322		5.0	%		248
Third-party travel agents	19	%	1,239		13.8	%		169
Airport counters	2	%	1,631		1.0	%		0
V-Club	7	%	765		6.5	%		0

Source: Volaris

(1)

Standard fee charged per customer.

~~(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 ~~91.6%~~98.13% of our sales are paid by credit and debit card and ~~8.4%~~1.87% 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, Guatemala, El Salvador, and Costa Rica to provide our customers with the possibility to pay in cash for their tickets at over ~~20,000~~64,000 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 ~~2018,~~2020, we expensed an aggregate of ~~Ps.570~~Ps. 420 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, to outsource our call center. Pursuant to this agreement, One Link receives calls from our customers to book flights and provides our customers with information about our fares, schedules and availability. As with our online bookings, purchases through our call center can be paid for at the time of booking by credit or debit card, or within 24 hours in cash at one of our points of payment. The agreement with One Link expires in ~~July 2022.~~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, Navitaire LLC provides 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 certain additional renewal periods, 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+,~~Google, Instagram and YouTube. As of December 31, ~~2018,~~2020, we had approximately ~~3.7~~4.8 million fans on Facebook and 1.9 million followers on Twitter, which we primarily use for marketing and promotion.

We directly reach our customers by holding promotional events that build brand recognition, such as concerts on our aircraft and on-board runway shows of new crew uniforms. We also advertise on billboards and in venues that our core consumers frequently attend, including concerts, school campuses, and bus stations, among others. 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 ~~2.5~~1.6 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 “Volar Sí” and “Volar is,” that was designed to focus on the low to middle income traveler and address specific cultural behaviors, with efforts allocated in new channels.

~~In June 2012, we started~~We have a ~~membership based~~membership-based ultra-low-fare subscription service called V-Club which had approximately ~~790,000~~395,940 members as of December 31, ~~2018.~~2020. The V-Club is an annual ~~subscription based~~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.

~~In January 2013,~~ The number of V-Club members decreased by 32% in 2020 compared to 2019, mainly due to the impact of the COVID-19 pandemic. However, we ~~launched the~~are working to strengthen our customer programs and recover members in 2021.

The Volaris affinity credit card, ~~program. This credit card~~Volaris INVEX, provides holders with cash back on Volaris-related purchases and grants priority boarding, ~~and ten extra kilograms~~additional baggage, allowances, deferred payment on purchases with no interest, a 15% discount on the purchase of ~~luggage on our flights, and~~on-board menu items, access to the “Elite” and Visa ~~lounge in~~lounges at the Mexico ~~City’s international airport.~~City 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 Priority Pass 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.

~~We have one single~~Our base fare ~~type which is a basic, “unbundled fare” that~~(“basic”) only includes ~~25 kilograms of checked luggage on domestic flights and just a small carry-on and~~ one personal item, ~~on board~~and the ~~cabin. Starting March 1, 2017, we began charging for the first checked~~possibility of adding luggage ~~on routes to~~ and ~~from the United States.~~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 passengers changing their travel plans on our flights are subject to ~~flight alteration~~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 oflike pre-selecting a higher baggage allowance ~~and an on-time performance guarantee,~~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.

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. ~~We currently conduct approximately 17,700 monthly~~In 2020, we conducted Net Promoter Score (NPS) ~~surveys;~~surveys during the first and fourth quarters with an average of 20,843 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 ~~2016, 2017~~2018, 2019 and ~~2018:~~2020:

	2016		2017		2018		2018			2019			2020
On-time performance(1)	75.4	%	84.9	%	82.28	%
Completion factor(2)	99.2	%	99.4	%	99.4	%
Mishandled baggage(3)	1.20		0.88		0.7
On-time performance⁽¹⁾								82.3	%		79.2	%		87.9	%
Completion factor⁽²⁾								99.4	%		97.6	%		94.6	%
Mishandled baggage⁽³⁾								0.7	%		1.0	%		0.6	%

Source: Volaris

(1)

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

~~(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).

~~(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.~~

(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 ~~2018,~~2020, our CASM was ~~Ps.134.2~~Ps. 141.30 cents ~~(U.S. $6.8~~(U.S. $6.60 cents), compared to an average CASM of U.S. ~~$11.33~~$16.37 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 and United, which had an average CASM of U.S. ~~$13.29~~$14.75 cents in ~~2018.~~2020.

Our principal competitors in Mexico are Grupo Aeroméxico ~~Interjet~~ and VivaAerobus. Internationally, we compete with Grupo Aeroméxico 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 ~~Interjet~~ and Avianca, while in the Central America — U.S. market our principal competitors are Avianca and Delta.

Fleet

Since we began operations in March 2006, we have increased our fleet from four to 77 86 aircraft as of December 31, ~~2018.~~2020.

As of December 31, ~~2018~~2020, we flew only Airbus A319, A320 and A321 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 fleet 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 fleet deliveries between 2020 and 2022.

As of December 31, ~~2018,~~2020, our fleet of 7786 Airbus narrow-body aircraft consisted of ~~eight~~six Airbus A319s 55(including one owned), 64 A320s ~~(12~~(24 of them are NEO) and 1416 A321s ~~(four~~(six of them are NEO). We have a young fleet with the average age of our fleet being ~~4.6~~5.3 years as of December 31, ~~2018,~~2020, as compared to an average of ~~6.3~~8.3 years for the other Mexican airlines according to the ~~DGAC.~~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 144 passengers, our Airbus A320s accommodate 180 or 186 passengers and our Airbus A321s accommodate 220 or 230 passengers. Each of our Airbus A320 family aircraft is equipped with IAE or P&W engines. We have taken delivery of 1218 spare engines ~~(10 leased and two owned)~~(all of them leased) for service replacement and for periodic rotation through our fleet.

The following table shows the historical development of our fleet from the start of our operations in March 2006 through December 31, ~~2018:~~2020:

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

The following table shows the development of our fleet from ~~2019~~2021 to ~~2022~~2024 pursuant to our current contracts:

Fleet additions (Returns)

2019E

2020E

2021E

2022E

A319

—

(2
)
(3
)
—

A320(1)

3

7

7

(3
)
A321(1)

2

—

6

8

Total fleet

82

87

97

102

~~(1)~~ Pursuant to aircraft lease agreements executed on February 13, 2014 with a leasing company, we will add 16 new A320/A321NEO family aircraft to our fleet. These aircraft lease agreements require us to accept delivery of ten A320NEO aircraft (one delivered in 2016, four in 2017, three in 2018 and two in 2019) and six A321NEO aircraft (four in 2018 and two in 2019).

Fleet additions (Returns)	2021E		2022E		2023E		2024E
A319	(2	)	(1	)	—		(2	)
A320	3		1		(7	)	6
A321	1		5		(1	)	3
Total fleet	88		93		85		92

We have financed the acquisition of our aircraft through a combination of pre-delivery payment financing (including the revolving line of credit with Banco Santander México and Banco Nacional de Comercio Exterior, S.N.C. (“Bancomext”) under which we act as a guarantor), 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 committed financing for the pre-delivery payments in respect of all the aircraft to be delivered through ~~2021.~~2022.

As of December 31, ~~2018,~~2020, we had 7785 aircraft leased pursuant to long-term lease agreements for an average term of ~~13.4~~11.6 years each. The operating leases for these aircraft expire between ~~2019~~2021 and ~~2032.~~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.

~~The~~

As of December 31, 2020, the purchase agreement with Airbus requires us to accept delivery of ~~106~~96 Airbus A320 family aircraft in the next eight years (from January ~~2019~~2021 to ~~November 2026)~~October 2028). The agreement provides for the addition of ~~106~~96 A320 NEOs to our fleet as follows: ~~three in 2019, eight in 2020, 13~~four in 2021, 13twelve in 2022, 16three in 2023, 13 in 2024, 15 in 2025, ~~and~~ 25 in ~~2026.~~2026, 11 in 2027 and 13 in 2028. 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 fleet deliveries between 2019 and 2022.

~~On February 13, 2014,~~ In July 2020, we ~~executed a lease~~amended the agreement with ~~a leasing company for~~Airbus to reschedule 80 aircraft deliveries between 2023 and 2028. In October 2020, we amended the ~~lease of ten~~previous agreement with Airbus ~~A320NEO (one which was delivered in September 2016, four in 2017, three in 2018~~to reschedule 18 fleet deliveries between 2020 and two will be delivered in 2019) and six Airbus A321NEO (four delivered in 2018 and two that will be delivered in 2019). We have decided to move to a bigger gauge aircraft by leasing delivery of Airbus A320 and A321 aircraft instead of Airbus A319 aircraft, in order to support our growth strategy. During 2015, we executed lease agreements with different leasing companies for the lease of eight Airbus A321 CEO aircraft which were delivered during 2016.2022.

We have ~~five~~six scheduled A319 ~~aircraft returns in the next two years: two in 2020, and three in 2021. Additionally, we have 20 A320~~ aircraft returns in the next five years: two in ~~2019,~~2021, one in ~~2020,~~2022, two in 2024 and one in 2025. Additionally, we have 30 A320 aircraft returns in the next five years: eight in 2022, ~~and~~ nine in ~~2023.~~2023, three in 2024 and ten in 2025. We also have ~~two~~three A321 aircraft in the next five years, ~~both~~two in ~~2023.~~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 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 a ~~DGAC,~~AFAC, FAA and a Direction General of Civil Aviation in Costa Rica mandated and approved maintenance program administered by our maintenance engineering department. Our maintenance technicians undergo extensive initial and ongoing training to ensure the safety of our aircraft. Maintenance is performed by our qualified technicians, some of whom are FAA-certified 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: line maintenance, 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. Line maintenance also includes scheduled tasks that can take from seven to 14 days to complete and are typically required approximately every 22 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. Due to our relatively small 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.”

Fuel

Fuel is a major cost component for airlines and is our largest operating expense. Fuel accounted for ~~28%~~38%, ~~29%~~38% and ~~36%~~26% (including non-derivative financial instruments) of our total operating costs in ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, 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. In the United States we have entered into fuel supply agreements with suppliers such as WFS, BP Products North America, Chevron and Associated Energy Group pursuant to which these suppliers or their affiliates sell fuel to us at various airports as specified in the agreements. 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.

~~Social Responsibility~~

Sustainability

Since 2019, we have made efforts to integrate our sustainability strategy, the Corporate Sustainability Program, into our business practices. The program is comprised of three main focus areas, The Economic and Corporate Governance Focus, the Planet Care Focus and the People Care Focus, aimed at allowing the efforts of the business to be directed towards sustainable future growth while simultaneously creating 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, manage our corporate reputation and develop clear communication channels with our stakeholders. Our business values ethics and legality, and thus this Focus also includes our anti-corruption and anti-bribery practices, as well as risk and crisis management, as we aim to ensure the protection of information and transparency in all our processes.

The Care of the Planet Focus defines our comprehensive environmental protection policy, called #CielitoLimpio, through which we aim to achieve aviation’s commitments to protecting the planet and reducing polluting emissions. The policy includes the following initiatives: 1) Efficient use of fuel through the acquisition of a young fleet and continued investment in the best technology as well as an array of additional fuel saving techniques; and 2) A CO2 emissions compensation program, through which our clients have the option of offsetting part of the carbon footprint of their trips. Through these voluntary offsets, we have acquired certified carbon bonds from the Mexican Carbon Platform.

Our environmental initiatives are not limited to flight operation-related emissions. We also have programs to reduce paper and electricity consumption, and are involved in efforts to promote biodiversity, including through reforestation practices. We comply with all current environmental regulations, including those related to our reporting on our polluting emissions and the proper management of hazardous waste. For our work in this area, we have received environmental accreditation certificates such as the ISO 14001 and 9001.

The People Care Focus aims to strengthen our commitment to people, the fundamental center of the management of a sustainable business. This includes our employees, clients 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 benefit plan that exceeds the legal requirements. We are also committed to ~~social responsibility~~maintaining the occupational safety and ~~sustainable development through the generation~~health of ~~economic, social and environmental value throughout all~~ our ~~operations. We~~employees. To that end, we have a series of initiatives that ~~include~~aim to allow our employees to work in an environment free of violence, that foster the ~~transportation~~conditions necessary for equal opportunities, and that provide constant training to assure the sustained well-being of our employees.

Our corporate volunteer program #VoluntariosVolaris 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 Caring for People 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 in vulnerable situations, such as medical emergencies and emergencies due to natural disasters, through strategic alliances. We transport rescue and medical personnel, volunteers, patients, humanitarian aid, organs and tissues for ~~transplants, volunteering,~~transplant purposes, and others where needed through this program.

Through the ~~donation of airplane tickets~~Human Rights Protection program and ~~toys to nonprofit organizations, activities to help people affected by natural disasters and buying carbon bonds to neutralize our environmental footprint, among others. Additionally,~~strategic alliances, we ~~are part~~have promoted the protection of the ~~Sustainable IPC~~rights of young girls and boys who travel with Volaris. With this program we seek to implement protocols, in collaboration with the ECPAT (End Child Prostitution and Trafficking) Code and with the Mexican National Institute of Migration, to protect minors who travel on our aircraft from potential human trafficking and commercial sexual exploitation in the context of travel and tourism.

The final, fundamental pillar of the ~~Mexican Stock Exchange. We also maintain several distinctions that endorse us as a sustainable company: socially responsible company distinction~~People Care Focus is the well-being and ~~environmental management systems~~protection of the rights and ~~quality certification (ISO 14001~~health of our clients. At Volaris, we have the responsibility to protect the lives of our clients, so their safety, biosecurity, and ~~ISO 9001),~~well-being is an absolute priority for us. Consequently, we strictly comply with the highest safety standards as well as ~~being~~domestic and international regulations. Furthermore, we employ a ~~top member~~comprehensive biosecurity protocol.

In 2020, these efforts culminated in membership in the ~~implementation~~S&P Dow Jones Sustainability Index. We are one of ~~The Code (ECPAT), to end child prostitution, pornography and trafficking of children and teenagers.~~only five airlines in the world included in this index. We are also the only airline included in the MILA Pacific Alliance Index.

C.~~Organizational Structure~~

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. Comercializadora is our operating ~~subidiary~~subsidiary that is primarily engaged in marketing, advertising and other commercial matters. Servicios Corporativos and Servicios Administrativos employ our employees. 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 employs some of our employees in Guatemala. Both Vuela and Servicos Earhart 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 and has not started operations but it is expected to be our operating subsidiary there. See Exhibit 21.1 to this annual report for a complete list of our subsidiaries.

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, 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

2018

2017

Deutsche Bank México, S.A., Trust 1710

Pre-delivery payments financing

Mexico

100.00
%
100.00
%
Deutsche Bank México, S.A., Trust 1711

Pre-delivery payments financing

Mexico

100.00
%
100.00
%

Pre-delivery payments financing trusts: We have assigned our rights and obligations under our purchase agreement with Airbus, 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	2020
Deutsche Bank México, S.A., Trust 1710	Pre-delivery payments financing	Mexico		100.00	%
Deutsche Bank México, S.A., Trust 1711	Pre-delivery payments financing	Mexico		100.00	%

·~~Share-based payment trusts~~~~: We have formed the following share-based payment trusts:~~

Trust for the 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 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 Interest
Name	Principal Activities	Country	2020
CIBanco, S.A., Trust CIB/3249	Issuance of asset backed securities	Mexico		100.00	%

Share-based payment trusts: We have formed the following share-based payment trusts:

			% Equity Interest
Name	Principal Activities	Country	2020
Irrevocable Administrative Trust number F/307750	Share administration trust	Mexico		100.00	%
Irrevocable Administrative Trust number F/745291	Share administration trust	Mexico		100.00	%
Irrevocable Administrative Trust number CIB/3081	Share administration trust	Mexico		100.00	%

Management ~~incentive plan~~Incentive Plan:

In December 2012, our shareholders approved a share ~~incentive~~retention plan for the benefit of certain executive officers. Under this plan, designated officers generally may receive up to 3.0% of our capital stock on a fully diluted basis immediately prior to the completion of the related performance condition (consummation of our initial public offering or change of control), exercisable after such performance condition and for a period of ten years. To implement the plan, our shareholders approved (i) the issuance of an aggregate of 25,164,126 Series A and Series B shares, representing 3.0% of our capital stock, (ii) the transfer of such shares to the Management Trust number F/307750 (the “Management Trust”) for the benefit of certain officers and (iii) the execution of share sales agreements setting forth the terms and conditions upon which the officers will receive purchased shares from the trustee of the Management Trust. On December 24, 2012, the Management Trust was created by us, as trustor, and HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, División Fiduciaria, as trustee, to administer this plan, and the share sales agreements were executed. On December 27, 2012, the trust acquired the aforementioned shares. The shares will accrue any dividends paid by us during the time elapsing prior to the delivery to officers upon payment therefore.

On September 18, 2013, our Initial Public Offering Date, the key employees participating in the management incentive plan exercised 4,891,410 Series A and Series B shares. The key employees paid ~~Ps.25.9~~Ps. 25.9 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.

On November 16, 2015, as part of our secondary follow-on equity offering, the key employees exercised 4,414,860 Series A shares. The key employees paid ~~Ps.23.5~~Ps. 23.5 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 us and the Management Trust.

During 2016, the key employees participating in the management incentive plan exercised 3,299,999 Series A shares. The key employees paid ~~Ps.17.5~~Ps. 17.5 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 2017, the key employees participating in the management incentive plan exercised 120,000 Series A shares. As a result, the key employees paid ~~Ps.0.6~~Ps. 0.6 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.

During 2018, the key employees participating in the management incentive plan exercised 2,003,876 Series A shares. As a result, the key employees paid ~~Ps.10.7~~Ps. 10.7 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.

During 2019, the key employees participating in the management incentive plan exercised 2,780,000 Series A shares. As a result, the key employees paid Ps. 14.8 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.

During 2020, the key employees participating in the management incentive plan did not exercise any Series A shares. As a result, the key employees did not pay any amounts to the Management Trust corresponding to any shares exercised.

See Item 5: “Operating and Financial Review and Prospects—Critical Accounting Policies and Estimates—Long-term ~~Incentive~~Retention Plans—Management Incentive Plan.”

As of December 31, 2020, 2019 and 2018, ~~2017~~7,653,981, 7,653,981 and ~~2016,~~ 10,433,981 ~~12,437,857 and 12,557,857~~ share options pending to be exercised were considered as treasury shares, respectively.

~~Management incentive plan II~~:

On February 19, 2016, our board of directors authorized an extension of the management incentive plan for certain key executives (“MIP II”). Such extension was modified and approved 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 service conditions. In addition, a five-year extension to the period in which the executives can exercise the MIP II once the SARs are vested was also approved.

The fair value of these SARs is measured at the grant date and each reporting period 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 the December 31, 2018, 2017 and 2016 was Ps. 32.8 million, Ps. 37.8 million and Ps. 54.4 million respectively. The compensation cost is recognized in the consolidated statements of operations under the caption of salaries and benefits over the service period

During the years ended December 31, 2018, 2017 and 2016 our recorded (benefit) expense related for this plan totaled Ps.(5.0) million, Ps.(16.5) million and Ps. 54.4 million, respectively. No SARs were exercised during 2018.

~~Share purchase plan~~Long-term Incentive Plan (equity-settled):

On November 6, 2014, we approved an amendment to our long-term ~~retention~~incentive plan for the benefit of certain key executives, based on the recommendations of our board of directors at its meetings held on July 24 and August 29, 2014. In connection therewith, in November 2014, we established a ~~share purchase~~ plan pursuant to which certain of our key executives were granted a special bonus equal to a fair value of ~~Ps.10.8~~Ps. 10.8 million to be used to purchase our shares. An irrevocable administrative trust number F/745291 was created by Servicios Corporativos, as trustor, and Banco Mercantil del Norte, S.A., Institución de Banca Múltiple, Grupo Financiero Banorte, as trustee, to administer this plan.

In November ~~2018, November 2017~~2020, 2019 and ~~October 2016,~~2018, our board of directors authorized extensions to this plan. The total costs of the plan extensions approved were ~~Ps.64.0~~Ps. 92.1 million, ~~Ps.15.8~~Ps. 86.8 million, ~~and Ps.14.5~~Ps. 64.0 million, respectively, to be used to purchase our shares.

~~An irrevocable administrative trust was created by Servicios Corporativos, as trustee, to administer this plan.~~ See Item 5: “Operating and Financial Review and Prospects—Critical Accounting Policies and Estimates—Long-term Retention Plans—Long-term Incentive ~~Plans—Share Purchase~~ Plan.”

During the ~~year~~years ended December 31, ~~2017~~2019 and ~~2018,~~2020, certain of these key employees left the Company. ~~Therefore;~~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.

Board of Directors Incentive Plan ~~(BODIP):~~(BoDIP)

In April 2018, 2019 and 2020, our shareholders at the annual shareholders meeting authorized a stock plan for the benefit of certain independent members of our board of directors (“~~BODIP”~~BoDIP”). The ~~BODIP~~BoDIP was implemented through the execution of: (i) a trust agreement number CIB/3081 created by us, as ~~trustee,~~trustor, and CIBanco, S.A., Institucion de Banco Multiple, as ~~trustor,~~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 four years to exercise his/her option to pay a fixed purchase price, with the title to the shares transfering 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, ~~2018~~2020 was ~~1,103,638,~~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 Ps.$16.12 and 126,533 shares were priced at Ps.$26.29. As of December 31, ~~2018,~~2020, there were no exercises under the ~~BODIP.~~BoDIP.

D.~~Property, Plants and Equipment~~

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.

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 May 2022. In addition, we sublease a hangar facility at the Tijuana airport, such sublease expires on July 15, 2022.

~~ITEM 4A~~~~UNRESOLVED STAFF COMMENTS~~

Item 4A

UNRESOLVED STAFF COMMENTS

None.

~~ITEM 5~~~~ITEM 5~~~~OPERATING AND FINANCIAL REVIEW AND PROSPECTS~~

Item 5

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.~~Operating Results~~

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

Operating Revenues

Therefore, the classification of certain ancillary fees in our statement of operations, such as advanced seat selection, fees charged for excess baggage, itinerary changes and other air travel-related services, changed with adoption of IFRS 15, since they are part of the single performance obligation of providing passenger transportation. ~~We have recasted our financial statements as of January 1, 2016 and 2017 for comparability purposes. See note 1x of our Audited Consolidated Financial Statements.~~

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.~~aircraft and some tickets sold by other airlines such as Frontier. Approximately ~~68%~~58% of our total operating revenues were derived from passenger fares in ~~2018.~~2020. Passenger revenues are based upon our capacity, load factor and the average ticket revenue per booked passenger. Our capacity is measured in terms of ASMs, which represents the number of seats we make available on our aircraft multiplied by the number of miles the seats are flown. Load factor, or the percentage of our capacity that is actually used by paying customers, is calculated by dividing RPMs by ASMs. The average ticket revenue per booked passenger represents the total passenger revenue divided by booked passengers.

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. Approximately ~~29%~~3% of our total operating revenues were derived from other passenger revenues in ~~2018.~~2020.

Non-Passenger Revenues

Our non-passenger revenues include income generated from (i) other non-passenger revenues and (ii) cargo services. In ~~2018,~~2020, we derived approximately ~~Ps.924.8 million,~~Ps. 0.7 billion, or ~~3.4%~~3% of our total operating revenues from ~~non-passenger revenues.~~these sources.

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

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,						For the Years ended December 31,
	2016		2017		2018		2018			2019			2020
	Adjusted(1)						Adjusted⁽¹⁾
Operating revenues:
Passenger revenues:
Fare revenues	76	%	72	%	68	%		68	%		67	%		58	%
Other passenger revenues	20	%	23	%	28	%		29	%		30	%		39	%
Non-passenger revenues:
Other non-passenger revenues								3	%		3	%		4	%
Cargo	1	%	1	%	1	%		0	%		0	%		1	%
Other non-passenger revenues	3	%	4	%	3	%
Non-derivative financial instruments:								0	%		0	%		(2	)%
Total operating revenues	100	%	100	%	100	%		100	%		100	%		100	%
Other operating income	(2	)%	0	%	(2	)%		(2	)%		(1	)%		(3	)%
Fuel	25	%	29	%	37	%
Aircraft and engine rent expense	24	%	25	%	23	%
Fuel expense, net								37	%		33	%		30	%
Landing, take-off and navigation expenses	14	%	16	%	17	%		17	%		15	%		18	%
Depreciation of right of use assets								15	%		14	%		23	%
Salaries and benefits	10	%	11	%	11	%		11	%		10	%		16	%
Maintenance expenses								5	%		4	%		5	%
Sales, marketing and distribution expenses	6	%	7	%	5	%		5	%		4	%		8	%
Maintenance expenses	6	%	6	%	6	%
Aircraft and engine variable lease expenses								4	%		3	%		8	%
Other operating expenses	4	%	4	%	4	%		4	%		3	%		5	%
Depreciation and amortization	2	%	2	%	2	%		2	%		2	%		4	%
Total operating expenses, net	89	%	100	%	103	%		98	%		87	%		115	%
Operating income (loss)	11	%	0	%	(3	)%
Operating income								2	%		13	%		(15	)%
Finance income	1	%	0	%	0	%		1	%		1	%		0	%
Finance cost	0	%	0	%	0	%		(7	)%		(7	)%		(14	)%
Exchange gain (loss), net	9	%	(3	)%	0	%
Exchange gain, net								0	%		4	%		2	%
Income (loss) before income tax	21	%	(3	)%	(3	)%		(5	)%		11	%		(26	)%
Income tax (expense) benefit	(6	)%	1	%	1	%		1	%		(3	)%		6	%
Net income (loss)	15	%	(2	)%	(2	)%		(3	)%		8	%		(19	)%

(1)

On adoption of IFRS 16 we apply the new standard on the required effective date as of January 1, 2019, using the full retrospective method of adoption in order to provide for comparative results in all periods presented, recognizing the effect in retained earnings as of January 1, 2017.

~~(1)~~ On adoption of IFRS 15 we apply the new standard on the required effective date as of January 1, 2018, using the full retrospective method of adoption, in order to provide for comparative results in all periods presented, recognizing the effect in retained earnings as of January 1, 2016.

Revenues from our international operations represented ~~33.1%~~32%, ~~30.3%~~29% and ~~32.3%~~27% of our total revenues in ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, respectively, and revenues from our domestic operations represented ~~66.9%~~68%, ~~69.7%~~71% and ~~67.7%~~73% of our total revenues in ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, respectively.

Revenue Recognition

General

Therefore, the classification of certain ancillary fees in our statement of operations, such as advanced seat selection, fees charged for excess baggage, itinerary changes and other air travel-related services, changed with adoption of IFRS 15, since they are part of the single performance obligation of providing passenger transportation. We have recasted our financial statements as of January 1, 2016 and 2017 for comparability purposes. ~~See notes 1d and 1x to our Audited Consolidated Financial Statements for more details.~~

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 ~~V-Club memberships~~ 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.

We also classify as other passenger revenue “V-Club” and other similar services, which are recognized as revenue over time when the service is provided, as a modification of the tickets sold to V-Club members.

Tickets sold by other airlines such as Frontier where we provide the transportation are recognized as passenger 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 of 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.

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 non-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.~~ 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.~~accounting and gains and losses that arise from non-derivative financial instruments.

~~Aircraft~~Landing, Take-off and ~~Engine Rent Expense.~~ Navigation Expenses. ~~Aircraft rent expense consists~~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 ~~monthly lease rents for our 77 aircraft and 10 spare engines,~~airport facilities, as ~~of December 31, 2018, under the terms of the related operating leases and is recognized on a straight line basis. Aircraft rent~~well as costs associated with ground handling services that we outsource at certain airports. This expense also includes ~~gains~~route charges, which are the costs of using a country’s or territory’s airspace and ~~losses related to our interest rate swap contracts~~are levied depending on the distance flown over such airspace.

Depreciation of right–of–use assets. Depreciation of right-of-use assets use includes the depreciation of all aircraft and ~~foreign currency forward contracts~~engine leases and some land and building leases that qualify ~~for hedge accounting.~~under IFRS 16.

Additionally, if we determine that we will probably not recover partially or completely the maintenance deposits we pay to the lessor as maintenance deposits, 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 rent 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.

With respect to this line item, IFRS 16 was issued in January 2016 and replaces 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 similar to the accounting for finance leases under IAS 17. Under IFRS 16, at the commencement date of a lease, a lessee ~~will recognize~~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 ~~will be~~are required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees ~~will be~~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 ~~will~~ generally ~~recognize~~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 (which is the Mexican Peso) 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 approximately ~~Ps.26.7~~Ps. 23.5 billion of right-of-use assets and ~~Ps.32.6~~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. See note 1x to our Audited Consolidated Financial Statements for more details.

IFRS 16 also requires lessees to make more extensive disclosures than under IAS 17. We applied the standard to contracts that were previously identified as leases applying IAS 17 and IFRIC 4. See Note 14 ~~to our Audited Consolidated Financial Statements for more information on our lease agreements under these standards.~~

Salaries and ~~Benefits.~~ Benefits. Salaries and benefits expense ~~includes~~include 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.

~~Landing, Take-off and Navigation Expenses.~~ Maintenance Expenses~~Landing, take-off and navigation~~. Maintenance expenses include ~~airport~~all parts, materials, repairs and fees ~~handling charges,~~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 ~~other rents, which~~benefits and includes only routine and ordinary maintenance expenses. Major maintenance expenses are ~~fixed~~capitalized and ~~variable facilities’ expenses, such~~subsequently amortized 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 includes route charges, which are the costs of using a country’s or territory’s airspacedescribed in “—Depreciation and ~~are levied depending on the distance flown over such airspace.~~Amortization—” below.

Sales, Marketing and Distribution ~~Expenses.~~ 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.

~~Maintenance Expenses.~~ Aircraft and Engine Variable Lease Expenses~~Maintenance~~. Aircraft and engine variable expenses ~~include all parts, materials, repairs~~consist of the maintenance deposits we pay to the lessor as maintenance deposits when we determine that we will probably 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 ~~fees for repairs performed by third-party vendors directly required to maintain our fleet. It excludes~~engine variable lease expense also includes the ~~direct labor cost~~estimated return costs of our ~~own mechanics,~~fleet, which ~~is included under salaries and benefits and includes only routine and ordinary maintenance expenses. Major maintenance expenses~~in no case are ~~capitalized and subsequently amortized~~related to scheduled major maintenance. The return costs are recognized on a straight-line basis as ~~described in “—Depreciation and Amortization—“ below.~~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; and (v) rent expense associated with the lease of our maintenance warehouse and hangar.~~passengers.

Depreciation and Amortization. Depreciation and amortization expense ~~includes~~include the depreciation of all ~~rotable spare parts,~~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.

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,
									2018			2019			2020			2020
	For the years ended December 31,
	2016		2017		2018		2018		Adjusted⁽²⁾
	(In Ps. cents)						(In U.S.$ cents)(1)		(In Ps. cents)									(In U.S. $ cents)⁽¹⁾
Other operating income	(3.0	)	(0.5	)	(3.0	)	(0.2	)		(3.0	)		(1.3	)		(4.0	)		(0.2	)
Fuel	34.4		38.5		48.2		2.5
Aircraft and engine rent expense	33.5		32.2		30.1		1.5
Fuel expense, net										48.2			47.7			36.3			1.8
Landing, take-off and navigation expenses	19.6		21.2		21.8		1.1			21.8			20.9			22.4			1.1
Depreciation of right of use assets										19.2			19.2			27.6			1.4
Salaries and benefits	14.5		15.0		14.9		0.8			14.9			14.7			18.9			0.9
Maintenance expenses										7.2			6.0			6.4			0.3
Sales, marketing and distribution expenses	8.5		9.0		7.1		0.4			7.1			5.9			10.1			0.5
Maintenance expenses	8.0		7.6		7.2		0.4
Aircraft and engine variable lease expenses										4.6			3.9			10.1			0.5
Other operating expenses	5.7		5.7		5.4		0.3			5.0			4.5			6.3			0.3
Depreciation and amortization	3.2		2.9		2.4		0.1			2.4			2.8			4.9			0.2
Total operating expenses, net	124.4		131.6		134.2		6.8			127.4			124.3			139.0			6.8

~~(1)~~ ~~Peso amounts were converted to U.S. dollars solely for the convenience of the reader at the rate of Ps.19.6829~~

(1)

(2)

On adoption of IFRS 16 we apply the new standard described elsewhere in this annual report as of the effective date of January 1, 2019, using the full retrospective method of adoption in order to provide for comparative results in all periods presented, recognizing the effect in retained earnings as of January 1, 2017.

Recent Developments

The outbreak of COVID-19 that has since grown into a global pandemic was first reported on December 31, ~~2018. Such conversions should~~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. Please refer to “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, affect 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 a discussion of the ways COVID-19 may impact our business and the Mexican economy.

As a result of the national health emergency and health security measures imposed by the Mexican government in the spring of 2020, we reduced our capacity as measured by available seat miles (“ASMs”). In April and May of 2020, our capacity as measured by ASMs was reduced by up to 80% and 90%, respectively, and remained reduced from June to November of 2020. Additionally, we suspended service on certain routes. Costa Rica, Guatemala and El Salvador imposed operational and migratory restrictions that made it impossible to operate international passenger flights to those countries. While a gradual opening of the economy and easing of lockdown measures in Mexico and the other countries in which we operate led to a recovery in our ASMs and route operation during the second half of the year, with our capacity returning to over 100% of 2019 levels for the month of December, we can offer no assurance that additional travel restrictions, requirements or border closures will not be ~~construed~~enacted or reenacted in the countries where we operate, which could result in reduced passenger demand, revenue, and further capacity reductions. For example, on January 26, 2021, an order issued by the United States Center for Disease Control came into effect requiring all international air passengers arriving to the United States to be tested for COVID-19 no more than three days prior to departure, which may have an adverse effect on demand for travel to the United States.

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 in each of the four quarters of 2020 as ~~a representation~~compared to the each of the four quarters of 2019, as reported by AFAC:

	2019		2020		Variation
	(In thousands, except for %)
First Quarter		15,753.9		15,229.4		(3.3	)%
Second Quarter		17,966.2		1,868.5		(89.6	)%
Third Quarter		18,427.2		6,983.7		(62.1	)%
Fourth Quarter		18,157.6		10,232.3		(43.6	)%
Total		70,304.9		34,313.9		(51.2	)%

We cannot offer any assurance that these impacts will not intensify to the extent that the ~~peso amounts actually represent such U.S. dollar amounts or~~pandemic persists. 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 ~~be converted into U.S. dollars at~~continue to materially and negatively affect our business, results of operations and financial condition. In order to mitigate the ~~rate indicated, or at all.~~impact of the COVID-19 pandemic on us, we took the following measures:

Preserving liquidity and cash. We implemented a strict liquidity preservation program, which has resulted in approximately U.S. $200.0 million of savings as of December 31, 2020 through items such as cost reductions and deferral agreements with suppliers. In addition, we negotiated cost reductions with more than 360 suppliers and cut non-essential expenses. We also implemented online training and leave of absence programs in order to reduce costs. We expect to continue reducing costs with the aim of reaching a CASM ex-fuel (calculated based on total operating expenses, net excluding fuel expense divided by ASMs) similar to 2019 levels by the end of 2021. As of December 31, 2020, our cash and cash equivalents were approximately Ps. 10.1 billion. Additionally, as of December 31, 2020 our credit lines totaled Ps. 9.3 billion, of which Ps. 6.9 billion were related to financial debt and Ps. 2.4 billion were related to letters of credit (and of which Ps. 1.7 billion were undisbursed).

Defending ourselves against sales declines. We decreased scheduled capacity in order to protect our profitability. We also strengthened our relationships with customers by revamping our website and maintaining close communications via social media and email.

Developing commercial and network growth opportunities. We are closely monitoring capacity reductions from competitors for possible opportunities, testing new ancillary products and running targeted promotions to test potential stimulation of air travel. Certain of our competitors are facing financial difficulties which has led them to stop utilizing certain slots at the Mexico City Airport. We have been allowed to use some of these slots to open new destinations and increase operations at this airport, and by the end of 2020 we held 25% of the market share by ASMs. However, since the Mexico City Airport has issued a waiver to the minimum usage requirement due to the COVID-19 pandemic, we will not be granted historical priority of such slots unless (i) the waiver is terminated, (ii) the slots are not reclaimed by their prior holders and (iii) we continue operating the slots in accordance with certain conditions, including usage at least 85% of the time and conducting on time operations at least 85% of the time (operations are considered on time if they fall within 15 minutes of the assigned slot time). We can offer no assurance that our competitors will not reclaim the use of such slots prior to the expiration of the waiver, or that the waiver will not be extended. If our competitors do reclaim the slots prior to the expiration of the waiver, we may lose the preferential use of such slots almost immediately. Since the start of the COVID-19 pandemic, we have launched six new domestic routes and eight new international routes, now operating 105 domestic and 65 international routes in total.

Reviewing our fleet plan. Our new contractual fleet plan with Airbus allows us to maintain a “cautiously” sized fleet that will remain at approximately 85 aircraft, net of new deliveries and redeliveries, until 2023.

Protecting our customers and employees. We launched a new biosecurity and cleaning protocol and are communicating proactively with all staff, especially with crews and airport staff, regarding health and COVID-19 developments. For employees who are able to work remotely, we have activated home office technologies and protocols.

For additional information see “—Trends and Uncertainties Affecting Our Business—Impact of COVID-19” 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 has 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.

From a macroeconomic point of view, the impact of COVID-19 in Mexico is uncertain. Mexico’s GDP, previously predicted to grow between 0.5% and 1.5% in 2020, contracted by 8.2% as a result of the pandemic. Initial estimates indicate that Mexico’s GDP, previously predicted to grow between 1.1% and 2.1% in 2021, could grow 4.5% mainly as a result of the COVID-19 pandemic’s adverse impact on GDP in 2020 and recent news regarding the slow production and distribution of COVID-19 vaccines. However, as the full effects of the pandemic have yet to be realized, Mexican GDP may contract in an amount that is not yet possible to estimate. Economic stagnation, the depreciation of the peso, contraction and decreased income levels and increased unemployment levels could result in decreased passenger demand and lower net income in the long term, even after any potential COVID-19-related travel restrictions and border closures are lifted. For example, for the period from March 31, 2020 to December 31, 2020, 709,211 jobs were lost in Mexico. 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.

Despite the gradual recovery we have seen in ASMs and route operation, the ongoing COVID-19 pandemic is likely to 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 revenue;

any further downward 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.

Economic Conditions in Mexico.Mexico’s GDP is expected to grow by ~~2.4%~~2.23% per year for the next ten years according to the Mexican Central Bank, which is ~~0.5% above~~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 2015, according to the INEGI intercensal survey, around 36% 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 ~~2018~~2020 was ~~4.83%~~3.15% according to the INEGI. As of December 31, ~~2018,~~2020, international reserves were at U.S. ~~$174.6~~$195.7 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.134.2~~Ps. 141.3 cents (U.S. ~~$6.8~~$6.60 cents) we believe was the lowest CASM in Latin America in ~~2018,~~2020, compared to Avianca at U.S. ~~$14.25~~$26.11 cents, Azul at U.S. ~~$12.95~~$10.75 cents, Copa at U.S. ~~$9.8~~$17.29 cents, Gol at U.S. ~~$9.0~~$8.78 cents, Grupo Aeroméxico at U.S. ~~$11.1~~$17.98 cents and LATAM at U.S. ~~$10.9~~$17.33 cents. We also have lower costs than our publicly traded target market competitors in the United States, including Alaska Air at U.S. ~~$11.66~~$14.33 cents, Frontier at U.S. $9.53, Spirit at U.S. $8.36 cents, American at U.S. ~~$14.85~~$19.39 cents, Delta at U.S. ~~$14.88~~$22.01 cents, Jet Blue at U.S. ~~$12.85~~$14.29 cents, Southwest Airlines at U.S. ~~$11.74~~$12.44 cents and United at U.S. ~~$13.81~~$17.68 cents.

Our competitors and the Mexican airline industry as a whole have also been significantly impacted by the COVID-19 pandemic. Our principal competitors for the domestic market are Grupo Aeroméxico, Interjet and ~~VivaAerobus,~~VivaAerobus. Interjet and VivaAerobus are low-cost carriers in Mexico. In ~~2018,~~2020, the Mexican low-cost carriers (including us) combined had ~~67.3%~~71.5% of the domestic market based on passenger flight segments. We had ~~28.38%~~38.3% of the domestic market which placed us first, according to the ~~DGAC.~~AFAC. According to information published by AFAC, as of December 31, 2020, the number of commercial aircraft in service in Mexico had decreased to 275, as compared to 355 as of December 31, 2019. This 23% reduction was comprised mainly of narrow body aircraft, including 70 Airbus A320s, 47 Boeing 737s, and 19 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. According to its public filings with the CNBV, Grupo Aeroméxico has maintained regular operations during the restructuring process but has received court approval to return at least 19 aircraft to lessors, which would reduce its fleet size by around 15%. As of December 31, 2020, AFAC reports indicate that Grupo Aeroméxico’s subsidiaries Aeroméxico and Aeroméxico Connect had fleets of 58 and 44 aircraft, respectively, as compared to 69 and 56, respectively, as of December 30, 2019. 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 almost 96% in 2020, from 67 aircraft as of December 30, 2019 to 3 as of December 31, 2020, 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 an extraordinary shareholders meeting approved the filing of a reorganization process (concurso mercantil) in Mexico. While VivaAerobus, our second largest competitor by domestic market share in 2019, has increased their fleet from 37 as of December 30, 2019 to 43 as of December 31, 2020, this increase does not compensate for the reductions observed in the market. In addition to these changes in fleet size, our market share has also increased. As of December 2020, our domestic market share had increased 9 percentage points to 40% and our international market share had increased 6 percentage points to 14%, in each case as compared to our market shares as of December 2019.

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 ~~3.09~~3.07 billion in ~~2018,~~2019 (the latest year for which data is available as of the date of this annual report), of which approximately ~~83.4~~82.9 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 ~~have grown rapidly in the international market since we started international operations in 2009, reaching 26%~~reached 11% market share on the routes that we operate and ~~19.64%~~15% market share considering all routes between Mexico and the United States in ~~2018,~~2020, according to the ~~DGAC.~~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.

~~In addition, on January 20, 2017,~~ Donald Trump became president of the United ~~States. President Trump has already~~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,~~markets. President Trump was not elected to a second term, and ~~there~~on January 20, 2021, Joseph Biden became the president of the United States. While President Biden is ~~a possibility that further~~expected to reverse many of President Trump’s immigration ~~policy changes are~~policies, we can offer no assurance of the extent to ~~come.~~

which his administration will do so. President Trump’s immigration policies had a negative impact on our results of operations during 2018, 2019 and 2020 and this negative impact can be expected to continue ~~if the Trump administration continues to carry out such~~as long as these immigration ~~policies.~~policies are in force.

Fuel. Fuel costs represent the single largest operating expense for most airlines, including ours, accounting for ~~28%~~38%, ~~29%~~38% and ~~36%~~26% (including non-derivative financial instruments) of our total operating expenses for ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, 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.

During the ~~years~~year ended December 31, ~~2018, 2017, and 2016,~~2020, we ~~did not enter~~entered into US Gulf Coast Jet Fuel 54 ~~swap contracts. These instruments were formally~~Asian call options designated ~~and qualified~~to hedge 23,967 thousand gallons of fuel. Such hedges represented a portion of our projected consumption for hedge accounting and accordingly, the effective portion is allocated within other comprehensive income, while the effects of transforming into a fixed jet fuel prices by these hedges are presented as part of jet fuel costs when recognized in the consolidated statements of operations. 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 swap agreementsthird quarter 2020 and the ~~pricing~~first quarter of ~~hedges and other derivative products in the market.~~

2021. Additionally, during the ~~year ended December 31, 2018,~~same period, we ~~also~~ 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 half of 2020 and 2021.

During the year ended December 31, 2019, we entered into US Gulf Coast Jet Fuel 54 Asian call options designated to hedge ~~approximately 18%~~13,492 thousand gallons of fuel. Such hedges represented a portion of our fourth quarter 2019 projected ~~fuel~~ 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.

During the year ended December 31, ~~2017,~~2018, we entered into US Gulf Coast ~~fuel~~Jet Fuel 54 Asian ~~call~~Call options designated to hedge ~~approximately 55%~~45.6 million gallons of ~~our 2018 projected fuel consumption.~~fuel.

As of December 31, ~~2018,~~2020, we purchased our domestic fuel under the ASA fuel service contract, and ~~the~~ 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.

Foreign Exchange Gains and Losses. While most of our revenue is generated in ~~Mexican~~ pesos, 32%, 29% and 27% of our revenues came from our operations in the United States and Central America during the ~~year~~years ended December 31, 2018, ~~(compared to 30% during the year ended December 31, 2017)~~2019 and 2020, respectively, and U.S. dollar denominated collections accounted for ~~40%~~38%, 43% and ~~38%~~44% of our total collections in ~~2017~~2018, 2019 and ~~2018,~~2020, respectively. In addition, the majority of our operating costs are denominated in or indexed to U.S. dollars, constituting ~~71%~~73%, 72% and ~~73%~~69% of our total operating costs in ~~2017~~2018, 2019 and ~~2018.~~2020. Our key U.S. dollar-denominated operating costs include fuel, aircraft rentals and maintenance costs.

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, ~~2017,~~2018, 2019 and ~~2018,~~2020, our net monetary ~~asset~~liability position denominated in U.S. dollars was U.S. ~~$567.5 million~~$1.7 billion, U.S. $1.7 billion and U.S. ~~$428.6 million,~~$1.7 billion, respectively. As a result of either the ~~significant~~appreciation or depreciation of the peso against the U.S. dollar in ~~2016~~2018, 2019 and 2020, as the case may be, and our net U.S. dollar ~~asset~~liability position, we recorded a foreign exchange gain (loss), net of ~~Ps.2.2 billion. Whereas, as a result of~~Ps. (0.1) billion, Ps. 1.4 billion and Ps. 0.5 billion, respectively. In order to mitigate the ~~appreciation of the Peso against the U.S. dollar and our net U.S. dollar asset position, we recorded a~~ foreign exchange ~~loss, net of Ps.793.9 million in 2017 and Ps.72.5 million in 2018.~~risk, we also entered into hedge relationships through non-derivative financial instruments.

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. 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 costs for routine and non-routine maintenance are divided into three general categories:

(i)

Routine maintenance requirements consist of daily and weekly scheduled maintenance checks on our aircraft, including pre-flight, daily, weekly and overnight checks, 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.

~~(i)~~ Routine maintenance requirements consist of daily and weekly scheduled maintenance checks on our aircraft, including pre-flight, daily, weekly and overnight checks, 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.

All other maintenance activities are sub-contracted to qualified maintenance, 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 22 months. All routine maintenance costs are expensed as incurred.

(ii)

Major maintenance consists of a series of more complex tasks that can take from one to six weeks to accomplish and are generally required approximately 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 as improvements to leased assets and amortized over the shorter period of the next major maintenance event or the remaining lease term.

~~(ii)~~ Major maintenance consists of a series of more complex tasks that can take from one to six weeks to accomplish and are generally required approximately 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 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 per overhaul, provides miscellaneous engine coverage, caps the cost of foreign objects damage events, ensures protection from annual escalations and grants an annual credit for scrapped components. We also have a power-by-hour agreement for component services, which guarantees the availability of aircraft parts for our fleet when they are required and provides aircraft parts that are not included in the redelivery conditions of the contract without constituting an additional 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.

~~(iii)~~ Engine services are provided pursuant to an engine flight hour agreement that guarantees a cost per overhaul, provides miscellaneous engine coverage, caps the cost of foreign objects damage events, ensures protection from annual escalations and grants an annual credit for scrapped components. We also have a power-by-hour agreement for component services, which guarantees the availability of aircraft parts for our fleet when they are required and provides aircraft parts that are not included in the redelivery conditions of the contract without constituting an additional 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.

Due to the young age of our fleet (approximately ~~4.6~~5.3 years on average as of December 31, ~~2018)~~2020), maintenance expense in ~~2016, 2017~~2018, 2019 and ~~2018~~2020 remained relatively low. For the years ended December 31, ~~2016, 2017~~2018, 2019 and ~~2018~~2020 we capitalized major maintenance events as part of leasehold improvements to the flight equipment in the amount of ~~Ps.226.5~~Ps. 676.5 million, ~~Ps.529.3~~Ps. 659.1 million and ~~Ps.676.5~~Ps. 646.2 million, respectively. For the years ended December 31, ~~2016, 2017~~2018, 2019 and ~~2018~~2020 the amortization of these deferred major maintenance expenses was ~~Ps.404.7~~Ps. 313.5 million, ~~Ps.382.7~~Ps. 450.4 million and ~~Ps.313.5~~Ps. 652.1 million, respectively. The amortization of deferred maintenance expenses is included in depreciation and amortization rather than total maintenance costs as described in “—Critical Accounting Polices and Estimates.” In ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, total maintenance costs amounted to ~~Ps.1.3~~Ps. 1.5 billion, ~~Ps.1.4~~Ps. 1.5 billion and ~~Ps.1.5~~Ps. 1.2 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 of time. However, we estimate that based on our scheduled maintenance events, current maintenance expense and maintenance-related amortization expense will be approximately ~~Ps.2~~Ps. 2.3 billion (U.S. ~~$101.9~~$110 million) in ~~2019.~~2021.

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:—Critical Accounting Policies and Estimates.”

Ramp-up Period for New Routes. During ~~2016~~2018 we opened 2035 new routes, added 3130 more in ~~2017~~2019 and 3513 more in ~~2018.~~2020. 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.

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 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.2.2 billion, Ps.0.2 billion~~Ps. 454 million, Ps. 64.6 million and ~~Ps.0.5 billion~~Ps. 702 million in maintenance deposits, net of reimbursements, to our lessors for the years ended December 31, ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, 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.143.9~~Ps. 299.6 million in ~~2016, Ps.103.6~~2018, Ps. 295.7 million in ~~2017~~2019 and ~~Ps.87~~Ps. 421.0 million in ~~2018~~2020 of maintenance deposits as supplemental rent.

As of December 31, ~~2016, 2017~~2018, 2019 and ~~2018~~2020 we had prepaid maintenance deposits of ~~Ps.7.1~~Ps. 6.5 billion, ~~Ps.6.9~~Ps. 6.4 billion and ~~Ps.6.5~~Ps. 7.1 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 years ended December 31, ~~2016, 2017~~2018 and ~~2018~~2019, we extended the lease term of two aircraft agreements ~~three agreements~~ and ~~two~~one aircraft ~~agreements, respectively.~~agreement, respectively, but made no such extensions in 2020. Additionally, we extended the lease term of one spare engine agreement in 2019 and two spare engine agreements in 2018 ~~and two spare engine agreements~~but made no such extensions in 2017. These extensions made available maintenance deposits that were recognized in prior periods in the consolidated statements of operations as supplemental rent of Ps.92.5 million, Ps.65.7 million and Ps.0.0 during 2016, 2017 and 2018, respectively.2020.

Because the lease extension benefits are considered lease incentives, the ~~benefits~~effect of these extensions are ~~deferred~~recorded reducing the right of use asset. See note 14 to our audited consolidated financial statements included elsewhere in the caption other liabilities and are being amortized on a straight-line basis over the remaining revised lease terms. For the years ended December 31, 2016, 2017 and 2018, we amortized Ps.74.7 million, Ps.88.2 million and Ps.84.6 million respectively, of this ~~amount which was recognized as a reduction of rent expenses in the consolidated statements of operations.~~annual report.

During the year ended December 31, ~~2018,~~2020, we added ~~six~~seven 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.

For the years ended December 31, ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, we expensed as supplemental rent ~~Ps.201.4~~Ps. 299.6 million, ~~Ps.162.1~~Ps. 295.7 million and ~~Ps.212.6~~Ps. 421.0 million, respectively.

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 ~~DGAC~~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 ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, we capitalized costs of major maintenance events of ~~Ps.226.5~~Ps. 676.5 million, ~~Ps.529.3~~Ps. 659.1 million and ~~Ps.676.5~~Ps. 646.2 million, respectively and we recognized amortization expenses of ~~Ps.404.7~~Ps. 313.5 million, ~~Ps.382.7~~Ps. 450.4 million and ~~Ps.313.5~~Ps. 650.1 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.1,748.8 million, Ps.1,815.9 million~~Ps. 1.8 billion, Ps. 1.9 billion and ~~Ps.1,831.1 million~~Ps. 1.8 billion for the years ended December 31, ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, respectively.

In August 2012, we entered into a total support agreement with Lufthansa Technik AG (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 was deferred on the consolidated statements of financial position and is being amortized on a straight line basis, prospectively during the term of the agreement.

During 2018, 2019 and 2020, we amortized a corresponding benefit from these credit notes of, Ps. 7.2 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.

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, 2018, 2019 and 2020, the Company expensed as variable rent Ps. 659.1 million, Ps. 681.0 million and Ps. 1,428.2 million, respectively.

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. ~~Leases under sale and~~

Starting January 1, 2019, we measure the right-of-use asset arising from the leaseback ~~agreements meet~~at the ~~conditions for treatment as operating leases. If a sale and lease back transaction is at fair value and results~~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 ~~an operating lease,~~the Statement of Operations only the amount of any ~~profit~~gain or loss that relates to the rights transferred to the buyer-lessor. The rest of the gain is ~~recognized immediately.~~amortized over the lease term.

During the year ended December 31, ~~2016, 2017~~2018, 2019 and ~~2018~~2020 we sold and transferred aircraft and engines to third parties, giving rise to a gain of approximately ~~Ps.484.8~~Ps. 609.2 million, ~~Ps.65.9~~Ps. 284.8 million and ~~Ps.609.1~~Ps. 710.5 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~~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, ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, we amortized a loss of ~~Ps.3.0~~Ps. 3.0 million, ~~Ps.3.0~~Ps. 3.0 million and ~~Ps.3.0~~Ps. 3.0 million, respectively, as additional aircraft rental expense.

In August 2012, we entered into a total support agreement with Lufthansa Technik AG (LHT), as amended in December 2016, that expires December 31, 2022, 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, which was deferred on the consolidated statements of financial position and is being amortized on a straight line basis, prospectively during the term of the agreement.

During 2016, 2017 and 2018, we amortized a corresponding benefit from these credit notes of, Ps.9.3 million, Ps.6.6 million and Ps.0.0, respectively, which is recognized in the consolidated statements of operations as a reduction of maintenance expenses.

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 ~~a share purchase plan and~~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 Incentive~~Long-Term Retention Plans

~~Share Purchase Plan~~

In November 2014, we established a share purchase 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.

~~(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’ 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 share purchase plan approved in November 2014 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 is being expensed over the vesting period, which commenced on November 11, 2014 and will end in November 2019.

In November 2018, November 2017 and October 2016, extensions to this share purchase plan were approved by our board of directors. The total cost of the extensions approved was Ps.64.0 million (or Ps.41.6 million, net of withheld taxes), Ps.15.8 million (or Ps.10.1 million, net of withheld taxes) and Ps.14.5 million (or Ps.9.5 million, net of withheld taxes), respectively. Under these extensions, 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 2016, 2017 and 2018, we recognized Ps.7.8 million, Ps.13.5 million and Ps.20.0 million, respectively, as compensation expense associated with the complete share purchase plan in our consolidated statements of operations.

~~Movements during the year~~

~~The following table illustrates the number of shares associated with our share purchase plan during the year:~~

	~~Number of~~ ~~Series A shares~~
~~Outstanding as of December 31, 2017~~	*820,088
~~Purchased during the year~~	~~3,208,115~~
~~Granted during the year~~	—
~~Exercised during the year~~	~~(353,457~~	)
~~Forfeited during the year~~	~~(121,451~~	)
~~Outstanding as of December 31, 2018~~	*3,553,295

* These shares were presented as treasury shares in the consolidated statements of financial position as of December 31, 2017 and 2018 and 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 share purchase plan is as follows:~~

~~Number of Series A shares~~		~~Vesting period~~
~~1,284,373~~		~~November 2018-2019~~
~~1,207,862~~		~~November 2019-2020~~
~~1,061,060~~		~~November 2020-2021~~
~~3,553,295~~

During the year ended December 31, 2018, 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. During the year ended December 31, 2018, 121,451 shares were forfeited.

Management Incentive Plan

The management incentive plan has been classified as an equity-settled transaction because 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 is ~~Ps.2.7~~Ps. 2.7 million. This amount is being expensed over the vesting period, which commenced retroactively upon consummation of our initial public offering and ended on December 31, 2015. During 2012, we did not recognize any compensation expense associated with the management incentive plan in our consolidated statements of operations. During 2013, 2014 and 2015, we recorded ~~Ps.2.1~~Ps. 2.1 million ~~Ps.0.3~~Ps. 0.3 million and ~~Ps.0.3~~Ps. 0.3 million, respectively, as a cost of the management incentive plan related to the vested shares, as recorded in our consolidated statements of operations.

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

~~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.

On September 18, 2013, the key employees participating in the management incentive plan exercised 4,891,410 shares. As a result, the key employees paid ~~Ps.25.9~~Ps. 25.9 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.

On November 16, 2015, as part of the secondary follow-on equity offering, the key employees exercised 4,414,860 Series A shares. The key employees paid ~~Ps.23.5~~Ps. 23.5 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 2017, the key employees participating in the management incentive plan exercised 120,000 Series A shares. The key employees paid ~~Ps.0.6~~Ps. 0.6 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 2018, the key employees participating in the management incentive plan exercised 2,003,876 Series A shares. The key employees paid ~~Ps.10.7~~Ps. 10.7 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 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.

As of December 31, 2020, 2019 and 2018, the 7,653,981, 7,653,981 and ~~2017, the~~ 10,433,981 ~~and 12,437,857~~ share options pending to be exercised, respectively, were considered as treasury ~~shares, respectively.~~shares.

Movements during the year

The following table illustrates the number of share options and fixed exercise prices during the year:

	Number		Exercise price in Mexican pesos		Total in thousands of Mexican pesos			Number			Exercise price in pesos		Total in thousands of pesos
Outstanding as of December 31, 2012	25,164,126		Ps.	5.31	Ps.	133,723			25,164,126		Ps.	5.31	Ps.	133,723
Granted during the year	—		—		—				—			—		—
Forfeited during the year	—		—		—				—			—		—
Exercised during the year	(4,891,410	)	5.31		(25,993		)		(4,891,410	)		5.31		(25,993	)
Outstanding as of December 31, 2013	20,272,716		Ps.	5.31	Ps.	107,730			20,272,716		Ps.	5.31	Ps.	107,730
Granted during the year	—		—		—				—			—		—
Forfeited during the year	—		—		—				—			—		—
Exercised during the year	—		—		—				—			—		—
Outstanding as of December 31, 2014	20,272,716		Ps.	5.31	Ps.	107,730			20,272,716		Ps.	5.31	Ps.	107,730
Granted during the year	—		—		—				—			—		—
Forfeited during the year	—		—		—				—			—		—
Exercised during the year	(4,414,860	)	5.31		(23,461		)		(4,414,860	)		5.31		(23,461	)
Outstanding as of December 31, 2015	15,857,856		Ps.	5.31	Ps.	84,269			15,857,856		Ps.	5.31	Ps.	84,269
Granted during the year	—		—		—				—			—		—
Forfeited during the year	—		—		—				—			—		—
Exercised during the year	(3,299,999	)	5.31		(17,536		)		(3,299,999	)		5.31		(17,536	)
Outstanding as of December 31, 2016	12,557,857		Ps.	5.31	Ps.	66,733			12,557,857		Ps.	5.31	Ps.	66,733
Granted during the year	—		—		—				—			—		—
Forfeited during the year	—		—		—				—			—		—
Exercised during the year	(120,000	)	5.31		(638		)		(120,000	)		5.31		(638	)
Outstanding as of December 31, 2017	12,437,857		Ps.	5.31	Ps.	66,095			12,437,857		Ps.	5.31	Ps.	66,095
Granted during the year	—		—		—				—			—		—
Forfeited during the year	—		—		—				—			—		—
Exercised during the year	(2,003,876	)	5.31		(10,654		)		(2,003,876	)		5.31		(10,654	)
Outstanding as of December 31, 2018	10,433,981		Ps.	5.31	Ps.	55,441			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

At December 31, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019 and ~~2018,~~2020, the shares held in trust to satisfy the management options were considered as treasury shares. At December 31, 2018, ~~2017~~2019 and ~~2016,~~2020, 10,433,981, ~~12,437,857~~7,653,981 and ~~12,557,857~~ 7.653,981 share options pending to be exercised were considered as treasury shares, respectively.

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’ 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 is being expensed over the vesting period, which commenced on November 11, 2014 and ended in November 2019.

In November 2020, 2019 and 2018, extensions to this plan were approved by our board of directors. The total cost of each of the extensions approved was Ps. 92.1 million (or Ps. 59.9 million, net of withheld taxes), Ps. 86.8 million (or Ps. 56.4 million, net of withheld taxes) and Ps. 64.0 million (or Ps. 41.6 million, net of withheld taxes), respectively. Under these extensions, 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 2018, 2019 and 2020, we recognized Ps. 20.0 million, 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.

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 December 31, 2019		*5,115,191
Purchased during the year		3,159,763
Granted during the year		-
Exercised during the year		(2,142,426	)
Forfeited during the year		(327,217	)
Outstanding as of December 31, 2020		*5,805,311

These shares were presented as treasury shares in the consolidated statements of financial position as of December 31, 2019 and 2020 and 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:

During the year ended December 31, 2020, 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. During the year ended December 31, 2020, 327,217 shares were forfeited.

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 (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 four 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 Ps. 16.12 and 126,533 shares were priced at Ps. 26.29. As of December 31, 2020, there were no exercises under the BoDIP.

Cash-settled Transactions

Cash-settled transactions include share appreciation rights (“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 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 (vesting schedule included in the table below).~~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, 2020, 2019 and 2018 ~~2017 and 2016~~ was ~~Ps.32.8~~Ps. 177.8 million, ~~Ps.37.8~~Ps. 70.6 million and ~~Ps.54.4~~Ps. 32.9 million, respectively. The compensation cost is recognized in our consolidated statements of operations under the caption salaries and benefits over the service period. During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018 we recorded a ~~cost~~expense (benefit) of Ps.~~(5.1)~~ 107.2 million, Ps.~~(16.5)~~ 37.8 million and ~~Ps.54.4~~Ps. (5.1) million, respectively, associated with these SARs in our consolidated statements of operations. No SARs were exercised during ~~2018.~~2020.

Number of SARs (Grant date: November 6, 2016)			Exercisable date
~~1,695,500~~	3,391,020			February ~~2019~~ 2021
~~2,825,840~~	3,391,020*	~~February 2020~~
~~3,391,020~~		~~February 2021~~
7,912,360*

*Includes forfeited ~~SAR’s~~SARs of 1,563,520, 0 and 0 for the ~~year~~years ended December 31, ~~2018.~~

~~Cash-settled Transactions.~~ ~~Cash-settled transactions include a share appreciation rights (“SARs”) plan.~~2018, 2019 and 2020 respectively.

Cash-settled Long-term ~~Retention~~Incentive Plan

During 2010, we adopted an employee long-term ~~retention~~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~~Ps. 6.3 million and ~~Ps.6.5~~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 ~~share purchase~~long-term incentive plan (equity-settled) and ~~share appreciation rights~~long-term incentive plan (cash-settled).

~~Long-term Incentive Plans~~

~~Share Appreciation Rights~~

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 amount of SARs granted under this plan totaled ~~Ps.10.8~~Ps. 10.8 million.

Under the ~~share purchase~~plan program extensions described above, ~~the number of~~no SARs were granted to ~~certain~~any of our key executives totaled 2,044,604, 3,965,351 and 0.0, respectively, which amounts to a cost of Ps.14.5 million (or Ps.9.5 million, net of withheld taxes), Ps.15.8 million (or Ps.10.1 million, net of withheld taxes) and Ps.0.0 (or Ps.0.0, net of withheld taxes), for the years ended December 31, ~~2016, 2017~~2018, 2019 and ~~2018, respectively. The SARs vest during a three-year period as long as the employee completes the required service period.~~2020.

The carrying amount of the liability relating to the SARs as of December 31, ~~2016, 2017~~2018, 2019 and ~~2018~~2020 was ~~Ps.15.7~~Ps. 0.5 million, ~~Ps.0.7~~Ps. 1.9 million and ~~Ps.0.5~~Ps. 0.0 million, respectively. 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, ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, we recorded an expense (benefit) of ~~Ps.31.7~~Ps. (0.2) million, Ps.~~(9.0)~~ 3.0 million and Ps.~~(0.2)~~ (1.9) million, respectively, in respect of these SARs in our consolidated statements of operations.

~~Number of SARs~~		~~Exercisable date~~
~~1,348,777~~		~~November 2019~~
~~757,809~~		~~November 2020~~
2,106,856*

* ~~Include forfeited SARs of 484,656, 145,760 and 0 for the years ended December 31, 2018, 2017 and 2016.~~

~~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 (“BODIP”). The BODIP was implemented through the execution of: (i) a trust agreement number CIB/3081 created by us, as trustee, and CIBanco, S.A., Institucion de Banco Multiple, as trustor, 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 four years to exercise his/her option to pay a fixed purchase price, with the title to the shares transfering 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, 2018 was 1,103,638, of which 977,105 shares were priced at Ps.$16.12 and 126,533 shares were priced at Ps.$26.29. As of December 31, 2018, there were no exercises under the BODIP.

Derivative Financial Instruments and Hedge Accounting. We mitigate certain financial risks, such as volatility in the price of ~~aircraft~~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 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. ~~During 2018, all derivative financial instruments held qualified for hedge accounting.~~ 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, ~~2018~~2020, 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 2016, 2017 and 2018 represented 28%, 29% and 36% of our operating expenses, respectively. To manage aircraft fuel price risk, we periodically enter into derivatives financial instruments. During 2014 and 2015, we entered into aircraft fuel swap hedges (further described in the paragraph immediately below) that gave rise to a loss of Ps.85.7 million and Ps.128.3 million, respectively. Since these instruments qualify as accounting hedges, the cost and related gains or losses are considered a portion of the fuel cost in the consolidated statements of operations. As of December 31, 2014, the fair value of these fuel swap instruments was a net asset position of Ps.169.6 million. All of the Company’s US Gulf Coast Jet Fuel 54 swaps positions matured on June 30, 2015, and therefore there is no balance outstanding as of December 31, 2015.

(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 2018, 2019 and 2020 represented 38%, 38% and 26% (including non-derivative financial instruments) of our operating expenses, respectively. To manage aircraft fuel price risk, we periodically enter into derivatives financial instruments.

~~During the years ended December 31, 2018, 2017 and 2016, we did not enter into US Gulf Coast Jet Fuel 54 swap contracts.~~ During the year ended December 31, ~~2015,~~2020, we entered into US Gulf Coast Jet Fuel 54 ~~swap contracts~~Asian call options designated to hedge 23,967 thousand gallons of fuel. Such hedges represented a portion of our projected consumption for the second quarter of 2020, third 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 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.

During the year ended December 31, 2018, we entered into US Gulf Coast Jet Fuel 54 Asian Call options designated to hedge 45.6 million gallons of fuel. Additionally, as of December 31, 2017, we entered into US Gulf Coast Jet Fuel 54 Asian call options designated to hedge 61.1 million gallons of fuel.

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 ~~our~~projected fuel ~~consumption. These instruments were formally designated and qualified~~consumption for hedge accounting and accordingly, the effective portion is allocated within other comprehensive income, while the effects of transforming into a fixed jet fuel prices by these hedges are presented as part of jet fuel costs when recognized in the consolidated statements of operations. 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 swap agreements and the pricing of hedges and other derivative products in the market.

~~Additionally, during~~2019. During the year ended December 31, 2018, we entered into US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options and US Gulf Coast ~~Jet Fuel~~fuel 54 Asian call options designated to hedge approximately 18% of our 2019 ~~fuel consumption. During the year ended December 31, 2017, we entered into US Gulf Coast fuel 54 Asian call options designated to hedge approximately 55% of our 2018~~ projected fuel consumption.

~~During the year ended December 31, 2014, we elected to adopt~~We utilize 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 (“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 ~~other comprehensive income (OCI)~~OCI and a reclassification adjustment is made from OCI toward the profit and loss and recognized in the same period or 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.

As of December 31, ~~2017~~2018, 2019 and ~~2018,~~2020 the fair value of our outstanding US Gulf Coast Jet Fuel 54 Asian call options ~~totaled Ps.497.4~~was Ps. 48.2 million, Ps. 0.0 million and ~~Ps.48.2~~Ps. 0.2 million, ~~respectively,~~respectively. During the year ended December 31, 2020, the Company entered into US Gulf Coast Jet Fuel 54 Asian call options with 2020 and as2021 maturities. During the years ended December 31, 2018, 2019 and 2020, the net negative (positive) cost of these options recycled to our fuel cost totaled (Ps. 402.5) million, Ps. 61.1 million and Ps. 20.6 million, respectively.

As of December 31, ~~2018,~~2019 and 2020, the fair value of our outstanding US Gulf Coast Jet Fuel 54 ~~Asian~~ Zero-Cost collar options was ~~a loss of~~ Ps.~~(122.9)~~ 134 million and Ps. (9.7) million, respectively, 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, 2019 and 2020, the net cost of these options recycled to our fuel cost totaled Ps. 9.4 million and Ps. 835.9 million, respectively.

The amount of (negative) positive cost of hedging derived from the extrinsic value changes of these options as of December 31, 2018, 2019 and 2020 recognized in other comprehensive income totaled ~~Ps.134.1~~Ps. (134.1) million, ~~(as compared to~~Ps. 133.6 million and Ps. 21.7 million, respectively, the ~~positive cost of hedging in 2017 which totaled Ps. 163.8 million), and~~latter will be recycled to our fuel cost during ~~2019,~~2021, as these options expire on a monthly basis and as jet fuel is consumed. During the years ended December 31, 2016, 2017 and 2018, the net negative (positive) cost of these options recycled to our fuel cost totaled Ps.305.2 million, Ps.27.0 million and Ps.(402.5) million, respectively.

~~(ii)~~
(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 years 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, the Company did not enter into foreign currency forward contracts.

Our foreign exchange exposure as of December 31, 2018, 2019 and 2020 was a net liability position of U.S. $1.7 billion, U.S. $1.7 billion and U.S. $1.7 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 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.

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.

During the year ended December 31, 2018, the Company entered into foreign currency forward contracts in U.S. dollars to hedge approximately 20% of the aircraft rental expense for the second half of 2018. During the year ended December 31, 2017, the Company entered into foreign currency forward contracts in U.S. dollars to hedge approximately 9% of the aircraft rental expense for the second half of 2017. During the year ended on December 31, 2016 the Company did not enter into exchange rate derivatives financial instruments.

All of the Company’s positions in foreign currency forward contracts matured throughout the second half of 2017 (August, September, November and December), therefore there was no outstanding balance as of December 31, 2018.

~~Our foreign exchange exposure as of December 31, 2016, 2017 and 2018 was a net asset position of U.S. $584.5 million, U.S. $567.5 million and U.S. $428.6 million, respectively.~~

(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, ~~2017 and~~ 2018, wethe Company did not have any interest rate ~~swaps.~~derivatives. As of December 31, ~~2016,~~2019, we had an outstanding hedging ~~contracts~~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. 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 ~~with fair value~~matured on March 31 and April 30, 2017. Consequently, there was no outstanding balance as of Ps.14.1 million. These instruments are included as liabilities in our consolidated statements of financial position. In 2016, 2017 and 2018, the reported loss on the instruments was Ps.48.8 million, Ps.13.8 million and Ps.0.0, respectively, which was recognized as a portion of the rental expense in the consolidated statements of operations.
~~The table below presents the payments required by our financial liabilities:~~

Year ended December 31, 2018

Within one
Year

One to five
Years

In five Years
or more

Total

(In thousands of pesos)

Interest-bearing borrowings

Pre-delivery payment facilities

734,635

2,310,939

—

3,045,574

Short-term working capital facilities

461,260

—

—

461,260

Derivative financial instruments

Jet fuel Asian Zero-Cost collars options contracts

122,948

—

—

122,948

Total

1,318,843

2,310,939

—

3,629,782

~~Deferred Taxes.~~ We account for income taxes using the liability method. 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, 2016, 2017 and 2018 we had tax loss carry-forwards amounting to Ps.111.1 million, Ps.1.5 billion and Ps.1.6 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 ten years and may not be used to offset taxable income elsewhere in our consolidated group. During the years ended December 31, 2016, 2017 and 2018 we used tax-loss carry-forwards of Ps.195.1 million, Ps.16.4 million and Ps.154.42018.

The table below presents the payments required by our financial liabilities:

	Within one Year		One to five Years		Total
Interest-bearing borrowings:
Pre-delivery payment facilities		1,096,543		2,554,069		3,650,612
Short-term working capital facilities		200,000		-		200,000
Asset backed trust note		250,000		1,250,000		1,500,000
Total		1,546,543		3,804,069		5,350,612

Deferred Taxes. We account for income taxes using the liability method. 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, 2018, 2019 and 2020, we had tax loss carry-forwards amounting to Ps. 1.6 billion, Ps. 1.3 billion and Ps. 1.9 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 years ended December 31, 2018 and 2019, we used tax-loss carry-forwards of Ps. 154.4 million and Ps. 214.5 million, respectively. During the year ended December 31, 2020, we did not use any tax-loss carry-forwards.

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, 2018, 2019 and 2020, we generated a net operating income (loss) of Ps. 8.5 million, Ps. (1.1) million and Ps. (1.8) 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, 2018, 2019 and 2020, we obtained net operating losses of Ps. 170.7 million, Ps. 50.2 million and Ps. 55.8 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, 2020 and 2019, we obtained a net operating loss of Ps. 16.6 million and Ps. 32.5 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.

For the years ended December 31, 2018, 2019 and 2020, no impairment charges were recorded in respect of our long-lived assets.

Allowance for Credit Losses. An allowance for 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, 2018, 2019 and 2020, the allowance for credit losses was Ps. 11.3 million, Ps. 40.3 million and Ps. 32.7 million, respectively.

Operating Revenues

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 ticket 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 ticket 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.

2018 compared to 2019

	For the years ended December 31,
	2018 Adjusted⁽¹⁾			2019			Variation

	(In thousands of pesos, except for % and operating data)
Operating Revenues
Passenger revenues:
Fare revenues		18,487,858			23,129,991			4,642,133		25.1	%
Other passenger revenues		7,892,497			10,569,208			2,676,711		33.9	%
Non-passenger revenues:
Other non-passenger revenues		697,357			897,586			200,229		28.7	%
Cargo		227,438			228,836			1,398		0.6	%
Non-derivative financial instruments		-			(72,949	)		(72,949	)	100.0	%
Total operating revenues		27,305,150			34,752,672			7,447,522		27.3	%
Operating Data
Capacity (in ASMs in thousands)		21,009,545			24,498,893			3,489,348		16.6	%
% Load factor booked		85	%		86	%		-		1.0	%
Booked passengers (in thousands)		18,396			21,975			3,579		19.5	%
Average ticket revenue per booked passenger		1,006			1,054			48		4.8	%
Average other passenger revenue per booked passenger		429			481			52		12.1	%
Average total ancillary revenue per booked passenger		479			532			53		11.1	%
Revenue passenger miles (RPMs in thousands)		17,748,408			21,032,364			3,283,956		18.5	%

~~Central America (Guatemala and Costa Rica)~~

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 year ended December 31, 2018, we generated a net operating loss, the benefit of which has not been recognized as a deferred tax asset.

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, 2018, 2017 and 2016, we obtained net operating losses of Ps.170.7 million, Ps.300.6 million and Ps.57.4 million, respectively, which have not been recognized as deferred tax assets.

~~Impairment of Long-Lived Assets.~~ The carrying value of rotable spare parts, furniture and equipment 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 rotable spare parts, furniture and equipment.

~~For the years ended December 31, 2016, 2017 and 2018, no impairment charges were recorded in respect of our long-lived assets.~~

~~Allowance for Credit Losses.~~ An allowance for 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, 2016, 2017 and 2018, the allowance for credit losses was Ps.19.3 million, Ps.17.8 million and Ps.11.3 million, respectively.

~~Operating Revenues~~

~~2017 compared to 2018~~

For the years ended December 31,

2017

2018

Variation

Adjusted(1)

(In thousands of pesos, except for % and operating data)

Operating Revenues

Passenger revenues:

Fare revenues

17,791,317

18,487,858

696,541

3.9
%
Other passenger revenues

6,098,504

7,892,497

1,793,993

29.4
%
Non-passenger revenues:

Other non-passenger revenues

727,392

697,357

(30,035
)
(4.1
)%
Cargo

170,973

227,438

56,465

33.0
%
Total operating revenues

24,788,186

27,305,150

2,516,964

10.2
%
Operating Data

Capacity (in ASMs in thousands)

18,860,950

21,009,545

2,148,595

11.4
%
% Load factor booked

84
%
85
%
—

1.0
pp
Booked passengers (in thousands)

16,427

18,396

1,969

12.0
%
Average ticket revenue per booked passenger

1,086

1,006

(80
)
(7.4
)%
Average other passenger revenue per booked passenger

371

429

58

15.6
%
Average total ancillary revenue per booked passenger

426

479

53

12.5
%
Revenue passenger miles (RPMs in thousands)

15,917,246

17,748,408

1,831,162

11.5
%

(1) As of January 1, 2018, we adopted IFRS 15 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, 2016.
~~Fare revenues.~~ The increase in fare revenues in 2018 was primarily due to growth in our ASM capacity by 11.4% resulting from the incorporation of six new net aircraft, which was partially offset by a lower average ticket revenue per booked passenger of 7.4% year over year. Our traffic as measured in terms of RPMs increased 11.5% in 2018, also resulting from the increase in our fleet size.
~~Other passenger revenues.~~ The increase in other passenger revenues in 2018 was primarily due to higher volume of passengers electing to purchase additional services. We continue executing our fare unbundling and demand stimulation strategy. In particular, during 2018, our total ancillary revenues increased due to improved revenue from fees charged for excess baggage, advanced seat selection and itinerary changes.
~~Other non-passenger revenues.~~ ~~The decrease in other non-passenger revenues was primarily due to higher revenues from airport incentives recorded during 2017.~~
~~Cargo.~~ ~~The increase in cargo revenues in 2018 was primarily due to a higher volume of cargo operations recorded during 2018.~~
~~2016 compared to 2017~~

For the years ended December 31,

2016

2017

Variation

Adjusted(1)

(In thousands of pesos, except for % and operating data)

Operating Revenues

Passenger revenues:

Fare revenues

17,790,130

17,791,317

1,187

0.0
%
Other passenger revenues

4,919,452

6,098,504

1,179,052

24.0
%
Non-passenger revenues:

Cargo

171,623

170,973

(650
)
(0.4
)%
Other non-passenger revenues

590,355

727,392

137,037

23.2
%
Total operating revenues

23,471,560

24,788,186

1,316,626

5.6
%
Operating Data

Capacity (in ASMs in thousands)

16,703,949

18,860,950

2,157,001

12.9
%
%Load factor booked

86
%
84
%

(2.0
)pp
Booked passengers (in thousands)

15,005

16,427

1,422

9.5
%
Average ticket revenue per booked passenger

1,189

1,086

(102
)
(8.6
)%
Average other passenger revenue per booked passenger

328

371

43

13.2
%
Average total ancillary revenue per booked passenger

379

426

47

12.5
%
Revenue passenger miles (RPMs in thousands)

14,325,898

15,917,246

1,591,348

11.1
%
~~(1)~~
On adoption of IFRS 1516 we apply the new standard on the required effective date as of January 1, ~~2018,~~2019, using the full retrospective method of adoption in order to provide for comparative results in all periods presented, recognizing the effect in retained earnings as of January 1, ~~2016.~~
~~Fare revenues.~~ ~~The slight increase in fare revenues in 2017 was primarily due to growth in our ASM capacity by 12.9%,~~2017.

Fare revenues. The increase in fare revenues in 2019 was primarily due to growth in our ASM capacity by 16.6% resulting from the incorporation of five new net aircraft. Additionally, our booked passengers increased 19.5%, and our average ticket revenue per booked passenger increased 4.8% year over year.

Other passenger revenues. The increase in other passenger revenues in 2019 was primarily due to higher volume of passengers electing to purchase additional services. We continue executing our fare unbundling and demand stimulation strategy. In particular, during 2019, our total ancillary revenues increased due to improved revenue from fees charged for excess baggage, advanced seat selection and itinerary changes.

Other non-passenger revenues. The increase in other non-passenger revenues was primarily due to higher revenues from airport incentives recorded during 2019.

Cargo. The increase in cargo revenues in 2019 was primarily due to a higher volume of cargo operations recorded during 2019.

Operating Expenses, net

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, 2020 and 2019, 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.

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 approximately 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 approximately 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 approximately 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.

2018 compared to 2019

	For the years ended December 31,
		2018 ⁽¹⁾		2019		Variation

		(In thousands of pesos, except for%)
Other operating income		(621,973	)	(327,208	)	294,765		(47.4	)%
Fuel expense, net		10,134,982		11,626,069		1,491,087		14.7	%
Landing, take-off and navigation expenses		4,573,319		5,108,489		535,170		11.7	%
Depreciation of right of use assets		4,043,691		4,702,971		659,280		16.3	%
Salaries and benefits		3,125,393		3,600,762		475,369		15.2	%
Sales, marketing and distribution expenses		1,501,203		1,447,637		(53,566	)	(3.6	)%
Maintenance expenses		1,497,989		1,488,431		(9,558	)	(0.6	)%
Aircraft and engine variable lease expenses		956,010		961,657		5,647		0.6	%
Other operating expenses		1,059,098		1,112,927		53,829		5.1	%
Depreciation and amortization		500,641		675,514		174,873		34.9	%
Total operating expenses, net		26,770,353		30,397,249		3,626,896		13.5	%

(1)

As of two new net aircraft, which was partially offset by a lower average ticket revenue per booked passenger of 8.6% year over year. Our traffic as measured in terms of RPMs increased by 11.1% in 2017, also resulting from the increase in our fleet size.

~~Other passenger revenues.~~ The increase in other passenger revenues in 2017 was primarily due to higher volume of passengers electing to purchase additional services. We continue executing our fare unbundling and demand stimulation strategy. In particular, during 2017, our total ancillary revenues increased due to improved revenue from fees charged for excess baggage, advanced seat selection and itinerary changes.

~~Other non-passenger revenues.~~ ~~The increase in other non-passenger revenues was primarily due to higher revenues from airport incentives recorded in 2017.~~

~~Cargo.~~ ~~Our cargo revenues remained largely unchanged in 2017 as compared to 2016.~~

~~Operating Expenses, net~~

~~2017 compared to 2018~~

For the years ended December 31,

2017

2018

Variation

(In thousands of pesos, except for %)

Other operating income

(96,765
)
(621,973
)
(525,208
)
>100
%
Fuel

7,255,636

10,134,982

2,879,346

39.7
%
Aircraft and engine rent expense

6,072,502

6,314,930

242,428

4.0
%
Landing, take-off and navigation expenses

4,009,915

4,582,967

573,052

14.3
%
Salaries and benefits

2,823,647

3,125,393

301,746

10.7
%
Sales, marketing and distribution expenses

1,691,524

1,501,203

(190,321
)
(11.3
)%
Maintenance expenses

1,433,147

1,517,626

84,479

5.9
%
Other operating expenses

1,088,440

1,129,911

41,471

3.8
%
Depreciation and amortization

548,687

500,641

(48,046
)
(8.8
)%
Total operating expenses, net

24,826,733

28,185,680

3,358,947

13.5
%

~~Total operating expenses, net increased 13.5% in 2018 primarily as a result of growth of operations and other factors described below.~~

~~Other Operating Income.~~ Other operating income increased Ps. 525.2 million or greater than100% in 2018, primarily due to a higher number of sale and leaseback transactions, which resulted in higher profit realized during 2018.

~~Fuel.~~ The 39.7% increase in fuel expense was primarily as a result of an increase in the average fuel cost per gallon of 29.2% and an increase in fuel gallons consumed of 8.0% which, in turn, was primarily due to more aircraft in operation and a 9.1% increase in our departures.

~~During the year ended December 31, 2018,~~January 1, 2019, we entered into Asian Zero-Cost collar options and Asian call options contracts. Additionally, during the year ended December 31, 2017, we entered into Asian call options contracts. These instruments also qualify for hedge accounting. As a result, during 2018, their extrinsic value benefit of Ps.402.5 million was recycled to the cost of fuel.

~~Aircraft and Engine Rent Expense.~~ ~~The 4% increase in aircraft and engine rent expense was primarily driven by: (i) An increase of Ps.304.7 million related to~~adopted IFRS 16 using the full ~~year operation~~retrospective method of adoption in order to provide comparative results in all periods presented, recognizing the ~~five A320 aircraft, (ii) higher aircraft and engine rent expense related to six new net aircraft and two spare engines~~effect in retained earnings as of Ps.220.0 million, and (iii) the depreciation of approximately 1.6% in the average exchange rate of the peso against the U.S. Dollar, which negatively affected our aircraft rent in peso terms in an amount of Ps.17.7 million. These increases were partially offset by (i) Ps.62.7 million related to three aircraft and three spare engines which where disincorporated from our fleet during 2017, (ii) a decrease in our supplemental rent of Ps.155.7 million, and (iii) other rent expenses by Ps.81.6 million.January 1, 2017.

Total operating expenses, net increased 13.5% in 2019 primarily as a result of growth of operations and other factors described below.

Other Operating Income. Other operating income decreased Ps. 294.8 million or 47.4% in 2019, primarily due to lower sale and leaseback gains recorded during 2019 compared to the previous year as a result of the adoption of IFRS 16.

Fuel expense, net. The 14.7% increase in fuel expense was primarily as a result of an increase in the average fuel cost per gallon of 4.1% and an increase in fuel gallons consumed of 10.7% which, in turn, was primarily due to more aircraft in operation and a 17.1% increase in our departures.

During the years ended December 31, 2019 and 2018, we entered into Asian Zero-Cost collar options and Asian call options contracts. These instruments also qualify for hedge accounting. As a result, during 2019, their intrinsic value loss of Ps. 70.5 million was recycled to the cost of fuel.

Landing, Take-off and Navigation Expenses. The 11.7% increase in landing, take-off and navigation expenses in 2019 was primarily due to an increase in our operations as measured by number of departures by 17.1%. These increases were partially offset by a decrease in the number of airports where we operated during the year and incentives received from certain airport groups as a result of the growth of our operations.

Depreciation of right of use assets. The 16.3% increase in depreciation of right of use assets in 2019 was primarily due to an increase in our fleet, as we incorporated five new net aircraft and four new net engine leases during 2019.

Salaries and Benefits. The 15.2% increase in salaries and benefits in 2019 was primarily the result of the annual salary increase and an increase of 7.6% in our total number of employees during the year. Additionally, the variable compensation of our workforce increased also due to higher operations recorded during 2019, 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 3.6% decrease in sales, marketing and distribution expenses was mainly due to efficiencies in our marketing and distribution expenses related to our efficiency and cost reduction plan.

Maintenance Expenses. The 0.6% decrease in maintenance expenses in 2019 was mainly due to the receipt of credit notes from some maintenance suppliers. This decrease was partially offset by the 6.5% increase in our fleet size as a result of the addition of five new net aircraft received during the year and the depreciation of approximately 0.1% in the average exchange rate of the peso against the U.S. dollar during 2019 since some of these maintenance expenses are denominated in U.S. dollars.

Aircraft and engine variable lease expenses. The 0.6% increase in aircraft and engine variable expenses in 2019 was primarily due to the depreciation 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 5.1% increase in other operating expenses in 2019 was primarily the result of our purchase of additional insurance to cover flight equipment and an increase in other administrative expenses. Additionally, during 2019, other operating expenses on a dollar basis increased due to the depreciation of approximately 0.1% in the average exchange rate of the peso against the U.S. dollar during 2019, since some of these expenses are denominated in U.S. dollars.

Depreciation and Amortization. The 34.9% increase in depreciation and amortization in 2019 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 2018 and 2019, we recorded amortization of major maintenance leasehold improvements of Ps .313.5 million and Ps. 450.4 million, respectively.

Operating Results

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		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.

2018 compared to 2019

	For the years ended December 31,
	2018 Adjusted⁽¹⁾		2019		Variation

	(In thousands of pesos, except for%)
Operating Results
Total operating revenues		27,305,150		34,752,672		7,447,522	27.3	%
Total operating expenses, net		26,770,353		30,397,249		3,626,896	13.5	%
Operating income		534,797		4,355,423		3,820,626	>100.0	%

~~Landing, Take-off and Navigation Expenses.~~ ~~The 14.3% increase in landing, take-off and navigation expenses in 2018 was primarily due to an increase in the number~~
(1) As of ~~airports~~January 1, 2019, we operated in during the year. In addition, our operations as measured by number of departures increased by 9.1%. These increases were partially offset by incentives received from certain airport groups as a result of the growth of our operations.
~~Salaries and Benefits.~~ The 10.7% increase in salaries and benefits in 2018 was primarily the result of the annual salary increase, as well as severance payments related to a net decrease of 2.9% in our total number of employees as part of our efficiency and cost reduction plan. Additionally, the variable compensation of our workforce increased also due to higher operations recorded during 2018, 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 11.3% decrease in sales, marketing and distribution expenses was mainly due to efficiencies in our marketing and distribution expenses related to our efficiency and cost reduction plan.~~
~~Maintenance Expenses.~~ The 5.9% increase in maintenance expenses in 2018 was mainly due to the increase in our fleet size of 8.5% as a result of the addition of six new net aircraft received during the year. Additionally, during 2018 our maintenance expenses increased due to the depreciation of approximately 1.6% in the average exchange rate of the peso against the U.S. dollar during 2018, since some of these expenses are denominated in U.S. dollars.
~~Other Operating Expenses.~~ The 3.8% increase in other operating expenses in 2018 was primarily the result of additional technical and communication support and passenger service expenses required for the growth of our operations. Additionally, during 2018, other operating expenses on a dollar basis increased due to the depreciation of approximately 1.6% in the average exchange rate of the peso against the U.S. dollar during 2018, since some of these expenses are denominated in U.S. dollars.
~~Depreciation and Amortization.~~ The 8.8% decrease in depreciation and amortization 2018 was primarily due to lower 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 2017 and 2018, we recorded amortization of major maintenance leasehold improvements of Ps.382.7 million and Ps.313.5 million, respectively.
~~2016 compared to 2017~~

For the years ended December 31,

2016

2017

Variation

(In thousands of pesos, except for %)

Other operating income

(496,742
)
(96,765
)
399,977

(80.5
)%
Fuel

5,741,403

7,255,636

1,514,233

26.4
%
Aircraft and engine rent expense

5,590,058

6,072,502

482,444

8.6
%
Landing, take-off and navigation expenses

3,272,051

4,009,915

737,864

22.6
%
Salaries and benefits

2,419,537

2,823,647

404,110

16.7
%
Sales, marketing and distribution expenses

1,413,348

1,691,524

278,176

19.7
%
Maintenance expenses

1,344,110

1,433,147

89,037

6.6
%
Other operating expenses

952,452

1,088,440

135,988

14.3
%
Depreciation and amortization

536,543

548,687

12,144

2.3
%
Total operating expenses, net

20,772,760

24,826,733

4,053,973

19.5
%
~~Total operating expenses, net increased 19.5% in 2017 primarily as a result of growth of operations and other factors described below.~~
~~Other Operating Income.~~ ~~Other operating income decreased Ps.400.0 million or 80.5% in 2017, primarily because of a lower number of sale and leaseback transactions, which resulted in lower profit realized during 2017.~~
~~Fuel.~~ Fuel expense increased 26.4% in 2017 as a result of an increase in the average fuel cost per gallon of 18.1% and an increase in fuel gallons consumed of 7.0% which, in turn, was primarily due to more aircraft in operation and a 6.1% increase in our departures.
During the years ended December 31, 2017 and 2016, we entered into Asian call options contracts. These instruments also qualify for hedge accounting. As a result, during 2017, their extrinsic value of Ps.26.9 million was recycled to the cost of fuel.
~~Aircraft and Engine Rent Expense.~~ ~~Aircraft and engine rent expense increased 8.6%. This increase was primarily driven by: (i) An increase of Ps.821.4 million related to~~adopted IFRS 16 using the full ~~year operation~~retrospective method of adoption in order to provide comparative results in all periods presented, recognizing the ~~nine and eight A320 and A321 aircraft, respectively, (ii) higher aircraft and engine rent expense related to two new net aircraft~~effect in retained earnings as of Ps.9.5 million, and (iii) the depreciation of approximately 1.5% of the average exchange rate of the peso against the U.S. Dollar, which negatively affected our aircraft rent in peso terms in an amount of Ps.57.8 million. These increases where partially offset by (i) Ps.237.2 million related to four aircraft which where disincorporated from our fleet during 2016, (ii) a decrease in our supplemental rent of Ps.142.7 million, and (iii) other rent expenses by Ps.26.3 million.January 1, 2017.

Operating Income. As a result of the factors outlined above, our operating income was Ps. 4,355 million in 2019, a greater than 100% increase compared to our operating income of Ps. 534.8 million in 2018. As a consequence of the adoption of IFRS 16, operating expenses decreased and our operating income increased.

Financial Results

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.

2018 compared to 2019

	For the years ended December 31,
	2018 (Adjusted)⁽¹⁾			2019			Variation

	(In thousands of pesos, except for%)
Financing Results
Finance income		152,603			207,799			55,196		36.2	%
Finance cost		(1,876,312	)		(2,269,829	)		(393,517	)	21.0	%
Exchange (loss) gain, net		(103,790	)		1,440,501			1,544,291		n.a.
Total financing results		(1,827,499	)		(621,529	)		1,205,970		(66.0	)%

~~Landing, Take-off and Navigation Expenses.~~ ~~The 22.6% increase~~
(1) As of January 1, 2019, we adopted IFRS 16 using the full retrospective method of adoption in ~~landing, take-off and navigation expenses~~order to provide comparative results in ~~2017~~all periods presented, recognizing the effect in retained earnings as of January 1, 2017.

Total Financing Results. The 66.0% decrease in our total financing loss in 2019 was primarily due to the increase in our foreign exchange gain, year over year.

During 2019, we recorded an exchange gain of Ps. 1.4 billion, which resulted from the 4.3% appreciation 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 2019. Our U.S. dollar net monetary liability position mainly resulted from the value of our lease liabilities and financial debt. Additionally, our finance income increased by Ps. 55.2 million, mainly due to an increase in our short-term investments as a result of a higher level of Cash during 2019. Our finance cost increased by Ps. 393.5 million, mainly due to an increase in our lease financial cost related to the recognition of IFRS 16 and interest paid on our asset backed trust notes.

Income Tax Expense and Net Income

2019 compared to 2020

	For the years ended December 31,
	2019			2020			Variation

	(In thousands of pesos, except for%)
Net (loss) income
(Loss) income before income tax		3,733,894			(5,699,975	)		(9,433,869	)	>100	%
Income tax benefit (expense)		(1,094,831	)		1,406,184			2,501,015		>100	%
Net (loss) income		2,639,063			(4,293,791	)		(6,932,854	)	>100	%

We recorded a net loss of Ps. 4.3 billion in 2020 compared to a net gain 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 2020 and 2019 was of 24.7% and 29.3%, respectively.

2018 compared to 2019

	For the years ended December 31,
	2018 (Adjusted)⁽¹⁾			2019			Variation

	(In thousands of pesos, except for%)
Net (loss) income
(Loss) income before income tax		(1,292,702	)		3,733,894			5,026,596		n.a.
Income tax benefit (expense)		349,820			(1,094,831	)		(1,444,651	)	n.a.
Net (loss) income		(942,882	)		2,639,063			3,581,945		n.a.

(1)

As of January 1, 2019, we adopted IFRS 16 using the full retrospective method of adoption in order to ~~a 6.2% increase~~provide comparative results in all periods presented, recognizing the ~~number~~effect in retained earnings as of airports served. In addition, our operations as measured by number of departures increased by 6.1%. These increases were partially offset by incentives received from certain airport groups as a result of the growth of our operations.

~~Salaries and Benefits.~~ The 16.7% increase in salaries and benefits in 2017 was primarily the result of a 4.4% increase in our total number of employees, which were required for our increased operations and fleet size. Additionally, the variable compensation of our workforce increased also due to the increased operations recorded duringJanuary 1, 2017. ~~See Item 6: “Directors, Senior Management and Employees—Employees.”~~

~~Sales, Marketing and Distribution Expenses.~~ ~~The 19.7% increase in sales, marketing and distribution expenses was mainly due to additional marketing and distribution expenses related to our efforts to promote the new routes and destinations.~~

~~Maintenance Expenses.~~ The 6.6% increase in maintenance expenses in 2017 was mainly due to our maintenance expenses on a dollar basis, which increased due to the depreciation of approximately 1.5% in the average exchange rate of the peso against the U.S. dollar during 2017. Additionally, during 2017 our fleet size increased 2.9% as a result of the addition of two new net aircraft.

~~Other Operating Expenses.~~ Other operating expenses increased 14.3%. This increase was primarily the result of additional administrative support expenses and technical and communication support required for the growth of our operations. Additionally, during 2017 other operating expenses on a dollar basis increased due to the depreciation of approximately 1.5% in the average exchange rate of the peso against the U.S. dollar during 2017.

~~Depreciation and Amortization.~~ Depreciation and amortization increased 2.3% in 2017 primarily due to the 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 2016 and 2017, we recorded amortization of major maintenance leasehold improvements of Ps.404.7 million and Ps.382.7

We recorded net gain of Ps. 2.6 billion in 2019 compared to a net loss of Ps. 942.9 million in 2018. During the years ended December 31, 2019 and 2018, we recorded a tax (expense) benefit of Ps. (1.1 billion) and Ps. 349.8 million, respectively. At December 31, 2019, our tax loss carry-forwards amounted to Ps. 1.3 billion (Ps. 1.6 billion of December 31, 2018).

During the years ended December 31, 2019 and 2018, we used Ps. 214.5 million and Ps. 154.4 million, in available tax loss carry-forwards, respectively. The effective tax rate during 2019 and 2018 was of 29.3% and 27.1% respectively.

~~Operating Results~~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,
	2018 (Adjusted) ⁽¹⁾			2019			2020

	(In thousands of pesos)
Net cash flows provided by operating activities		6,276,707			9,509,643			4,359,445
Net cash flows used in investing activities		(1,389,395	)		(1,879,341	)		(67,757	)
Net cash flows used in financing activities		(5,946,059	)		(5,238,840	)		(3,040,840	)

~~2017 compared to 2018~~

For the years ended December 31,

2017

2018

Variation

Adjusted(1)

(In thousands of pesos, except for %)

Operating Results

Total operating revenues

24,788,186

27,305,150

2,516,964

10.2
%
Total operating expenses, net

24,826,733

28,185,680

3,358,947

13.5
%
Operating loss

(38,547
)
(880,530
)
(841,983
)
>100
%

(1) On adoption of IFRS 1516 we apply the new standard on the required effective date as of January 1, ~~2018,~~2019, using the full retrospective method of adoption in order to provide for comparative results in all periods presented, recognizing the effect in retained earnings as of January 1, ~~2016.~~
~~Operating Loss.~~ ~~As a result of the factors outlined above, our operating loss was Ps.880.5 million in 2018, a greater than100% increase compared to our operating loss of Ps. 38.5 million in~~ 2017.
~~2016 compared to 2017~~

For the years ended December 31,

2016

2017

Variation

Adjusted(1)

(In thousands of pesos, except for %)

Operating Results

Total operating revenues

23,471,560

24,788,186

1,316,626

5.6
%
Total operating expenses, net

20,772,760

24,826,733

4,053,973

19.5
%
Operating income (loss)

2,698,800

(38,547
)
(2,737,347
)
n.a.

~~(1)~~         On adoption of IFRS 15 we apply the new standard on the required effective date as of January 1, 2018, using the full retrospective method of adoption, in order to provide for comparative results in all periods presented, recognizing the effect in retained earnings as of January 1, 2016.
~~Operating Income (loss).~~ ~~As a result of the factors outlined above, our operating loss was Ps.38.5 million in 2017, compared to our operating income of Ps.2.7 billion in 2016.~~
~~Financial Results~~
~~2017 compared to 2018~~

For the years ended December 31,

2017

2018

Variation

Adjusted(1)

(In thousands of pesos, except for %)

Financing Results

Finance income

105,795

152,603

46,808

44.2
%
Finance cost

(86,357
)
(120,334
)
(33,977
)
39.3
%
Exchange loss, net

(793,854
)
(72,475
)
721,379

(90.9
)%
Total financing results

(774,416
)
(40,206
)
734,210

(94.8
)%
~~(1)~~         On adoption of IFRS 15 we apply the new standard on the required effective date as of January 1, 2018, using the full retrospective method of adoption, in order to provide for comparative results in all periods presented, recognizing the effect in retained earnings as of January 1, 2016.
~~Total Financing Results.~~ ~~The 94.8% decrease in our total financing loss in 2018 was primarily due to the 90% decrease in our foreign exchange loss year over year.~~
During 2018, we recorded an exchange loss of Ps.72.4 million, which resulted from the 0.3% appreciation of the peso against the U.S. dollar at year-end, since we maintained a net monetary asset position of U.S. $428.6 million in 2018. Our U.S. dollar net monetary asset position mainly resulted from the value of our cash and cash equivalents, security deposits and aircraft maintenance deposits. Additionally, our finance income increased Ps.46.8 million, mainly due to an increase in our short-term investments. Our finance cost increased by Ps.34.0 million, mainly due to higher interest paid related to additional working capital financial debt and higher commissions resulting from our letters of credit.
~~2016 compared to 2017~~

For the years ended December 31,

2016

2017

Variation

(In thousands of pesos, except for %)

Financing Results

Finance income

102,591

105,795

3,204

3.1
%
Finance cost

(35,116
)
(86,357
)
(51,241
)
>100.0
%
Exchange (loss), net

2,169,505

(793,854
)
(2,963,359
)
n.a.

Total financing results

2,236,980

(774,416
)
(3,011,396
)
n.a.

~~Total Financing Results.~~ ~~The variation in financing results was primarily due to the foreign exchange loss recorded during 2017 as opposed to a gain in 2016.~~
During 2017, we recorded an exchange loss of Ps.793.9 million, which resulted from the 4.5% appreciation of the peso against the U.S. dollar at year-end, since we maintained a net asset position of U.S. $567.5 million in 2017. Our U.S. dollar net asset position mainly resulted from the value of our cash and cash equivalents, security deposits and aircraft maintenance deposits. Additionally, our finance income increased Ps.3.2 million, mainly due to an increase in short-term investments and our finance cost increased by Ps.51.2 million, mainly due to higher commissions resulting from our credit letters and higher interest paid related to additional financial debt.
~~Income Tax Expense and Net Income~~
~~2017 compared to 2018~~

For the years ended December 31,

2017

2018

Variation

Adjusted(1)

(In thousands of pesos, except for %)

Net loss

Loss before income tax

(812,963
)
(920,736
)
(107,773
)
13.3
%
Income tax benefit

161,175

238,236

77,061

47.8
%
Net loss

(651,788
)
(682,500
)
(30,712
)
4.7
%
~~(1)~~         On adoption of IFRS 15 we apply the new standard on the required effective date as of January 1, 2018, using the full retrospective method of adoption, in order to provide for comparative results in all periods presented, recognizing the effect in retained earnings as of January 1, 2016.
We recorded net loss of Ps.682.5 million in 2018 compared to a net loss of Ps.651.8 million in 2017. During the years ended December 31, 2018 and 2017, we recorded a tax benefit of Ps.238.2 million and Ps.161.2 million, respectively. At December 31, 2018, our tax loss carry-forwards amounted to Ps.1.6 billion (Ps.1.5 billion of December 31, 2017).
During the years ended December 31, 2018 and 2017, we used Ps.154.4 million and Ps.16.4 million, in available tax loss carry-forwards, respectively. The effective tax rate during 2018 and 2017 was of 25.9% and 21.3% respectively.
~~2016 compared to 2017~~

For the years ended December 31,

2016

2017

Variation

Adjusted(1)

(In thousands of pesos, except for %)

Net income (loss)

Income (loss) before income tax

4,935,780

(812,963
)
(5,748,743
)
n.a.

Income tax expense (benefit)

(1,457,182
)
161,175

1,618,357

n.a.

Net income (loss)

3,478,598

(651,788
)
(4,130,386
)
n.a

~~(1)~~         On adoption of IFRS 15 we apply the new standard on the required effective date as of January 1, 2018, using the full retrospective method of adoption, in order to provide for comparative results in all periods presented, recognizing the effect in retained earnings as of January 1, 2016.
We recorded net loss of Ps.651.8 million in 2017 compared to a net income of Ps.3.5 billion in 2016. During the years ended December 31, 2017 and 2016, we recorded a tax benefit of Ps.161.2 million and a tax expense of Ps.1.5 billion, respectively. At December 31, 2017, our tax loss carry-forwards amounted to Ps.1.5 billion (Ps.111.1 million of December 31, 2016).
During the years ended December 31, 2017 and 2016, we used Ps.16.4 million and Ps.195.1 million, in available tax loss carry-forwards, respectively. The effective tax rate during 2017 and 2016 was of 21.3%* and 29.3%, respectively.
*      Calculation of effective tax rate may vary due to the recasted financial statements from prior periods after the adoption of IFRS 15; the tax amount variance was deemed as immaterial.
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,

2016

2017

2018

(In thousands of pesos)

Net cash flows provided by operating activities

978,732

985,869

565,800

Net cash flows used in investing activities

(27,958
)
(2,260,440
)
(1,389,395
)
Net cash flows provided by (used in) financing activities

10,765

1,398,300

(235,152
)
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 rotable spare parts, furniture and 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 committed financing for pre-delivery payments in respect of all the aircraft to be delivered through 2022.
~~Our cash and cash equivalents decreased by Ps.1.1 billion, from Ps.6.9~~

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 committed financing for pre-delivery payments in respect of all the aircraft to be delivered through 2022.

Our cash and cash equivalents increased by Ps. 2.1 billion, from Ps. 8.0 billion at December 31, 2017 to Ps.5.9 billion at December 31, 2018. At December 31, 2018, we had available credit lines totaling Ps.6.7 billion, of which Ps.4.1 billion were related to financial debt and Ps.2.7 billion were related to letters of credit (Ps.1.0 billion were undisbursed). At December 31, 2017, we had available credit lines totaling Ps.7.4 billion, of which Ps.4.6 billion were related to financial debt and Ps.2.8 billion were related to letters of credit (Ps.1.7 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, 2018, 93.9% of our cash, cash equivalents and short-term investments were denominated in U.S. dollars and 6.1% were denominated in pesos. See note 3 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.565.8 million and Ps.985.9 million in 2018 and 2017, respectively. Our net cash flows decreased primarily due to an increase in prepaid expenses and supplier payments as compared to 2017.

Net cash flows provided by operating activities totaled Ps.985.9 million and Ps.978.7 million in 2017 and 2016, respectively. Despite reporting a loss in 2017, our net cash flows increased primarily due to a decrease in prepaid expenses and an increase in accrued liabilities and suppliers in 2017 as compared to 2016.

~~Net cash flows used in investing activities.~~ During 2018, net cash flow used in investing activities totaled Ps.1.4 billion, which consisted primarily of pre-delivery payments for aircraft and engine acquisitions totaling Ps.1.2 billion, partially offset by pre-delivery payments reimbursements totaling Ps.0.6 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.0.8 billion.

During 2017, net cash flow used in investing activities totaled Ps.2.3 billion, which consisted primarily of pre-delivery payments for aircraft and engine acquisitions totaling Ps.1.7 billion, partially offset by pre-delivery payments reimbursements totaling Ps.0.2 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.0.81 billion.

During 2016, net cash flow used in investing activities totaled Ps.28.0 million, which consisted primarily of pre-delivery payments for aircraft and engine acquisitions totaling Ps.1.3 billion, partially offset by pre-delivery payments reimbursements totaling Ps.1.7 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.416.0 million.

~~Net cash flows provided by financing activities.~~ During 2018, net cash flows used in financing activities totaled Ps.0.2 billion, which consisted primarily of 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 of Ps.0.5 billion and interest paid of Ps.0.2 billion, which were partially offset by proceeds from disbursements under our revolving credit facility with Banco Santander and Bancomext of Ps.1.2 billion.

During 2017, net cash flows provided by financing activities totaled Ps.1.4 billion, which consisted primarily of proceeds from disbursements under our revolving credit facility with Banco Santander and Banco Nacional de México S.A. of Ps.1.5 billion, and additional short-term working capital facilities with Banco Nacional de México S.A. and Bank of America México, S.A. of Ps.0.9 billion, which were partially offset by payments of aircraft financing pre-delivery payments for a net amount of Ps.0.2 billion, payments of working capital of Ps. 0.7 billion and interest paid of Ps.0.1 billion.

During 2016, net cash flows provided by financing activities totaled Ps.10.8 million, which consisted primarily of proceeds from disbursements under our revolving credit facility with Banco Santander and Banco Nacional de México S.A. of Ps.1.0 billion, and additional short-term working capital facilities with Banco Nacional de México S.A. and Bank of America México, S.A. of Ps.716.0 million; which were partially offset by payments of aircraft financing pre-delivery payments for a net amount of Ps.1.5 billion, other financing payments of Ps.134.7 million and interest paid of Ps.39.4 million.

~~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 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. On 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. On December 2017, we entered an additional amendment to extend the term of the loan agreement to November 2021. Finally, we entered into one further amendment to this loan agreement on November 2018, to extend the term to May 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 final maturity is on May 31, 2022. Any principal repaid may be re-borrowed until May 31, 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.

In December 2016, we entered into a short-term working capital facility with Banco Nacional de México S.A. in the amount of Ps.406.3 million, bearing annual interest the Interbank Equilibrium Interest Rate (~~tasa de interés interbancaria de equilibrio~~ or the TIIE) 28 days plus 70 basis points. In December 2017, we rolled over this short-term working capital facility with Banco Nacional de México S.A. in the amount of Ps.948.4 million, bearing annual interest at TIIE 28 days plus a spread in a range of 20 to 80 basis points. Finally, in December 2018, we rolled over this short-term working capital facility with Bancomext in the amount of Ps.461.3 million, bearing annual interest at TIIE 28 days plus 90 basis points, with final maturity date in January 2019.

~~As of~~ December 31, 2019 to Ps. 10.1 billion at December 31, 2020. At December 31, 2020 our credit lines totaled Ps. 9.3 billion, of which Ps. 6.9 billion were related to financial debt and Ps. 2.4 billion were related to letters of credit (and of which Ps. 1.7 billion were undisbursed). At December 31, 2019, we had available credit lines totaling Ps. 9.0 billion, of which Ps. 6.6 billion were related to financial debt and Ps. 2.4 billion were related to letters of credit (Ps. 1.7 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, 2020, 98% of our cash, cash equivalents and short-term investments were denominated in U.S. dollars and 2% were denominated in pesos. See note 3 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. 9.5 billion in 2020 and 2019, 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 provided by operating activities totaled Ps. 9.5 billion and Ps. 6.3 billion in 2019 and 2018, respectively. Our net cash flows increased primarily due to a significant increase in unearned transportation revenue as compared to 2018.

Net cash flows used in investing activities. 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.

During 2018, net cash flow used in investing activities totaled Ps. 1.4 billion, which consisted primarily of pre-delivery payments for aircraft and engine acquisitions totaling Ps. 1.2 billion, partially offset by pre-delivery payments reimbursements totaling Ps. 0.6 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. 0.8 billion.

Net cash flow used in financing activities. 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.

During 2018, net cash flows used in financing activities totaled Ps. 5.9 billion, which consisted primarily of payments of the principal portion of lease liabilities of Ps. 5.7 billion (aircraft and spare engine rent payments), 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. 0.2 billion, which were partially offset by proceeds from disbursements under our revolving credit facility with Banco Santander and Bancomext of Ps. 1.2 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 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 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 (“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.

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 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 America. On April 16, 2021, the Mexican authorities recognized the trademark “Volaris” in the category of 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.

We operate software products under licenses from our vendors, including Jeppesen Systems AB and Navitaire LLC. Under our agreements with Airbus, we use Airbus’ proprietary information to maintain our aircraft.

Trend Information

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

E. Off-Balance Sheet Arrangements

None of our operating lease obligations are reflected on our statements of financial position. We are responsible for all maintenance, insurance and other costs associated with operating these aircraft; however, we have not made any residual value guarantee to our lessors.

F. Tabular Disclosure of Contractual Obligations

The following table sets forth certain contractual obligations as of December 31, 2020:

	Contractual Obligations* Payments due by Period
	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years

		(In thousands of pesos)
Debt⁽¹⁾		5,370,175		1,566,106		3,554,069		250,000		-
Lease liabilities⁽²⁾		44,130,542		6,484,092		11,235,142		8,677,232		17,734,076
Future lease liabilities⁽³⁾		15,134,381		193,901		2,218,176		2,522,394		10,199,910
Flight equipment, spare engines and spare parts purchase obligations⁽⁴⁾		87,213,622		802,197		8,074,336		30,971,314		47,365,775
Total future payments on contractual obligations		151,848,720		9,046,296		25,081,723		42,420,940		75,299,761

~~The following table sets forth certain contractual obligations as of December 31, 2018:~~

Contractual Obligations*
Payments due by Period

Total

Less than 1
year

1 to 3 years

3 to 5 years

More than 5
years

(In thousands of pesos)

Debt(1)

3,523,198

1,212,259

2,285,852

25,087

—

Operating lease obligations(2)

45,954,985

6,080,953

11,768,366

10,344,368

17,761,298

Flight equipment, spare engines and spare parts purchase obligations(3)

21,064,384

1,506,903

5,940,142

5,847,475

7,769,864

Total future payments on contractual obligations

70,542,567

8,800,115

19,994,360

16,216,844

25,531,248

(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 ~~2011,~~2017, we signed an amendment to our purchase agreement with Airbus ~~for an additional order of 44 A320 family~~to purchase 80 aircraft ~~for delivery between 2014 and 2020.~~
which we are committed to receive from 2022 to 2026.
* *Disclosure of contractual obligations does not include obligations relating to our post-employment benefits which totaled ~~Ps.18.2~~Ps. 50.6 million at December 31, ~~2018.~~
Committed expenditures for these aircraft, spare engines, spare parts and related flight equipment, including estimated amounts for contractual price escalations of pre-delivery payments, will be approximately Ps.21.1 billion from 2019 to 2022 and thereafter.
~~In 2019, we expect our capital expenditures, excluding pre-delivery payments, to be Ps.1.6~~2020.

Committed expenditures for these aircraft, spare engines, spare parts and related flight equipment, including estimated amounts for contractual price escalations of pre-delivery payments, will be approximately Ps. 18.6 billion from 2021 to 2026 and thereafter.

In 2021, we expect our capital expenditures, excluding pre-delivery payments, to be Ps. 87.2 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).

G. Safe Harbor

Not applicable.

~~ITEM~~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 principal 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

~~Board of Directors~~Alternate*

~~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%~~

Brian H. Franke

Chairman 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 12 principal members, of which 50% are independent.

Set forth below are the name, age, position and biographical description of each of our directors as of the date of this report. The business address of our directors is that of our principal office.

~~Name~~	~~Age~~	~~Title~~	Alternate* Board	Andrew Broderick
William A. Franke	84	Director	Andrew Broderick
Harry F. Krensky	57	Director
Marco Baldocchi Kriete	47	Director	Rodrigo Antonio Escobar Nottebohm
~~Alfonso González Migoya~~	74	~~Independent Director and Chairman of the Board~~
~~Brian H. Franke~~	55	~~Director~~	~~John R. Wilson / Andrew Broderick~~
~~William A. Franke~~	82	~~Director~~	~~John R. Wilson / Andrew Broderick~~
~~Harry F. Krensky~~	55	~~Director~~
~~Roberto José Kriete Ávila~~	66	~~Director~~	~~Rodrigo Salcedo Moore / Marco Baldocchi Kriete~~
~~Stanley L. Pace~~	65	~~Independent Director~~
~~William Dean Donovan~~	57	~~Independent Director~~
~~Enrique Javier Beltranena Mejicano~~	56	~~Director~~	~~Rodrigo Salcedo Moore / Marco Baldocchi Kriete~~
~~José Luis Fernández Fernández~~	59	~~Independent Director~~	~~José Carlos Silva Sánchez-Gavito~~
~~Joaquín Alberto Palomo Déneke~~	68	~~Independent Director~~	~~José Carlos Silva Sánchez-Gavito~~
~~John A. Slowik~~	68	~~Independent Director~~	~~José Carlos Silva Sánchez-Gavito~~
~~Ricardo Maldonado Yañez~~	51	~~Independent Director~~	~~Eugenio Macouzet de León~~

* ~~Alternate directors are authorized to act on behalf of their respective directors in the event of such directors’ inability to attend board meetings.~~

Alfonso González Migoya has been one of our directors and chairman of the board since November 2014. He is also a director at FEMSA, Coca Cola FEMSA, Bolsa Mexicana de Valores and Instituto Tecnológico de Estudios Superiores de Monterrey (ITESM), among others. Previously, Mr. González was chairman and chief executive officer of Grupo Industrial Saltillo, chief executive officer of Servicios Interpuerto Monterrey, held different senior roles in Grupo ALFA and was executive vice president and chief financial officer of senior executive Grupo Financiero BBVA Bancomer. Mr. González holds a Bachelor of Science in Electromechanical Engineering from ITESM and a Master of Business Administration from Stanford University Graduate School of Business.

~~Brian H. Franke~~ has been one of our directors since 2010. Mr. Franke has previously been a member of the board of directors of Tiger Airways Holdings (Singapore) since 2008 and Tiger Airways Australia since May 2009. Currently, he is a principal specializing in aviation investments with Indigo Partners LLC, a private equity firm based in the United States. He is also a member of the board of directors of Frontier. 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 marketing manager for United Brands Inc., a U.S. distribution and licensing company for consumer goods, from 1987 to 1989. Mr. Franke holds a Bachelor of Science in Business from the University of Arizona and a Masters of International Management from Thunderbird School of Global Management. He is William A. Franke’s son.

~~William A. Franke~~ has been one of our 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 Airlines (Chile) and Energet (Canada) and was the founding chairman of Tiger Airways Holdings (Singapore), a member of the board of directors of Spirit and the chief executive officer/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 has undergraduate and graduate degrees from Stanford University. He also has an honorary doctorate from Northern Arizona University awarded in 2008. He is Brian H. Franke’s father.

~~Harry F. Krensky~~ has been one of our directors since our founding. He is also a member of the board of directors of transportation company Traxion, hospital operator H+ (SISI) and education company MeritEd International. 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 was a member of the Board of Trustees of Colby College. Mr. Krensky has a Bachelor of Arts from Colby College, a master’s degree from the London School of Economics and Political Science and a Master of Business Administration from the Columbia University Graduate School of Business.

~~Roberto José Kriete Avila~~ was a founder of Volaris and has been one of our directors since 2005. He has an active role in managing private investments in sectors such as aviation, real estate, agribusiness and hotels. Mr. Kriete is also chairman of the board of Aeromantenimiento, S.A., a member of the board of Avianca Holdings, a member of the boards of Teléfonos de Mexico, S.A.B. de C.V., vice chairman of the board of the Agape Foundation in El Salvador, former president of the Latin American and Caribbean Air Transport Association (ALTA), and has been a member of the Escuela Superior de Economía y Negocios (ESEN). He has also served as a member of the boards of Banco Agrícola of El Salvador, Fundación Empresarial para el Desarrollo Educativo (FEPADE) and Fundación Salvadoreña para la Salud y el Desarrollo Humano (FUSAL). Mr. Kriete has an undergraduate degree from the University of Santa Clara and a Master of Business Administration from Boston College. He is Marco Baldocchi Kriete’s uncle.

Independent Director

Stanley L. Pacehas been one of our directors since April 2017. He is a senior partner and director at Bain & Company where he has served as a member and chairman of most of the company’s key governance boards. 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. For a period of two years in the late 1990s, Mr. Pace became the chief executive officer of ATA. At that time, ATA was the largest charter airline in the world. Mr. Pace received an undergraduate degree in finance from the University of Utah where he graduated as valedictorian. He later received his Master of Business Administration from Harvard Business School where he graduated with high distinction.

Independent Director

William Dean ~~Donavan~~ ~~has been one of our directors since 2010 (prior to April 2017, he served as an alternate director). He is a Managing~~Donovan

Independent Director of Diamond Stream Partners and is a senior director of Discovery Americas, a Mexico City based private equity fund. Mr. Donovan sits on the boards of Prophet Brand Strategy, a marketing consultancy, and Stellar Labs, a software company focused on floating fleet optimization and revenue management in the private aviation space. In 2005, he co-founded Volaris along with several other parties. Between 1989 and 2003, Mr. Donovan worked with Bain & Company. He was Managing Director of Bain Africa between 1999 and 2002 and head of Bain’s airline practice and auto practice at various times. In 2005, Mr. Donovan co-founded Diamond Stream, a SaaS analytics application for the Travel and Entertainment 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 received his Bachelor of Arts from the University of California Berkeley, where he graduated Phi Beta Kappa and Summa Cum Laude, and his Master of Business Administration from the Wharton School at the University of Pennsylvania.

Enrique ~~Beltranena~~ has been our chief executive officer since March 2006 and one of our directors since September 2016. Previously he 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 of Aviateca in Guatemala. Mr.Javier 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. Mr. Beltranena was named to the Entrepreneur of The Year Hall of Fame in Monaco after being nominated by Ernst & Young—Innovation in 2012. He was also named Entrepreneur of The Year in Mexico after being nominated by Ernst & Young—Mexico in 2011. He also received the National Order of Merit (Knight’s Badge) from the President of France. Currently Mr. Beltranena serves as Chairman of the Superior Council of the Universidad Panamericana in Mexico and of the IPADE Business School.

Mejicano

Director

José Luis Fernández Fernández has been one of our independent directors since 2012 and he also serves as the chairman of our audit committee. 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 Arca Continental, S.A.B. de C.V. Mr. Fernández is a partner at Chevez Ruiz Zamarripa. Mr. Fernández has a degree in Public Accounting from Universidad Iberoamericana and a certification issued by the Mexican Institute of Public Accountants.

Independent Director

José Carlos Silva Sánchez-Gavito

Joaquín Alberto Palomo Déneke has been one of our directors since 2005 and he also serves as a member of our audit committee. He is also a member of the boards of directors of Aeroman and Avianca. 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 negotiated the financing of more than $1 billion in aircraft leases, sales and leasebacks. Mr. Palomo has a Bachelor of Science degree in Agricultural Economics from Texas A&M University.

Independent Director

José Carlos Silva Sánchez-Gavito

John A. Slowik has been one of our directors since 2012 and he also serves as a member of our audit committee. 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 Rotor Engine Securitization, Ltd. and Turbine USA LLC, private commercial jet engine leasing companies operating out of Ireland and the United States, respectively. He is a board member and chairs the audit committee of Quintillion Holdings, LLC and Quintillion Subsea Holdings, LLC, a privately held company operating a subsea fiber optic cable system connecting Nome, Alaska to Prudhoe Bay, Alaska, with four landing stations in between, and a terrestrial fiber optic cable system connecting Prudhoe Bay to Fairbanks, Alaska. Mr. Slowik also serves as a senior advisor to VoloFin, a specialty finance company focused on delivering innovative financing solutions for the commercial aviation market. Mr. Slowik has an undergraduate degree in Mechanical Engineering from Marquette University and a Masters in Management from the Kellogg School, Northwestern University.

Independent Director

José Carlos Silva Sánchez-Gavito

Ricardo Maldonado Yañez has been one of our independent directors since April 2018. He is a partner at Mijares, Angoita, Cortéss y Fuentes, S.C. since 1999. Mr. Maldonado has over 20 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 a number of domestic and international, 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 serves as member and/or secretary of the Board of Directors of several companies including Grupo Televisa, Consorcio Ara, Grupo Axo, SeaMex Ltd., Biossmann Group, Empresas Cablevisió

Independent Director

Eugenio Macouzet de León Grupo Famsa, Grupo Pueblo Bonito, Grupo Aeroportuario del Centro Norte (OMA), Grupo Financiero Banorte and Endeavor Mexico. Mr. Maldonado received his LLM from University of Chicago Law School, holds a certificate

Guadalupe Phillips Margain

Independent Director

Mónica Aspe Bernal

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 been one of our directors since 2010 and chairman of the board since April 2020. Currently, he is a principal specializing in aviation investments with Indigo Partners LLC, a private equity firm based in the United States. Mr. Franke has previously been a member of the board of directors of Tiger Airways Holdings (Singapore) since 2008 and Tiger Airways Australia since May 2009. He is also a member of the board of directors of Frontier, JetSMART (Chile) and APiJET, which he joined in 2020. 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 marketing manager for United Brands Inc., a U.S. distribution and licensing company for consumer goods, from 1987 to 1989. Mr. Franke holds a Bachelor of Science in Business from the University of Arizona and a Masters of 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.

William A. Franke has been one of our 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), Energet (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/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 has undergraduate and graduate degrees from Stanford University. He also has an honorary doctorate from Northern Arizona University awarded in 2008. He is Brian H. Franke’s father.

Harry F. Krensky has been one of our directors since our founding. He is also a member of the board of directors of transportation company Traxion, hospital operator H+ (SISI) and education company AMCO International. 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 has a Bachelor of Arts from Colby College, a master’s degree from the London School of Economics and Political Science and a Master of Business Administration from the Columbia University Graduate School of Business.

Marco Baldocchi Kriete has been one of our directors since April 2020. He previously he served as an interim director beginning in July 2019 and as an alternate director beginning in 2010. 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 Aeromantenimiento (MRO Holdings, Inc.). Past board experience includes Onelink Holdings, Avianca-Taca and Banco Agricola. Mr. Baldocchi has a Bachelor of Arts from Vanderbilt University and a Master of Business Administration from the Kellogg School of Management.

Alfonso González Migoya has been one of our directors since November 2014. He served as our chairman of the board from November 2014 to April 2020. He is also a director at FEMSA, Coca Cola FEMSA, Bolsa Mexicana de Valores and Instituto Tecnológico de Estudios Superiores de Monterrey (ITESM), among others. Previously, Mr. González was chairman and chief executive officer of Grupo Industrial Saltillo, chief executive officer of Servicios Interpuerto Monterrey, held different senior roles in Grupo ALFA and was executive vice president and chief financial officer of senior executive Grupo Financiero BBVA Bancomer. Mr. González holds a Bachelor of Science in Electromechanical Engineering from ITESM and a Master of Business Administration from Stanford University Graduate School of Business.

Stanley L. Pace has been one of our directors since April 2017. He is a senior partner and director at Bain & Company where he has served as a member and chairman of most of the company’s key governance boards. 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. For a period of two years in the late 1990s, Mr. Pace became the chief executive officer of ATA. At that time, ATA was the largest charter airline in the world. Mr. Pace received an undergraduate degree in finance from the University of Utah where he graduated as valedictorian. He later received his Master of Business Administration from Harvard Business School where he graduated with high distinction.

William Dean Donavan has been one of our directors since 2010 (prior to April 2017, he served as an alternate director). Mr. Donovan sits on the boards of Prophet Brand Strategy, a marketing consultancy, and was a board member at the Metropolitan Bank. In 2005, he co-founded Volaris along with several other parties. Between 1989 and 2003, Mr. Donovan worked with Bain & Company. He was Managing Director of Bain Africa between 1999 and 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 received his Bachelor of Arts from the University of California Berkeley, where he graduated Phi Beta Kappa and Summa Cum Laude, and his Master of Business Administration from the Wharton School at the University of Pennsylvania.

Enrique Beltranena has been our chief executive officer since March 2006 and one of our directors since September 2016. Previously he 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 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 with the Federico Bloch Awards by the Latin American & Caribbean Air Transport Association. Mr. Beltranena was named to the Entrepreneur of The Year Hall of Fame in Monaco after being nominated by Ernst & Young—Innovation in 2012. He was also named Entrepreneur of The Year in Mexico after being nominated by Ernst & Young—Mexico in 2011. He also received the National Order of Merit (Knight’s Badge) from the President of France.

José Luis Fernández Fernández has been one of our independent directors since 2012 and he also serves as the chairman of our audit and corporate governance committee. 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 Arca Continental, S.A.B. de C.V. Mr. Fernández is a non-managing limited partner at Chevez Ruiz Zamarripa. Mr. Fernández has a degree in Public Accounting from Universidad Iberoamericana and a certification issued by the Mexican Institute of Public Accountants.

Joaquín Alberto Palomo Déneke has been one of our directors since 2005 and he also serves as a member of our audit and corporate governance committee. 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 negotiated the financing of more than $1 billion in aircraft leases, sales and leasebacks. Mr. Palomo has a Bachelor of Science degree in Agricultural Economics from Texas A&M University.

John A. Slowik has been one of our directors since 2012 and he also serves as a member of our audit and corporate governance committee. 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 board member and chairs 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 an undergraduate degree in Mechanical Engineering from Marquette University and a Masters in Management from the Kellogg School, Northwestern University.

Ricardo Maldonado Yañez has been one of our independent directors since April 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 and/or secretary of the board of directors of several companies including Grupo Televisa, Consorcio Arca, Grupo Aeroportuario del Centro Norte (OMA) and ICA Tenedora, S.A. de C.V. Mr. Maldonado received his LLM from University of Chicago Law School, holds a certificate on Corporate Law from the Instituto Tecnologico Autónomo de México and holds a law degree from the Universidad Nacional Autónoma de México. He is a member of the National Association of Corporate Directors (NCD) and of the International Corporate Governance Network (ICGN).

Guadalupe Phillips Margain has been one of our directors since April 2020. She is the Chief Executive Officer of Empresas ICA Tenedora, S.A. de C.V. Previously she 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 Ph.D. and a M.A.L.D. (Master of Arts in Law and Diplomacy) from The Fletcher School of Law and Diplomacy, Tufts University and holds a law degree from the Instituto Tecnológico Autónomo de México.

Mónica Aspe Bernal has been one of our directors since April 2020. She is the Chief Executive Officer of AT&T, Mexico. Previously she was ambassador in the Permanent Delegation of Mexico to the OECD. She served as Vice-Minister of Communications of the Ministry of Communications and Transportation. Ms. Aspe holds a Masters in Political Science from Columbia University and holds a degree on Political Science from the Instituto Tecnológico Autónomo de México.

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.

~~Senior Management~~Name

Age

~~Our executive officers are appointed by our board of directors, pursuant to a proposal made by our compensation committee, for an indefinite term~~Title

Enrique Beltranena

President 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.~~

~~Name~~	~~Age~~	~~Title~~
~~Enrique Beltranena~~	56	~~President and~~ Chief Executive Officer
~~Sonia Jerez~~	49	~~Vice President and Chief Financial Officer~~
~~Jaime Pous~~	49	~~Senior Vice President - Chief Legal Officer and Corporate Affairs~~
~~José Luis Suárez~~	51	~~Senior Vice President and Chief Operating Officer~~
~~Holger Blankenstein~~	44	~~Executive Vice President Airline Commercial and Operations~~
~~Carlos Alberto González~~	45	~~Corporate Control, Compliance and Administration Director~~
~~Carolyn Prowse~~	46	~~Vice President and Chief Commercial Officer~~

~~Sonia Jerez~~ ~~has been our~~

Holger Blankenstein

Executive Vice President Airline Commercial and chief financial officer since January 2019. Ms. Jerez has extensive experience in the airline industry and the telecom sector. Prior to joining us, she worked as the chief financial officer of WIZZ AIR Hungary Ltd., and VUELING Airlines (IAG Group, London). Ms. Jerez received her Executive Master of Business Administration from University of Chicago, and holds a Bachelor of Electronics Superior Engineer and Physics Science from the Instituto University of Barcelona.

Operations

Jaime E. Pous ~~has been our general counsel since January 2013 and our~~

Senior Vice President since November 2017. Prior to joining us, Mr. Pous worked at Grupo Televisa, where he had been legal director from 1999 to 2012. Mr. Pous received his LLM from The University of Texas at Austin, School of Law and holds a law degree from the Instituto Tecnológico Autónomo de México (ITAM).

Chief Financial Officer

José Luis Suárez ~~has been our chief operating officer since October 2015 and our~~

Senior Vice President since November 2017. He joined Volaris in early 2006 as sales director. In 2012, he occupied the position of Retail and Customer Service Director, where he supervised the airport operations, ramp management, flight attendants and customer solutions. Prior to joining us, Mr. Suárez Durán worked for ten years at Sabre Holdings. Mr. Suárez Durán received his Masters in Science in Industrial Engineering and Masters in Business Administration from the University of Missouri, Columbia. He also holds a degree in Executive Management from IPADE and a Bachelor of Science in Industrial Engineering (Cum Laude) from the Universidad Iberoamericana.

Chief Operating Officer

~~Holger Blankenstein~~Carolyn Prowse⁽¹⁾ has been our Executive Vice President since November 2017, in charge of the commercial, digital, operations, customer service and maintenance areas of the company. Prior to his current role, Blankenstein was the

Chief Commercial Officer ~~leading the areas of sales, marketing, planning, itineraries, revenue management~~

Alejandro Alba

Corporate Controller and ~~cargo and leading the IT department. Blankenstein was part of the team that took the airline public in 2013; he has been with Volaris~~Compliance Director

Jimmy Zadigue

Internal Audit Director

Isela Cervantes

Interim Chief Legal Officer

⁽¹⁾ On April 29, 2021, our board of directors was advised that Carolyn Prowse has resigned from her position effective May 7, 2021. Holger Blankenstein, our Executive Vice President Airline Commercial and Operations, will temporarily assume the functions of the commercial vice-presidency while a replacement is appointed.

Holger Blankenstein has been our Executive Vice President Airline Commercial and Operations since November 2017, in charge of the commercial, digital, operations, customer service and maintenance areas of the company. Prior to his current role, Blankenstein was the Chief Commercial Officer since 2009, leading the areas of sales, marketing, planning, itineraries, revenue management and cargo and leading the IT department. Blankenstein was part of the team that took the Company public in 2013; he has been with the Company since its inception in 2005, as one of the founding members of the team he was involved both in the setting up and launching of the airline. 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 earned an MBA from the University of Iowa and a graduate degree in business and economics from Goethe University in Frankfurt, Germany.

Jaime E. Pous has been our Chief Financial Officer since March 2021. Previously he served as our interim Chief Financial Officer since June 2020 and as our Senior Vice President Chief Legal Officer and Corporate Affairs since November 2017. Prior thereto, he served as our legal executive director since January 2016 and our general counsel since January 2013. Additionally, he has served as secretary of our board of directors since 2018 and secretary of our audit and corporate governance committee since 2013. Prior to joining us, he worked at Grupo Televisa, where he had been legal director from 1999 to 2012. Mr. Pous received his LLM from The University of Texas at Austin, School of Law and holds a law degree from the Instituto Tecnológico Autónomo de México (ITAM).

José Luis Suárez has been our Chief Operating Officer since October 2015. He joined Volaris in early 2006 as sales director. In 2012, he occupied the position of Retail and Customer Service Director, where he supervised the airport operations, ramp management, flight attendants and customer solutions. Prior to joining us, Mr. Suárez Durán worked for ten years at Sabre Holdings. Mr. Suárez Durán received his Masters in Science in Industrial Engineering and Masters in Business Administration from the University of Missouri, Columbia. He also holds a degree in Executive Management from IPADE and a Bachelor of Science in Industrial Engineering (Cum Laude) from the Universidad Iberoamericana.

Carolyn Prowse has been our Chief Commercial Officer since March 2019. Prior to joining us, Ms. Prowse ran her own business advising aviation clients in Europe, Africa and the Indian Ocean and the Middle East on a wide range of topics including strategy, transformation and restructuring. Most recently, she was working with easyJet on their 5-year plan and core strategic initiatives, and other clients include advisory firms, hedge funds and both full service and low cost airlines and their shareholders. From 2011-2013 she was Senior Vice President, Corporate Strategy and Special Projects for Etihad Airways in Abu Dhabi, responsible for strategy, mergers & acquisitions, the corporate programme management office and other key initiatives and special projects.

~~Carlos Alberto González~~ has been our corporate control, compliance and administration director since January 2019, and has previously been our corporate control and compliance director since June 2016 and our corporate control director from June 2010 to May 2016. Currently, he is responsible for accounting, reporting, internal control, process, revenue assurance, taxes and administration operations. He has been with us since April 2006. Prior to joining us, he worked as a financial planning and control manager in Mexico and in Spain for Grupo Telefonica Moviles. Additionally, he previously was a senior associate at PricewaterhouseCoopers and an internal auditor analyst at Scotiabank Inverlat. Mr. González is a Certified Public Accountant with a post-graduate degree in Corporate Finance from ISEC University and he also holds a Masters of Business Administration degree from Antonio de Nebrija University in Spain.

~~Carolyn Prowse~~ has been our Vice President and chief commercial officer since March 2019. Prior to joining us, Ms. Prowse ran her own business advising aviation clients in Europe, Africa and the Indian Ocean and the Middle East on a wide range of topics including strategy, transformation and restructuring. Most recently, she was working with easyJet on their 5 year plan and core strategic initiatives, and other clients include advisory firms, hedge funds and both full service and low cost airlines and their shareholders. From 2011-2013 she was Senior Vice President, Corporate Strategy and Special Projects for Etihad Airways in Abu Dhabi, responsible for strategy, mergers & acquisitions, the corporate programme management office and other key initiatives and special projects.

Her career in aviation also includes ten years with British Airways Plc in London. Carolyn’s background also includes roles in investment banking (managing a global portfolio of private equity, investment banking and strategic investments) and strategy consulting with LEK Consulting. She has a Bachelor degree in Chemistry from the University of Oxford. On April 29, 2021, our board of directors was advised that Ms. Prowse has resigned from her position effective May 7, 2021. Holger Blankenstein, our Executive Vice President Airline Commercial and Operations, will temporarily assume the functions of the commercial vice-presidency while a replacement is appointed.

Alejandro Alba has been our Corporate Controller and Compliance Director since November 2020. He previously served as our Internal Audit Director since July 2019. Prior to joining Volaris, he was the Senior Internal Audit Director at Walmart Mexico and Central America, Chief Audit Executive at Grupo Bimbo and Risk Managing Partner for Mexico and Central America at EY. He has extensive experience in the fields of audit, risk, internal control and corporate governance. He was named a leader of the future by the magazine Expansion, which recognized him as one of the most influential young leaders in Mexico. Mr. Alba holds a degree in accounting and received his MBA from Arizona State University. He has completed postgraduate studies at MIT, IPADE, ITEMS, and ITAM and possesses the following certifications: CIA (Certified Internal Auditor), CRMA (Certification in Risk Management Assurance), PMP (Project Management Professional), CQIA (Certified Quality Improvement Associate), Certification in Technology, Operations, and Value Chain Management, CCSA (Certification in Control Self-Assessment), and CGAP (Certified Government Auditing Professional).

Jimmy Zadigue has been our Internal Audit Director since November 2020. He previously served as our Internal Audit Director from April 2011 to February 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. He holds a Bachelor of Business Administration degree from HEC-Montreal and a Master of Science degree in Accounting Sciences from the Université du Québec.

Isela Cervantes has been our interim Chief Legal Officer since March 2021 and holds the position of deputy secretary of the board of directors. She joined us in June 2007 and previously was in charge of the legal corporate and securities compliance department. She holds a Law Degree from Escuela Libre de Derecho and received her LLM from Universidad Panamericana.

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, (vii) initiate actions in respect of liabilities caused by us, (viii) comply with applicable law in respect of dividend payments, 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~~B. Compensation

Director and Executive Compensation

In 2018, 2019 and 2020, the senior manager positions listed in this annual report received an aggregate compensation of approximately Ps. 120.4 million, Ps. 154.9 million and Ps. 142.6 million, respectively. In 2018 and 2019, the chairman of our board of directors and the independent members of our board of directors received an aggregate compensation of approximately Ps. 9.2 million and Ps. 8.1 million, respectively, and the rest of the directors received an aggregate compensation of Ps. 5.2 million and Ps. 4.4 million, respectively. In 2020, the members of our board of directors received an aggregate compensation of approximately Ps. 9.5 million.

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

In December 2012, our shareholders approved a share incentive plan for the benefit of certain executive officers. Under this plan, designated officers generally may receive up to 3.0% of our capital stock on a fully diluted basis immediately prior to the completion of the related performance condition (consummation of our initial public offering or change of control), exercisable after such performance condition and for a period of ten years. To implement the plan, our shareholders approved (i) the issuance of an aggregate of 25,164,126 Series A and Series B shares, representing 3.0% of our capital stock, (ii) the transfer of such shares to the Management Trust for the benefit of certain officers and (iii) the execution of share sales agreements setting forth the terms and conditions upon which the officers will receive purchased shares from the trustee of the Management Trust.

On December 24, 2012, the Administrative Trust was created and the share sales agreements were executed. On December 27, 2012, the trust acquired the aforementioned shares. The shares accrue any dividends paid by us during the time elapsing prior to the delivery to officers upon payment therefore.

On September 18, 2013, the key employees participating in the management incentive plan exercised 4,891,410 shares. As a result, the key employees paid Ps. 25.9 million to the trust corresponding to the exercised shares. Thereafter, we received from the trust the payment related to the exercised shares by the key employees as a repayment of the loan between the company and the trust.

On November 16, 2015, as part of our secondary follow-on equity offering, the key employees exercised 4,414,860 Series A shares. The key employees paid Ps. 23.5 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 2016, the key employees participating in the management incentive plan exercised 3,299,999 Series A shares. The key employees paid Ps. 17.5 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 2017, the key employees participating in the management incentive plan exercised 120,000 Series A shares. The key employees paid Ps. 0.6 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 2018, the key employees participating in the management incentive plan exercised 2,003,876 Series A shares. The key employees paid Ps. 10.7 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.

At December 31, 2018, 2019 and 2020, the shares held in trust to satisfy the management options were considered as treasury shares. As of December 31, 2018, 2019 and 2020, 10,433,981, 7,653,981 and 7,653,981 share options were vested, respectively.

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 (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 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, 2020, 2019 and 2018 was Ps. 177.8 million, Ps. 70.6 million and Ps. 32.8 million, respectively. 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, 2020, 2019 and 2018 we recorded a cost (benefit) of Ps. 107.2 million, Ps. 37.8 million and Ps. (5.1) million, respectively, associated with these SARs in our consolidated statements of operations. No SARs were exercised during 2020.

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 (“BoDIP”). The BoDIP was implemented through the execution of: (i) a trust agreement number CIB/3081 created by us, as trustor, and CIBanco, S.A., Institución de Banca Múltiple, 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 four 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.

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)

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. In April 2016, an extension to this plan was approved at our annual ordinary shareholders’ meeting, with an effective date in November 2015. The key components of the plan are as follows:

~~Director and Executive Compensation~~

In 2018, the senior managers positions listed in this annual report, received an aggregate compensation of approximately Ps.120.4 million. The chairman and the independent members of our board of directors received an aggregate compensation of approximately Ps.7.2 million, and the rest of the directors received a compensation of Ps.5.2 million.

~~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 Plan~~

During 2010, we adopted an employee long-term retention 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 share purchase plan (equity-settled) and share appreciation rights plan (cash-settled).

~~Long-term Incentive Plans~~

~~Share Purchase Plan~~

In November 2014, we have established a share purchase 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. In April 2016, an extension to this plan was approved at our annual ordinary shareholders’ meeting, with an effective date in November 2015. 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~~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~~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’~~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.

In November 2018, November 2017 and October 2016, extensions to this share purchase plan were approved by our board of directors. The total cost of the extensions approved was Ps.64.0 million (or Ps.41.6 million net of withheld taxes), Ps.15.8 million (or Ps.10.1 million net of withheld taxes), Ps.14.5 million (or Ps.9.5 million, net of withheld taxes) and Ps.11.6 million (or Ps.7.6 million, net of withheld taxes), respectively. Under these extensions, 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 2016,~~ 2017, an extension to this plan was approved by our board of directors. The total cost of the extensions approved was Ps. 15.8 million (or Ps. 10.1 million net of withheld taxes). Under the terms of the incentive plan, 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 2020, 2019 and 2018, extensions to this plan were approved by our board of directors. The total cost of the extensions approved was Ps. 92.1 million (or Ps. 59.9 million net of withheld taxes), Ps. 86.8 million (or Ps. 56.4 million net of withheld taxes) and Ps. 64.0 million (or Ps. 41.6 million net of withheld taxes), respectively. Under these extensions, 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 the years ended December 31, 2018, 2019 and 2020, 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, 2020, 327,217 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.

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 at the 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 2018, 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.

During the year ended December 31, 2018, 2019 and 2020, we made a cash payment to key employees related to the SARs plan of Ps. 0.0 million, 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 2020, 2019 and 2018, ~~we recognized Ps.7.8 million, Ps.13.5 million and Ps.20.0 million, respectively, as compensation expense associated with the share purchase plan in our consolidated statements of operations.~~

During the years ended December 31, 2016, 2017 and 2018, 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, 2018, 121,451 shares were forfeited.

At December 31, 2018, 3,553,295 shares were held in trust under this share purchase 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.

~~Share Appreciation Rights~~

On November 6, 2016, November��6, 2017 and November 6, 2018, we granted 2,044,604 SARs, 3,965,351 SARs, and 0.0 SARs, respectively 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.14.5 million, Ps.15.8 million and Ps.0.0, respectively.

During the year ended December 31, 2016, 2017 and 2018, we made a cash payment to key employees related to the SARs plan of Ps.31.3 million, Ps.6.0 million and Ps.0.0, 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 2018, 2017 and 2016, respectively.

~~Management Incentive Plan~~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.

On December 24, 2012, the Management Trust was created and the share sales agreements were executed. On December 27, 2012, the trust acquired the aforementioned shares. The shares will accrue any dividends paid by us during the time elapsing prior to the delivery to officers upon payment therefore.

On September 18, 2013, the key employees participating in the management incentive plan exercised 4,891,410 shares. As a result, the key employees paid Ps.25.9 million to the trust corresponding to the exercised shares. Thereafter, we received from the trust the payment related to the exercised shares by the key employees as a repayment of the loan between the company and the trust.

On November 16, 2015, as part of our secondary follow-on equity offering, the key employees exercised 4,414,860 Series A shares. The key employees paid Ps.23.5 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 2016, the key employees participating in the management incentive plan exercised 3,299,999 Series A shares. The key employees paid Ps.17.5 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 2017, the key employees participating in the management incentive plan exercised 120,000 Series A shares. The key employees paid Ps.0.6 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 2018, the key employees participating in the management incentive plan exercised 2,003,876 Series A shares. The key employees paid Ps.10.7 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.

At December 31, 2018, 2017 and 2016, the shares held in trust to satisfy the management options were considered as treasury shares. As of December 31, 2016, 2017 and 2018, 12,557,857, 12,437,857 and 10,433,981 share options were vested, respectively.

~~As of December 31, 2018 and 2017, the 10,433,981 and 12,437,857 share options pending to be exercised were considered as treasury shares, respectively.~~

~~Management Incentive Plan II~~

The fair value of these SARs is estimated at the grant date and at each reporting period using the Black-Scholes option pricing model, which takes into account the terms and conditions on which the SARs were granted (vesting schedule included in the table above, see Item 5: “Long-term Incentive Plans—Management Incentive Plan II”).

~~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, 2018, 2017 and 2016 was Ps.32.8 million, Ps.37.8 million and Ps.54.4 million, respectively. 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, 2018, 2017 and 2016 we recorded a cost (benefit) of Ps.(5.1) million, Ps.(16.5) million and Ps.54.4 million, respectively, associated with these SARs in our consolidated statements of operations. No SARs were exercised during 2018.

~~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 (“BODIP”). The BODIP was implemented through the execution of: (i) a trust agreement number CIB/3081 created by us, as trustee, and CIBanco, S.A., Institucion de Banca Multiple, as trustor, 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 four years to exercise his/her option to pay a fixed purchase price, with the title to the shares transfering 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, 2018 was 1,103,638, of which 977,105 shares were priced at Ps.$16.12 and 126,533 shares were priced at Ps.$26.29. As of December 31, 2018, there were no exercises under the BODIP.

C.~~Board Practices~~

~~Board Practices~~

~~Authority of the Board of Directors~~

~~Duty of Care and Duty of Loyalty~~

~~The Mexican Securities Market Law imposes duties of care and of loyalty on directors.~~

~~Audit and Corporate Governance Committee~~

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 ~~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, 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:

*~~Compensation and Nominations Committee~~*Name		Title
Marco Baldocchi Kriete		Chairman
Brian H. Franke		Member
Harry F. Krensky		Member
Enrique Beltranena		Member

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

Our board of directors has created a compensation and nominations committee, which is comprised by five 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 relating to the removal of officers within the first two corporate levels, (ii) proposing the 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 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, and (vii) 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:~~
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.

~~Name~~		~~Title~~
~~Roberto José Kriete Ávila~~		~~Chairman~~
~~Brian H. Franke~~		~~Member~~
~~Harry F. Krensky~~		~~Member~~
~~Enrique Beltranena~~		~~Member~~

D.~~Employees~~

As of December 31, 2018, we had 4,600 employees, which consisted of 940 pilots, 1,604 flight attendants, 67 ramp operations personnel, 948 airport and customer service personnel, 575 maintenance personnel and 466 management and administrative personnel. 3,337 of our employees (approximately 73%) are part of the ~~Sindicato de Trabajadores de la Indústria Aeronaútica, Similares y Conexos de la República Méxicana~~—STIAS and the remaining 27% of our employees are not part of any union. We and each of our subsidiaries entered into substantially the same collective bargaining agreement with our pilots and flight attendants on February 15, 2018 for a term of two years for benefits and on February 15, 2019 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.

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

For the Years ended December 31,

Employees

2016

2017

2018

Pilots

892

968

940

Flight attendants

1,415

1,536

1,604

Ramp operations personnel

88

102

67

Airport and customer service personnel

1,044

954

948

Maintenance personnel

272

317

575

Management and administrative personnel

839

875

466

Total

4,550

4,752

4,600

Average of employees per aircraft

66

67

60

As of December 31, 2020, we had 4,846 employees, which consisted of 907 pilots, 1,824 flight attendants, 89 ramp operations personnel, 764 airport and customer service personnel, 353 maintenance personnel and 909 management and administrative personnel. 3,702 of our employees (approximately 76%) are part of the Sindicato de Trabajadores de la Indústria Aeronaútica, Similares y Conexos de la República Méxicana—STIAS and the remaining 24% of our employees are not part of any union. We and each of our subsidiaries entered into substantially the same 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, 2021 for a term of one year for salaries. Our collective bargaining agreements were ratified by the STIAS union in January 2021. In March 2021, the Mexican Ministry of Labor and Social Welfare granted a certification of the ratification of our collective bargaining agreements to the STIAS union. 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.

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

	For the Years ended December 31,
Employees	2018		2019		2020
Pilots		940		926		907
Flight attendants		1,604		1,864		1,824
Ramp operations personnel		67		91		89
Airport and customer service personnel		948		804		764
Maintenance personnel		575		352		353
Management and administrative personnel		466		913		909
Total		4,600		4,950		4,846
Average of employees per aircraft		60		60		54

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:

As
Name Title Number of shares
Harry F. Krensky Director 6,012,590 *
Brian H. Franke Chairman of the ~~date of this annual report, our directors~~Board 2,610,000 *
John A. Slowik Independent Director 62,500 *
William Dean Donovan Independent Director 4,133,280 *
Alfonso González Migoya Independent Director 107,791
Marco Baldocchi Director 1,870,500 *
Enrique Beltranena Director, President and ~~officers owned shares as follows:~~
Chief Executive Officer 10,333,209
Holger Blankenstein Executive Vice President Airline Commercial and Operations 3,755,193 *
Jaime E. Pous Senior Vice President and Chief Financial Officer 759,578
José Luis Suárez Senior Vice President and Chief Operating Officer 92,910
Carolyn Prowse⁽¹⁾ Vice President and Chief Commercial Officer 223,331 *
Alejandro Alba Corporate Controller and Compliance Director 136,248
Jimmy Zadigue Internal Audit Director 38,846

~~Name~~

	*		~~Title~~		~~Number of~~ ~~shares~~
~~Harry F. Krensky~~		~~Director~~		~~6,689,550~~	*
~~John A. Slowik~~		~~Independent director~~		~~42,500~~	*
~~Rodrigo Salcedo~~		~~Alternate director~~		~~120,000~~	*
~~William Dean Donovan~~		~~Independent Director~~		~~6,477,730~~	*
~~Alfonso González Migoya~~		~~Chairman of the Board~~		~~107,791~~
~~Marco Baldocchi~~		~~Alternate director~~		~~1,870,500~~	*
~~Enrique Beltranena~~		~~Director, President and Chief Executive Officer~~		~~253,564~~
~~Jaime Pous~~		~~Senior Vice President - Chief Legal Officer and Corporate Affairs~~		~~63,955~~
~~José Luis Suárez~~		~~Senior Vice President and Chief Operating Officer~~		~~68,257~~
~~Holger Blankenstein~~		~~Executive Vice President Airline Commercial and Operations~~		~~420,000~~	*

~~Name~~		~~Title~~		~~Number of~~ ~~shares~~
~~Carlos Alberto González~~		~~Corporate Control, Compliance and Administration Director~~		~~49,982~~

*Shares owned through CPOs or ADSs.

~~This share ownership represents less than 1.6%~~

This share ownership represents less than 2.6% 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.

~~ITEM~~Item 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

A.~~Major Shareholders~~

Our Principal Shareholders

Our shareholders are Mexican investors, international investors, ~~investment funds managed by Discovery Americas and Columbia Equity Partners, or Discovery Air,~~ 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⁾		95,201,880		44,857,124		8.83	%		50.94	%
Funds managed by Indigo⁽²⁾		169,380,920		43,194,749		15.71	%		49.06	%
Teewinot Capital Advisers LLC ⁽³⁾		61,288,820		0		5.69	%		0.00	%
Named Executive Officers and Directors:
William A. Franke⁽²⁾		169,380,920		43,194,749		15.71	%		49.06	%
All Executive officers and directors as a group (one person) HSBC trust F/307750⁽⁴⁾		7,653,981		0		0.71	%		0.00	%

Common Stock

Number

Percentage

Shareholders

Series A

Series B

Series A

Series B

5% Shareholders:

Blue Sky Investments, S.à. r.l.(1)

70,201,880

44,857,124

7.6
%
50.9
%
Funds managed by Indigo(2)

139,380,920

43,194,749

15.1
%
49.1
%
Harris Associates L.P.(3)

71,959,500

—

7.1
%
—
%
Named Executive Officers and Directors:

William A. Franke(2)

139,380,920

43,194,749

15.1
%
49.1
%
All Executive officers and directors as a group (two persons) HSBC trust F/307750(4)

10,433,981

—

1.03
%
—
%

(1) Consists of 44,857,124 Series B shares and ~~70,201,880~~95,201,880 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: 17, rue Robert Stümper, L-2557 Luxembourg.
(2) Consists of ~~42,194,100 Series B shares and 135,974,070~~165,974,070 Series A shares (deposited in the CPO trust) held by Indigo LatAm LP., 1,000,649 Series B shares and 3,228,630 Series A shares (deposited in the CPO trust) held by Long Bar LatAm, LLC, ~~, and~~ 178,220 Series A shares (deposited in the CPO trust) held by Long Bar LatAm II ~~LP.~~LP 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 and Long Bar LatAm II LP, 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.
Each entity listed herein whose shares are beneficially owned by Indigo has a principal business address at: c/o Indigo Mexico Coöperatief U.A.; ~~Schiphol Boulevard 231, 1118 Bh~~Herikerbergweg 88, 1101 CM Amsterdam, Netherlands.
(3) ~~Harris Associates L.P.~~ Teewinot Capital Advisers, LLC has a principal business address at: ~~111 South Wacker Drive, Suite 4600 Chicago, Illinois 60606.~~
101 Park Avenue, 48th Floor, New York, New York 10178.
(4) Certain executive officers benefit from a share incentive plan pursuant to which they have the right to receive an aggregate of ~~10,433,981~~7,653,981 Series A shares, representing ~~1.03%~~0.71% of our ~~outstanding capital stock.~~Series A shares. Such shares are fully paid and held in trust for the benefit of certain of our executive officers. The shares will accrue any dividends paid by us during the time that they are deposited in the trust and prior to their release by the trustee to us. Item 6: “Directors, Senior Management and Employees—Compensation.”

Securities Held in Host Country

As of December 31, 2020, 88,955,582 ADSs (equivalent to 889,555,820 shares, or 76.3% of the total outstanding shares of our common stock) were outstanding and held of record by 18 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.

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.

Significant Changes in Share Ownership

None.

~~Securities Held in Host Country~~

As of December 31, 2018, 70,971,357 ADSs (equivalent to 709,713,570 shares, or 70.14% of the total outstanding shares of our common stock) were outstanding and held of record by 17 institutional 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.

~~Registration Rights~~

~~Demand and Short-Form Registration Rights~~

~~Piggyback Registration Rights~~

~~Expenses of Registration, Restriction and Indemnification~~

~~Significant Changes in Share Ownership~~

~~On July 16, 2010 each of Corporativo Vasco de Quiroga, S.A. de C.V. and Sinca Inbursa, S.A. de C.V. sold their shares, which together represented 50% of our outstanding capital stock.~~

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. (“Servprot”) is a related party because Enrique Beltranena, our Chief Executive Officer and a member of our board of directors, is a shareholder of such company. Servprot provides security services for Mr. Beltranena and his family. As of December 31, 2018, 2019 and 2020, we accrued an expense of Ps. 2.8 million, Ps. 3.1 million and Ps. 3.5 million, respectively, in connection with these services.

Aeroman

Aeroman is a related party because Marco Baldocchi, a member of our 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, 2018, 2019 and 2020, the balances due under the agreement with Aeroman were Ps. 15 million, Ps. 1.5 million and Ps. 39.3 million, respectively. During 2018, 2019 and 2020, we incurred expenses in aircraft and engine maintenance and technical support under this agreement amounting to Ps. 346.5 million, Ps. 207.4 million and Ps. 243.1 million, respectively.

One Link, S.A. de C.V.

OneLink S.A. de C.V. (“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 Onelink, Holdings, S.A. (“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 member of our board of directors. Pursuant to this agreement, One Link receives calls from the customers to book flights and provides customers with information about fares, schedules and availability. For the year ended December 31, 2018, we did not have net balance and any expense recognized under this agreement. As of December 31, 2019 and 2020, our balance due under this agreement was Ps. 39.8 million and Ps. 0.0 million, respectively, and 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.

Mijares, Angoitia, Cortés y Fuentes, S.C.

Mijares, Angoitia, Cortés y Fuentes, S.C. (“Mijares”) is a related party because Ricardo Maldonado Yañez and Eugenio Macouzet de León, member and alternate member, respectively, of our board of directors since April 2018, are partners of Mijares. Mijares provides legal services to us. As of December 31, 2020, our balance due in connection with these services was Ps. 0.2 million. As of December 31, 2019, our balance due in connection with these services was Ps. 1.0 million. As of December 31, 2018, we did not have a net balance. For the years ended December 31, 2020, 2019 and 2018, we accrued an expense of Ps. 5.6 million, Ps. 1.3 million and Ps. 1.7 million, respectively, in connection with the legal services provided by Mijares.

Frontier

Frontier is a related party because Mr. William A. Franke and Brian H. Franke, members of our board of directors, are also members of the board of Frontier. Furthermore, Indigo Partners, one of our significant shareholders, has investments in Frontier as well. We executed a codeshare agreement with Frontier on January 16, 2018. As of December 31, 2020, 2019 and 2018, the account receivable under this agreement was Ps. 72.6 million, Ps. 23.4 million and Ps. 8.3 million, respectively, and the account payable was Ps. 0.0 million, 16.3 million, and Ps. 2.8 million, respectively. For the years ended December 31, 2020, 2019 and 2018, we recognized revenue under this agreement of Ps. 149.0 million, 209.0 million and Ps. 8.4 million, respectively.

Chevez, Ruiz, Zamarripa y Cia, S.C

Chevez, Ruiz, Zamarripa y Cia, S.C. (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, 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, our account payable to Chevez totaled Ps. 4.8 million, which we expensed entirely.

Grupo Aeroportuario del Centro Norte

Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (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, our account payable to OMA was Ps. 80.7 million. For the year ended December 31, 2020, we recognized expenses with OMA of Ps. 32.2 million.

~~We have engaged in a number of transactions with related parties.~~

~~Aeroman~~C.

Aeroman is a related party because Roberto José Kriete Ávila, a member of our board of directors, and members of his immediate family are shareholders of Aeroman. We entered into an aircraft repair and maintenance service agreement with Aeroman on January 1, 2017. This agreement provides that we have to use Aeroman, exclusively for our aircraft repair and maintenance services, subject to availability. Under this agreement, Aeroman provides us with inspection, maintenance, repair and overhaul services for our aircraft. We make payments under this agreement depending on the services performed. This agreement is for a five-year term. As of December 31, 2016, 2017 and 2018, the balances due under our prior agreement with Aeroman, dated March 6, 2007, were Ps.30.6 million, Ps.16.0 million and Ps.15.0 million, respectively. We also incurred aircraft and engine maintenance expense under this agreement of Ps.308.7 million, Ps.251.7 million and Ps.346.5 million for the years ended December 31, 2016, 2017 and 2018, respectively. Finally, we also incurred technical support expense under this agreement of Ps.8.1 million, Ps.8.1 million and Ps.4.8 million for the years ended December 31, 2016, 2017 and 2018, respectively.

~~Human Capital International~~

Human Capital International HCI, S.A. de C.V. (“Human Capital International”) is a related party because Rodolfo Montemayor Garza, who served as an alternate member of our board of directors until April 19, 2018, is a founder and chairman of the board of directors of Human Capital International. We entered into a professional services agreement with Human Capital International on February 25, 2015, for the selection and hiring of executives. As of December 31, 2016, 2017 and 2018, we accrued an expense under this agreement of Ps.3.1 million, Ps.0.8 million and Ps.0.3 million, respectively.

~~Servprot~~

Servprot S.A. de C.V. (“Servprot”) is a related party because Enrique Beltranena, our Chief Executive Officer and a member of our board of directors, and Rodolfo Montemayor, who served as an alternate member of the our board of directors until April 19, 2018, are shareholders of such company. Servprot provides security services for Mr. Beltranena and his family, as well as for Mr. Montemayor. As of December 31, 2016, 2017 and 2018, we accrued an expense of Ps.1.7 million, Ps.1.8 million and Ps.2.8 million, respectively, in connection with these services.

~~One Link, S.A. de C.V.~~

One Link, S.A. de C.V. (“One Link”) was a related party until December 31, 2017 because Marcho Baldochi, an alternate member of our board of directors, was a director of One Link. One Link receives calls from the customers to book flights and provides customers with information about fares, schedules and availability. As of December 31, 2016 and 2017, our balance due under this agreement was Ps.33.8 million and Ps.25.0 million, respectively, and we accrued an expense under this agreement of Ps.168.3 million and Ps.200.0 million for the years ended December 31, 2016 and 2017, respectively.

~~SearchForce, Inc.~~

SearchForce, Inc. (“SearchForce”) is a related party because William Dean Donovan, a member of our board of directors, is also a director of SearchForce. Pursuant to the Company’s agreement with SearchForce, SearchForce provides consultation services, reports, findings, analysis or other deliverables to us regarding the software and implementation of an internet marketing strategy developed for the Company at its request. As of December 31, 2016, our balance due under this agreement was Ps.0.6 million, and we accrued an expense under this agreement of Ps.3.4 million, Ps.1.9 million and Ps.0 for the years ended December 31, 2016, 2017 and 2018, respectively. SearchForce did not provide services to the Company during 2018.

~~Mijares, Angoitia, Cortés y Fuentes, S.C.~~

~~Frontier~~

Interests of Experts and Counsel

Not Applicable.

~~ITEM~~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.

~~Our annual consolidated financial statements prepared in accordance with IFRS on pages F-1 through F-89 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, except as noted below:~~

~~COFECE Litigation~~

On January 18, 2018, the Mexican antitrust authority, Comisión Federal de Competencia Económica or COFECE, served us with a preliminary ruling (the “Preliminary Ruling”) in which the investigating body of COFECE asserts certain allegations regarding antitrust activities in Mexico´s domestic commercial air passenger transportation market during the period from April 2008 up to February 2010 by different Mexican carriers, including us, in connection with the investigation number IO-002-2015.

On March 28, 2019, COFECE served us the ruling dated March 19, 2019 issued by the Board of Commissioners in its meeting held on March 14, 2019, that resolved that no liability is to be imposed against Volaris in the investigation number IO-002-2015.

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.”

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, 2018, 2019 and 2020, we did not allocate any amount to our legal reserve fund. As of December 31, 2018, 2019 and 2020, the legal reserve was Ps. 291,178 or 9.8%, 9.8% 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.”

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, 2016, 2017 and 2018, we did not allocate any amount to our legal reserve fund. As of December 31, 2016, our reserve fund was Ps.38.2 million or 1.3% of our capital stock. As of both December 31, 2017 and 2018, our reserve fund was Ps.291.2 million or 9.8% of our capital stock.

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~~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

~~American Depositary Shares~~

~~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.

C.~~Markets~~
~~The Mexican Stock Market~~C.
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~~
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

~~Market Regulation~~

~~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 30, 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;

· 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 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;

· ~~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.

· ~~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.

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 make 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;~~

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);

· ~~there is no misleading public information relating to the material event; and~~

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.~~

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~~

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.

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).

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;~~

members of a listed issuer’s board of directors;

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

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

· ~~advisors;~~

advisors;

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

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

other insiders.

· ~~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 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;~~

determine general strategies applicable to the issuer;

· ~~approve guidelines for the use of corporate assets;~~

approve guidelines for the use of corporate assets;

· ~~approve, on an individual basis, transactions with related parties, subject to certain limited exceptions;~~

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 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 the appointment or removal of the chief executive officer;

· ~~approve waivers in respect of corporate opportunities;~~

approve waivers in respect of corporate opportunities;

· ~~approve accounting and internal control policies;~~

approve accounting and internal control policies;

· ~~approve the chief executive officers’ annual report and corrective measures for irregularities; and~~

approve the chief executive officers’ annual report and corrective measures for irregularities; and

· ~~approve policies for disclosure of information.~~

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 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)~~(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 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 (“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 IntercontinentalExchange Group, Inc. NYSE Euronext continues to operate under its brand name as a wholly-owned subsidiary of IntercontinentalExchange Group, Inc.

D.~~Selling Shareholders~~

Selling Shareholders

Not Applicable.

E.~~Dilution~~

Dilution

Not Applicable.

F.~~Expenses of the Issue~~

Expenses of the Issue

Not Applicable.

~~ITEM 10~~~~ADDITIONAL INFORMATION~~

Item 10

ADDITIONAL INFORMATION

A.~~Share Capital~~

Share Capital

Not applicable.

B.~~Memorandum and Articles of Association~~

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 asour 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 ~~been amended.~~further amended our by-laws.

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 ~~923,824,804~~1,077,924,804 Series A shares and 88,051,873 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 ~~(Secretarí~~(Secretaría de Economía)a) 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.

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;~~

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;

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;

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~~

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.~~

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.

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;~~

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);

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;~~

elect directors;

· ~~appoint the president of the audit committee and the corporate governance committees;~~

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 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;~~

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~~

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.~~

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 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;~~

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;~~

issuance of shares for purposes of a public offering;

· ~~any change in our corporate purpose or nationality;~~

any change in our corporate purpose or nationality;

· ~~any merger or transformation into another type of company;~~

any merger or transformation into another type of company;

· ~~any issuance of preferred stock;~~

any issuance of preferred stock;

· ~~the redemption of shares with retained earnings;~~

the redemption of shares with retained earnings;

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

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~~

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.

· ~~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 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 ~~circumstan~~circumstances~~ces.~~.

Provisions of our By-laws and Mexican Law Relating to Directors

Election of Directors

Our board of directors is currently comprised of ~~eleven~~fourteen principal members and ~~seven~~four alternate members. ~~Five~~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;~~

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;

the monitoring of our management and that of our subsidiaries;

· ~~calling shareholders’ meetings and taking action based upon their resolutions;~~

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;

· ~~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;~~

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

· 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;

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;

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

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.~~

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. 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);~~

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;~~

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;~~

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;~~

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;~~

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

· ~~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;~~

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

· ~~calling shareholders’ meetings;~~

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;

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

calling shareholders’ meetings;

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

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

· 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;

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

· ~~supervising and reporting on the performance of our key officers;~~

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;

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

supervising and reporting on the performance of our key officers;

· ~~requesting opinions from independent third-party experts;~~

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

· ~~calling shareholders’ meetings; and~~

requesting opinions from independent third-party experts;

calling shareholders’ meetings; and

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

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;~~

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;~~

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;~~

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 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;~~

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~~

informing our board of directors of any material contingencies; and

· ~~submitting periodic reports to our board of directors.~~

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.

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:

· ~~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.

· ~~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.

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 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.

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 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.~~

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~~

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~~

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~~

Taxation

The following summary contains a general description of certain U.S. federal income tax consequences and Mexican federal tax consequences relating to the acquisition, ownership and disposition of ADSs and CPOs. This summary is based on laws and regulations now in effect in Mexico, laws, regulations, rulings and decisions now in effect in the United States, and the provisions of the tax treaty for the avoidance of double taxation between the United States and Mexico and protocols thereto, referred to herein as the “U.S.-Mexico Tax Treaty.” It is also based in part on representations by the CPO trustee and the ADS depositary and assumes that each obligation under the CPO trust agreement, the ADS deposit agreement and any related agreements will be performed in accordance with their terms.

This summary does not describe all of the tax considerations that may be relevant to a specific investor, including Mexican investors, particularly if such investor is subject to special tax rules. Prospective investors are encouraged to consult their own independent tax advisors with respect to the tax consequences to them of the acquisition, ownership and disposition of ADSs in light of their own particular circumstances, including the tax consequences under state, local, municipal, or other tax laws.

U.S. Federal Income Taxation

The following is a general discussion of certain U.S. federal income tax consequences relating to the acquisition, ownership and disposition of ADSs. This discussion deals only with U.S. Holders (as defined below) that hold ADSs as capital assets (generally, property held for investment). This discussion does not address the tax considerations that may be relevant to certain types of investors subject to special treatment under the U.S. federal income tax laws (such as banks or other financial institutions, insurance companies, regulated investment companies, real estate investment trusts, partnerships or other pass-through entities or arrangements for U.S. federal income tax purposes or investors in such entities, investors liable for the alternative minimum tax, individual retirement accounts and other tax-deferred accounts, tax-exempt organizations, dealers in securities or currencies, investors that hold ADSs as part of a straddle or hedging, constructive sale, integrated or conversion transactions for U.S. federal income tax purposes, a person that actually or constructively owns 10% or more of the total combined voting power or value in Volaris stock, traders in securities that have elected the mark-to-market method of accounting for their securities, U.S. expatriates or persons whose functional currency is not the U.S. dollar).

The discussion is based on the U.S. Internal Revenue Code of 1986, as amended through the date hereof, or the Code, its legislative history, existing and proposed U.S. Treasury regulations thereunder, published rulings and court decisions, all as of the date hereof and all subject to change at any time, perhaps with retroactive effect. No assurance can be given that the Internal Revenue Service, or the IRS, will agree with the views expressed in this discussion, or that a court will not sustain any challenge by the IRS in the event of litigation. This discussion does not include any description of the tax laws of any state, local, municipal or non-U.S. government (except for certain Mexican federal tax consequences, discussed below) that may be applicable to a particular investor and does not consider any aspects of U.S. federal tax law other than income taxation.

As used herein, the term “U.S. Holder” means a beneficial owner of an ADS that is, for U.S. federal income tax purposes: (a) an individual who is a citizen or resident of the United States; (b) a corporation (or other entity treated 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; (c) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (d) a trust if (i) a court within the United States can exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of the substantial decisions of that trust or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

If a partnership or an entity or an arrangement that is treated as a partnership for U.S. federal income tax purposes holds ADSs, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. Partners in partnerships that hold ADSs are encouraged to consult their tax advisors.

Except where specifically described below, this discussion assumes that Volaris is not a passive foreign investment company, or a PFIC, for U.S. federal income tax purposes. See the discussion under “—Passive Foreign Investment Company Considerations” below.

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 will be complied with in accordance with their terms. In general, for U.S. federal income tax purposes, U.S. Holders who own ADSs will be treated as the beneficial owners of the CPOs represented by those ADSs and each CPO should represent a beneficial interest in the Series A Shares represented by those CPOs. The U.S. Treasury Department has expressed concern that depositaries for ADRs, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. Holders of such receipts or shares. These actions would also be inconsistent with claiming the reduced rate for “qualified dividend income” described below. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Mexican withholding taxes and availability of the reduced rate for qualified dividend income could be affected by future actions that may be taken by the ADS depositary and the U.S. Treasury Department.

For U.S. federal income tax purposes, U.S. Holders who own ADSs will be treated as the beneficial owners of the CPOs represented by those ADSs. Based on the nature of the CPO trust and the applicable legal authorities, a U.S. Holder who owns CPOs, or is treated as owning CPOs, should be treated as the beneficial owner of the Series A Shares represented by the CPOs. However, the U.S. federal income tax treatment of U.S. Holders that are beneficial owners of CPOs is not entirely clear. The IRS could assert that such U.S. Holders should be treated as owning an interest in an entity or arrangement treated as a foreign trust for U.S. federal income tax purposes. In that case, the U.S. federal income tax consequences to the U.S. Holder should be the same as outlined below; however, the U.S. Holder may also be subject to certain additional tax reporting obligations under the foreign trust rules. If these tax reporting obligations were determined to apply to a U.S. Holder and the U.S. Holder did not comply with such obligations, the U.S. Holder could be subject to substantial penalties. U.S. Holders seeking to obtain CPOs in exchange for ADSs are encouraged to consult their own tax advisors regarding the treatment of the CPOs, including the possibility, and U.S. federal income tax consequences of, the CPO trust being treated as a foreign trust.

EACH PERSON CONSIDERING THE ACQUISITION OF ADSs IS ENCOURAGED TO CONSULT ITS OWN INDEPENDENT TAX ADVISOR REGARDING THE SPECIFIC U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSIDERATIONS OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE ADSs.

Taxation of Dividends and Other Distributions

Subject to the “passive foreign investment company” rules discussed below, distributions of cash or property with respect to ADSs (including the amount of any Mexican taxes withheld on any such distribution, if any) will constitute ordinary dividend income to the extent of Volaris’ current and accumulated earnings and profits (as determined for U.S. federal income tax purposes), which generally will be includible in a U.S. Holder’s gross income on the day on which the dividends are received by the CPO trustee. Any distributions in excess of such earnings and profits will constitute a nontaxable return of capital and reduce a U.S. Holder’s tax basis in such ADSs. To the extent such distributions exceed a U.S. Holder’s tax basis in its ADSs, such excess will constitute capital gain

and generally will be treated as described below under “—Sale or Other Taxable Disposition of ADSs.” Dividends on ADSs will not be eligible for the dividends received deduction allowed to U.S. corporations. We do not currently intend to maintain calculations of our earnings and profits under U.S. federal income tax principles. Accordingly, U.S. Holders should expect that all distributions made with respect to the ADSs generally will be treated as dividends (as described above).

A U.S. Holder may be entitled, subject to a number of complex limitations and conditions (including a minimum holding period requirement), to claim a U.S. foreign tax credit in respect of any Mexican income taxes withheld on dividends received in respect of the ADSs. A U.S. Holder who does not elect to claim a credit for any foreign income taxes paid during the taxable year may instead claim a deduction in respect of such income taxes provided the U.S. Holder elects to deduct (rather than credit) all foreign income taxes for that year. Dividends received in respect of ADSs generally will be treated as foreign-source income, subject to various classifications and other limitations and generally will be treated as passive category income for most U.S. Holders. The rules relating to ~~computing foreign tax credits or deducting~~ foreign taxes are extremely complex, and U.S. Holders are encouraged to consult their own tax advisors regarding the availability of foreign tax credits under their particular circumstances.

Dividends paid in pesos (including the amount of any Mexican taxes withheld therefrom, if any) will be includible in a U.S. Holder’s gross income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the pesos are actually or constructively received by the CPO trustee, regardless of whether the dividends are converted into U.S. dollars at that time. If the pesos are converted to U.S. dollars on the date of such receipt, a U.S. Holder generally will not recognize an exchange gain or loss. However, if the U.S. Holder converts the pesos into U.S. dollars on a later date, the U.S. Holder must include in gross income any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the difference between (i) the U.S. dollar value of the amount included in income when the dividend was received and (ii) the amount received on the conversion of the pesos into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend is includible in a U.S. Holder’s gross income to the date such payment is converted into U.S. dollars will be exchange gain or loss and will be treated as ordinary income or loss. Such gain or loss generally will be treated as income from sources within the United States. U.S. Holders are encouraged to consult their own independent tax advisors regarding the treatment of exchange gain or loss, if any, on any pesos received that are converted into U.S. dollars on a date subsequent to receipt by the CPO trustee.

Distributions treated as dividends that are received by a non-corporate U.S. Holder (including an individual) from “qualified foreign corporations” generally qualify for a reduced rate of taxation so long as certain holding period and other requirements are met. Dividends paid on ADSs should qualify for the reduced rate if Volaris is treated as a “qualified foreign corporation.” For this purpose, a qualified foreign corporation means any foreign corporation provided that: (i) the corporation was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a “passive foreign investment company” (as discussed below), (ii) certain holding period requirements are met and (iii) either (A) the corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the IRS has approved for the purposes of the qualified dividend rules or (B) the stock with respect to which such dividend was paid is readily tradable on an established securities market in the United States. The ADSs should be considered to be readily tradable on an established securities market in the United States as they are listed on the NYSE. U.S. Holders are encouraged to consult their tax advisors regarding the availability of the lower rate for dividends paid with respect to the ADSs.

Sale or Other Taxable Disposition of ADSs

Subject to the passive foreign investment company rules discussed below, upon the sale or other taxable disposition of ADSs, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized on the sale or other taxable disposition and such U.S. Holder’s tax basis in such ADSs. The amount realized on a sale or other taxable disposition of ADSs generally will be equal to the sum of the amount of cash and the fair market value of any other property received. Gain or loss recognized by a U.S. Holder on such sale or other taxable disposition generally will be long-term capital gain or loss if, at the time of the sale or other taxable disposition, the ADSs have been held for more than one year. Certain non-corporate U.S. Holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. The deduction of a capital loss is subject to limitations for U.S. federal income tax purposes. Deposits and withdrawals of CPOs by U.S. Holders in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.

If Mexican income tax is withheld on the sale or other taxable disposition of ADSs, the amount realized by a U.S. Holder will include the gross amount of the proceeds of that sale or other taxable disposition before deduction of the Mexican income tax. A U.S. Holder who is eligible for the benefits of the U.S.-Mexican income tax treaty, can elect to treat capital gain or loss, if any, realized on the sale or other taxable disposition of ADSs that is subject to Mexican income tax as foreign source gain or loss for U.S. foreign tax credit purposes. Consequently, in the case of a gain from the disposition of an ADS that is subject to Mexican income tax, a U.S. Holder, subject to a number of complex limitations and conditions (including a minimum holding period requirement), may be able to benefit from the foreign tax credit for that Mexican income tax. Otherwise, any gain from the disposition of an ADS that is subject to Mexican income tax will be treated as a U.S. source gain and a U.S. Holder may not be able to benefit from the foreign tax credit for that Mexican income tax (i.e., because the gain from the disposition would be U.S. source), unless the U.S. Holder can apply the credit against U.S. federal income tax payable on other income from foreign sources. Alternatively, the U.S. Holder may elect to take a deduction for the Mexican income tax, provided that the U.S. Holder elects to deduct all foreign taxes paid or accrued for the taxable year. The rules governing foreign tax credits are complex, and a U.S. Holder is encouraged to consult its own tax advisor regarding the availability of foreign tax credits under its particular circumstances.

Passive Foreign Investment Company Considerations

Special U.S. federal income tax rules apply to U.S. persons owning shares of a PFIC. A non-U.S. corporation generally will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which, after applying relevant look-through rules with respect to the income and assets of subsidiaries, either:

· ~~at least 75% of its gross income is passive income, or~~

at least 75% of its gross income is passive income, or

· at least 50% of the gross value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income.

at least 50% of the gross value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income.

For this purpose, passive income generally includes, among other things, dividends, interest, rents, royalties, gains from the disposition of passive assets (other than gains from the disposition of property that is inventory) and gains from commodities and securities transactions. In addition, if the non-U.S. corporation owns, directly or indirectly, at least 25%, by value, of the shares of another corporation, it will be treated as if it holds directly its proportionate share of the assets and receives directly its proportionate share of the income of such other corporation.

The determination as to whether a non-U.S. corporation is a PFIC is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations, the composition of the income and assets of the non-U.S. corporation from time to time and the nature of the activities performed by such non-U.S. corporation. Based on current estimates of Volaris’ gross income and gross assets, the nature of its business and its current business plans (all of which are subject to change), Volaris does not believe it was classified as a PFIC for its ~~2018~~2020 taxable year and it does not expect to be classified as such for its current taxable year (although the determination cannot be made until the end of such taxable year), and Volaris intends to continue its operations in such a manner that it does not expect to be classified as a PFIC in the foreseeable future. ~~There~~However, there can be no assurance in this regard, because the PFIC determination is made annually and is based on the portion of Volaris’ assets and income that is characterized as passive under the PFIC rules. Moreover, Volaris’ business plans may change, which may affect the PFIC determination in future years. Because of these uncertainties, it is possible that Volaris may be a PFIC for the current or any other taxable year.

If Volaris is or becomes a PFIC for any taxable year during which a U.S. Holder holds ADSs, the U.S. Holder will be subject to special tax rules with respect to any “excess distributions” that the U.S. Holder receives and any gain realized from a sale or other disposition of the ADSs, unless the U.S. Holder makes a “mark-to-market” election or a “qualified electing fund” election, as discussed below. Distributions received by a U.S. Holder in a taxable year that are greater than 125% of the average annual distributions received by the U.S. Holder during the shorter of the three preceding taxable years or the U.S. Holder’s holding period for the ADSs will be treated as excess distributions. Under these special tax rules:

· ~~the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs;~~

· ~~the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which Volaris became a PFIC, will be treated as ordinary income; and~~

the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs;

the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which Volaris became a PFIC, will be treated as ordinary income; and

· the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ADSs cannot be treated as capital, even if a U.S. Holder holds the ADSs as capital assets. If Volaris were a PFIC, certain subsidiaries and other entities in which Volaris has a direct or indirect interest may also be PFICs, or Lower-tier PFICs. Under attribution rules, U.S. Holders would be deemed to own their proportionate shares of Lower-tier PFICs and would be subject to U.S. federal income tax according to the rules described above on (i) certain distributions by a Lower-tier PFIC and (ii) a disposition of shares of a Lower-tier PFIC, in each case as if the U.S. Holder held such shares directly, even though such U.S. Holder had not received the proceeds of those distributions or dispositions.

If Volaris is a PFIC, a U.S. Holder may avoid taxation under the rules described above by making a “qualified electing fund” election to include such U.S. Holder’s share of Volaris’ income on a current basis, provided that Volaris furnishes such U.S. Holder annually with certain tax information. If Volaris concludes that it should be treated as a PFIC for any taxable year, Volaris intends to notify each U.S. Holder of such fact. However, there can be no guarantee that Volaris will be willing or able to provide the information needed by any U.S. Holder to make a “qualified electing fund” election with respect the ADSs.

If a U.S. Holder makes a “qualified electing fund” election, such U.S. Holder generally will be taxable currently on its pro rata share of Volaris’ ordinary earnings and net capital gains (at ordinary income and capital gain rates, respectively) for each taxable year during which Volaris is treated as a PFIC, regardless of whether or not such U.S. Holder receives distributions, so that the U.S. Holder will recognize taxable income without the corresponding receipt of cash from Volaris with which to pay the resulting tax obligation. The basis in the ADSs held by such U.S. Holder will be increased to reflect taxed but undistributed income. Distributions of income that were previously taxed will result in a corresponding reduction of basis in the ADSs, and will not be taxed again as distributions to the U.S. Holder.

Alternatively, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election with respect to such stock (but not for the shares of any Lower-tier PFIC) to elect out of the tax treatment discussed above. A U.S. Holder electing the mark-to-market regime generally would compute gain or loss at the end of each taxable year as if the ADSs had been sold at fair market value. Any gain recognized by the U.S. Holder under mark-to-market treatment, or on an actual sale, would be treated as ordinary income, and the U.S. Holder would be allowed an ordinary deduction for any decrease in the value of its ADSs as of the end of any taxable year, and for any loss recognized on an actual sale, but only to the extent, in each case, of previously included mark-to-market income not offset by previously deducted decreases in value. Any loss on an actual sale of ADSs would be a capital loss to the extent it exceeds previously included mark-to-market income not offset by previously deducted decreases in value. A U.S. Holder’s basis in ADSs will be adjusted to reflect any such income or loss amounts. If a U.S. Holder makes such an election, the tax rules that apply to distributions by corporations that are not PFICs would apply to distributions by Volaris, except that the reduced rate discussed above under “—Taxation of Dividends and Other Distributions” would not apply.

The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. NYSE is a qualified exchange and, consequently, if the ADSs are regularly traded, the mark-to-market election would be available to a U.S. Holder of ADSs if Volaris were treated as a PFIC.

A U.S. Holder who owns ADSs during any taxable year that Volaris is treated as a PFIC would be required to file IRS Form 8621 in order to comply with an annual filing requirement. U.S. Holders are encouraged to consult their own tax advisors regarding the application of the PFIC rules to the ADSs, the availability and advisability of making a mark-to-market election to avoid the adverse tax consequences of the PFIC rules should Volaris be considered a PFIC for any taxable year and the application of the information reporting requirements to their particular situation.

Additional Tax on Net Investment Income

If a U.S. holder is not a corporation, a U.S. Holder generally will be subject to a 3.8% tax on the lesser of (i) the U.S. Holder’s “net investment income” for the taxable year and (ii) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold. A U.S. Holder’s net investment income generally will include any dividend income on the ADSs and gain recognized by the U.S. holder with respect to the sale or other taxable disposition of the ADSs, unless such income or gain is derived in the ordinary course of the U.S. Holder’s trade or business (other than a trade or business that consists of certain passive or trading activities). U.S. Holders that are individuals, estates or trusts are encouraged to consult their own tax advisors regarding the applicability of the additional tax on net investment income to their income and gain in respect of the ADSs.

U.S. Information Reporting and Backup Withholding

Dividend payments with respect to ADSs and proceeds from the sale, exchange or redemption of ADSs may be subject to information reporting to the IRS and possible U.S. backup withholding at a current rate of 24%. 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 who is otherwise exempt from backup withholding and establishes such exempt status. 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, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund in a timely manner with the IRS and furnishing any required information. U.S. Holders are encouraged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

In addition, U.S. Holders should be aware that additional reporting requirements with respect to the holding of certain foreign financial assets, including stock of foreign issuers which is not held in an account maintained by certain financial institutions, if the aggregate value of all of such assets exceeds U.S. $50,000. U.S. Holders are encouraged to consult their own tax advisors regarding the application of the information reporting rules to ADSs and the application of these additional reporting requirements to their particular situations.

PROSPECTIVE INVESTORS ARE ENCOURAGED TO CONSULT THEIR OWN INDEPENDENT TAX ADVISORS TO DETERMINE THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF 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 U.S.-Mexico Tax 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 U.S.-Mexico Tax 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.

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

Under the provisions of the Mexican Income Tax Law (Ley del Impuesto Sobre la Renta), dividends paid to non-Mexican holders with respect to ADSs or CPOs are currently not subject to Mexican withholding or similar taxes.

Dividends paid from distributable earnings that have not been subject to Mexican corporate income tax, are subject to a tax at the corporate level payable by ~~us.~~us (and not by shareholders or holders of ADSs or CPOs). This corporate tax on the distribution of earnings is not final for us, and may be credited by us against income tax payable during the fiscal year in which the tax was paid and for the following two fiscal years. Dividends paid from distributable earnings, after corporate income tax has been paid with respect to those earnings, are not subject to this corporate 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 (Secretariá 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 U.S.-Mexico Tax 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 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.

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~~

Dividends and Paying Agents

Not Applicable.

G.~~Statement by Experts~~

Statement by Experts

Not Applicable.

H.~~Documents on Display~~

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 ~~D.F.~~City, Mexico 01210, Attention: Investor Relations, Email: ir@volaris.com, Tel.: +52-55-5261-6400.

I.~~Subsidiary Information~~

Subsidiary Information

Not Applicable.

~~ITEM 11~~~~QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK~~

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, ~~2016, 2017~~2018, 2019 and ~~2018~~2020 represented approximately ~~28%~~38%, ~~29%~~38% and ~~36%~~26% (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 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 ~~years~~year ended December 31, ~~2018, 2017, and 2016,~~2020, we ~~did not enter~~entered into US Gulf Coast Jet Fuel 54 ~~swap contracts. These instruments were formally~~Asian call options designated to hedge 23,976 thousand gallons of fuel. Such hedges represented a portion of our second and qualified for hedge accounting and accordingly, the effective portion is allocated within other comprehensive income, while the effects of transforming into a fixed jet fuel prices by these hedges are presentedthird quarter 2020, as part of jet fuel costs when recognized in the consolidated statements of operations. 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 swap agreements and the pricing of hedges and other derivative products in the market.

well as first quarter 2021 projected consumption. Additionally, during the ~~year ended December 31, 2018,~~same period, we ~~also~~ 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, 2018, we entered into US Gulf Coast Jet Fuel 54 Asian Call options designated to hedge 45.6 million gallons of fuel. Additionally, as of December 31, 2017, we entered into US Gulf Coast ~~fuel~~Jet Fuel 54 Asian call options designated to hedge ~~approximately 55%~~61.1 million gallons of ~~our 2018 projected fuel consumption.~~fuel.

Our fuel cost is referenced to US Gulf Coast Jet Fuel 54 isand US West Coast Jet Fuel, which are the ~~crude~~crudes utilized to determine the cost of the fuel ~~produced~~provided by our suppliers. Based on our ~~2018~~2020 annual fuel consumption, a 5%3% increase in the average price per gallon of ~~the US Gulf Coast Jet Fuel 54,~~those reference prices would have increased our fuel ~~budget~~ expense for ~~2018~~2020 by approximately ~~Ps.550~~Ps. 138 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 swaps derivative contracts as of December 31, 2013 and 2014 was a net asset position of Ps.11.1 million and a net liability position of Ps.169.6 million. All of our US Gulf Coast Jet Fuel 54 swaps positions matured on June 30, 2015, and therefore there was no balance outstanding as of December 31, 2015. The fair value of our fuel call options as of December 31, 2018, ~~2017~~2019 and ~~2016~~2020 was a net asset position of ~~Ps.48.2~~Ps. 48.2 million, ~~Ps.497.4~~Ps. 0 million and ~~Ps.867.8~~Ps. 0.2 million, respectively, and the fair value of our zero-cost collars as of December 31, 2018, 2019 and 2020 was a loss of Ps.~~(122.9)~~ 122.9 million, a gain of Ps. 133.6 million and a loss 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.

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, ~~2018,~~2020, we believe the credit exposure related to ~~these fuel forward~~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 ~~swap~~derivative agreements and the pricing of hedges and other derivative products in the market. As of December 31, ~~2018,~~2020, we had hedged approximately ~~18%~~6% of our projected fuel requirements for the year ended December 31, ~~2019.~~2021.

Foreign Exchange. 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 from our functional currency). In order to mitigate such risk, we use from time to time derivative financial instruments. Although 32%, 29% and 27% of our revenues came from operations in the United States for the year ended December 31, 2018, ~~(compared to 30% in 2017),~~2019 and 2020, respectively, U.S. dollar denominated collections accounted for 38%, 43% and ~~40%~~44% of our total collections in 2018, 2019 and ~~2017.~~2020, respectively. Our foreign exchange exposure as of December 31, ~~2016, 2017~~2018, 2019 and ~~2018~~2020 are a net ~~asset~~monetary liability position by U.S. ~~$584.5~~($1.7) million, U.S. ~~$567.5~~($1.7) million and U.S. ~~$428.5 million,~~($1.7) billion, respectively. During the year ended December 31, ~~2018,~~2020, we ~~entered~~did not enter into foreign currency forward contracts ~~in U.S. dollars to hedge approximately 20%~~ of ~~the aircraft rental expense for 2018. During the year ended December 31, 2016, we did not enter into exchange rate derivatives~~derivative financial instruments.

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.2.2~~Ps. (0.1) billion, , Ps.~~(793.9) million~~ 1.4 billion and Ps.~~(72.5) million~~ 0.5 billion in ~~2016, 2017~~2018, 2019 and ~~2018,~~2020, 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, 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.

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. 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.

Since the hedged items in both hedging strategies are targeted at mitigating the cash flow variability of expected and forecasted transactions, they are represented by multiple hedging relationships which follow the Cash Flow Hedge Accounting Model. The effective portion of each hedging instrument’s changes in fair value are 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 are 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 are presented as adjustments to both operating income and expense.

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 ~~2017 or~~ 2018. AtAs of December 31, ~~2016, 2017 and 2018,~~2019, we had ~~derivative~~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. These instruments are included as assets in our consolidated statements of financial ~~instruments~~position. All the Company’s positions in the form of interest rate swaps ~~with net liability~~matured on March 31 and April 30, 2017. Consequently, there was no outstanding balance as of ~~Ps.14.1 million, Ps.0.0 and Ps.0.0, respectively.~~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, ~~and the~~a short-term working capital facility with ~~Bancomext.~~Sabadell, and an asset-backed trust notes (CEBUR) issued in the Mexican market. A hypothetical 100 bps increase in market interest rates ~~as of December 31, 2018~~during the year 2020 would have increased our debt interest payment in ~~2018~~2020 on our consolidated statements of financial position by ~~Ps.28.9~~Ps. 52.2 million.

~~ITEM 12~~~~DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES~~

Item 12

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A.~~Debt Securities~~

A.	Debt Securities

Not Applicable.

B.~~Warrants and Rights~~

B.	Warrants and Rights

Not Applicable.

C.~~Other Securities~~

C.	Other Securities

Not Applicable.

D.~~American Depositary Shares~~

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 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.

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

~~Persons Depositing CPOs or ADR Holders Must~~ ~~Pay:~~		~~For:~~
		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)

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~~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.

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”~~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;~~

· ~~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 only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;

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

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 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;

are not liable if either of us exercises discretion permitted under 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~~

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;

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

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;~~

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~~

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.~~

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;

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~~

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.~~

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 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 ~~2018,~~2020, U.S. ~~$476,581~~$546,505.05 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.

~~Part II.~~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.

~~ITEM 13~~~~DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES~~Part II.

Item 13

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

~~ITEM 14~~~~MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS~~

Item 14

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

A.~~Use of Proceeds~~

A.	Use of Proceeds

Not applicable.

~~ITEM 15~~~~CONTROLS AND PROCEDURES~~

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, ~~2018.~~2020. 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 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;~~

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 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.~~

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, ~~2018,~~2020, 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 Mancera, 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 16

[Reserved]

~~ITEM 16A~~~~Audit Committee Financial Expert~~

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~~

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.

~~ITEM 16C~~~~Principal Accountant Fees and Services~~

Item 16C

Principal Accountant Fees and Services

Mancera, S.C., independent registered public accounting firm and a member practice of Ernst & Young Global, acted as our independent registered public accounting firm for the years ~~2018~~2020 and ~~2017.~~2019. The table below sets forth the fees for services performed by Mancera, S.C. for the years ~~2018~~2020 and ~~2017~~2019 (including related expenses), and categorized by service in Pesos.

	Year Ended December 31,		Year Ended December 31,
	2018	2017	2020		2019
	(in Pesos)			(*in Pesos*)
Audit Fees(1)	15,409,207	11,798,377
Audit-Related Fees(2)	2,502,562	4,366,282
Tax Fees(3)	787,261	251,537
Audit Fees⁽¹⁾				14,894,247		14,367,854
Audit-Related Fees⁽²⁾				1,550,076		3,442,555
Tax Fees⁽³⁾				—		—
All Other Fees	—	—		—		—
Total	18,699,030	16,416,196		16,444,323		17,810,409

~~(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 the aggregate fees billed for professional services rendered by our auditors for the assurance and related services, tax compliance reports and social security reports.~~

(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 the aggregate fees billed for professional services rendered by our auditors for the assurance and related services, tax compliance reports and social security reports.

~~(3)~~ ~~“Tax Fees” are the aggregate fees billed for professional services rendered by transfer pricing.~~

(3)

“Tax Fees” are the aggregate fees billed for professional services rendered by transfer pricing.

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~~

Item 16D

Exemptions from the Listing Standards for Audit Committees

Not applicable.

~~ITEM 16E~~~~Purchases of Equity Securities by the Issuer and Affiliated Purchasers~~

Item 16E

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

~~ITEM 16F~~~~Change in Registrant’s Certifying Accountant~~

Item 16F

Change in Registrant’s Certifying Accountant

During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018 and through the date of this annual report, Mancera, S.C., our independent registered public accounting firm and a member of Ernst & Young Global Limited, has not resigned, has not indicated that it will decline to stand for re-election after the completion of its current audit nor has it been dismissed. For each of the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, Mancera S.C. has not expressed reliance on another accountant or accounting firm in its report on our audited consolidated financial statements for such periods.

During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018 and through the date of this annual report, we have not engaged a new independent accountant as either the principal accountant to audit our financial statements, or as an independent accountant to audit a significant subsidiary and on whom the principal accountant is expected to express reliance in its report.

~~ITEM 16G~~~~Corporate Governance~~

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.

NYSE Standards	NASDAQ 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.”

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.

NYSE Standards
NASDAQ Standards
~~NASDAQ Standards~~
Our Corporate Governance
Practices
~~issuer.~~
~~information.~~
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~~
§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.
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.

NYSE Standards

NASDAQ 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.

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.

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

~~NYSE Standards~~	~~NASDAQ Standards~~	~~Our Corporate Governance~~ ~~Practices~~
~~proxy solicitations are to be provided to NYSE. §§402.00 & 402.04~~	~~proxy solicitations are to be provided to NASDAQ. Rule 4350(g)~~	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.

	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~~

Item 16H

MINE SAFETY DISCLOSURE

Not applicable.

Part III.

~~ITEM 17~~~~FINANCIAL STATEMENTS~~

Item 17

FINANCIAL STATEMENTS

Not applicable.

~~ITEM 18~~~~FINANCIAL STATEMENTS~~

Item 18

FINANCIAL STATEMENTS

See pages F-1 through ~~F-89.~~F-90.

~~ITEM 19~~~~EXHIBITS~~

Item 19

EXHIBITS

EXHIBIT INDEX

Exhibit Number		Exhibit
1.1
~~1.1~~		Amended By-laws of the Company (~~estatutos~~)~~(English~~(estatutos) (English translation) (incorporated by reference to Exhibit ~~3.1~~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-1~~F-6 filed with the SEC on ~~June 20,~~August 30, 2013 (File No. ~~333-189121)~~333-190940))
4.1†
~~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†
~~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†
~~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†
~~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†
~~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†
~~4.6†~~ 4.7†		Lease Agreement, dated as of April 28, 2006, between the Company and Engine Lease Finance Corporation (incorporated by reference to Exhibit 10.7 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))
4.8†
~~4.7†~~		Aircraft Repair and Maintenance Service Agreement, dated as of March 6, 2007, between the Company and Aeromantenimiento, S.A. (incorporated by reference to Exhibit 10.8 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))

~~4.8†~~		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)) .
4.9†
~~4.9†~~		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))

Exhibit Number		~~Exhibit~~

~~4.10†~~		~~Lease Agreement, dated as of March 9, 2007, between the Company Concesionaria Vuela and International Lease Finance Corporation (incorporated by reference to~~ Exhibit ~~10.11 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))~~

4.10†
4.11†
~~4.11†~~		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))
4.12†
~~4.12†~~ 4.13†		Lease Agreement, dated as of March 12, 2007, between the Company and RBS Aerospace Limited (incorporated by reference to Exhibit 10.13 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))

~~4.13†~~		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))
4.14†
~~4.14†~~ 4.15†		Lease Agreement, dated as of March 12, 2007, between the Company and RBS Aerospace Limited Amendment Agreement, dated as of September 17, 2007, between Company and RBS Aerospace Limited with Wells Fargo Northwest, National Association (incorporated by reference to Exhibit 10.15 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))
4.16†
~~4.15†~~ 4.17†		Lease Agreement, dated as of March 12, 2007, between the Company and RBS Aerospace Limited Amendment Agreement, dated as of October 10, 2007, between Company and RBS Aerospace Limited with Wells Fargo Northwest, National Association (incorporated by reference to Exhibit 10.16 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))
4.18†
~~4.16†~~ 4.19†		Lease Agreement, dated as of March 26, 2007, between the Company and Arrendadora Financiera Inbursa, S.A. de C.V. Sociedad Financiera de Objeto Múltiple, Entidad Regulada Grupo Financiero Inbursa (incorporated by reference to Exhibit 10.17 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))
4.20†
~~4.17†~~ 4.21†		Lease Agreement, dated as of April 20, 2007, between the Company and International Lease Finance Corporation (incorporated by reference to Exhibit 10.18 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))
4.22†
~~4.18†~~ 4.23†		Lease Agreement, dated as of June 18, 2007, between the Company and Arrendadora Financiera Inbursa, S.A. de C.V. Sociedad Financiera de Objeto Múltiple, Entidad Regulada Grupo Financiero Inbursa (incorporated by reference to Exhibit 10.19 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))

~~4.19†~~		Lease Agreement, dated as of January 25, 2008, between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.20 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))

~~4.20†~~		Lease Agreement, dated as of January 25, 2008, between the Company and Wells Fargo Bank Northwest, National Association (incorporated by reference to Exhibit 10.21 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))

~~4.21†~~		Lease Agreement, dated as of November 30, 2009, between the Company and CIT Aerospace International (incorporated by reference to Exhibit 10.23 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))

~~Exhibit~~ ~~Number~~		~~Exhibit~~

~~4.22†~~		Lease Agreement, dated as of November 30, 2009, between the Company and CIT Aerospace International (incorporated by reference to Exhibit 10.24 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))

~~4.23†~~		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))
4.24†
~~4.24†~~		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))
4.25†
~~4.25†~~ 4.26†		Lease Agreement, dated as of April 7, 2011, between the Company and MASL Ireland (22) Limited (incorporated by reference to Exhibit 10.30 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))

~~4.26†~~		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))
4.27†
~~4.27†~~ 4.28†

Exhibit
Number

~~Lease Agreement, dated as of April 29, 2011, between the Company and Amentum Leasing No. Three Limited (incorporated by reference to~~ Exhibit ~~10.32 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))~~

4.29†
~~4.28†~~		Lease Agreement, dated as of April 29, 2011, between the Company and Amentum Leasing No. Three Limited (incorporated by reference to Exhibit 10.33 of the Company’s registration statement on Form F-1 filed with the SEC on June 20, 2013 (File No. 333-189121))

~~4.29†~~		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))
4.30†
~~4.30†~~		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))
4.31†
~~4.31†~~		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))
4.32†
~~4.32†~~		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))
4.33†
~~4.33†~~		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))

~~Exhibit~~ ~~Number~~		~~Exhibit~~
4.34†
~~4.34†~~		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))
4.35†
~~4.35†~~		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))
4.36†
~~4.36†~~		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))
4.37†
~~4.37†~~		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))
4.38†
~~4.38†~~		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))
4.39†
~~4.39†~~		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))

Exhibit
Number

Exhibit

4.40†		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))
4.41†
~~4.41†~~		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))
4.42†
~~4.42†~~		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))
4.43†
~~4.43†~~		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))

~~Exhibit~~ ~~Number~~		~~Exhibit~~
4.44†
~~4.44†~~		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))
4.45†
~~4.45†~~		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))
4.46†
~~4.46†~~		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))
4.47†
~~4.47†~~		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))
4.48†
~~4.48†~~ 4.49†		Master Agreement, dated as of July 20, 2009, between the Company and Sabre, Inc. (incorporated by reference to Exhibit 10.53 of the Company’s registration statement on Form F-1 filed with the SEC on August 16, 2013 (File No. 333-189121))

~~4.49†~~		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))

Exhibit
Number

Exhibit

4.50†		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
~~8.1~~		List of the Subsidiaries of the Company
12.1
~~12.1~~		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2
~~12.2~~		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1
~~13.1~~		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1
~~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~~(Secretaria de Comunicaciones y ~~Transportes~~)~~(incorporated~~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))
101.INS
~~101.INS~~		XBRL Instance Document

~~Exhibit~~ ~~Number~~		~~Exhibit~~
101.SCH
~~101.SCH~~		XBRL Taxonomy Extension Schema Document
101.DEF
~~101.DEF~~		XBRL Taxonomy Extension Definition Linkbase Document
101.CAL
~~101.CAL~~		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
~~101.LAB~~		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
~~101.PRE~~		XBRL Taxonomy Extension Presentation Linkbase Document

†

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

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

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/ Isela Cervantes
	Name:	Isela Cervantes
	Title:	Interim Chief Legal Officer
	~~By:~~Date: April 30, 2021	~~/s/ Enrique Beltranena~~
	~~Name:~~	~~Enrique Beltranena~~
	~~Title:~~	~~President and Chief Executive Officer~~

	~~By:~~	~~/s/ Sonia Jerez~~
	~~Name:~~	~~Sonia Jerez~~
	~~Title:~~	~~Vice President and Chief Financial Officer~~

	~~By:~~	~~/s/ Jaime Pous~~
	~~Name:~~	~~Jaime Pous~~
	~~Title:~~	~~Senior Vice President - Chief Legal Officer and Corporate Affairs~~

~~Date: April 26, 2019~~

CONTROLADORA VUELA COMPAÑÍA DE AVIACIÓN,

S.A.B. DE C.V. AND SUBSIDIARIES

(d.b.a. VOLARIS)

Consolidated Financial Statements

Years Ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018

with Independent Auditor’s Report

~~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, ~~2018, 2017~~2020, 2019 and ~~2016~~2018

Contents:

Independent Auditor’s ~~Reports~~Report	F-2

Audited Consolidated Financial Statements:

Consolidated Statements of Financial Position	~~F-5~~ F-8
Consolidated Statements of Operations	~~F-6~~ F-9
Consolidated Statements of Comprehensive Income	~~F-7~~ F-10
Consolidated Statements of Changes in Equity	~~F-8~~ F-11
Consolidated Statements of Cash Flows	~~F-9~~ F-12
Notes to Consolidated Financial Statements	~~F-10~~ F-13

F-1F-1

~~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, 2018, 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, 2018, 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, 2018 and 2017, 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, 2018, and the related notes, and our report dated April 25, 2018 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.

F-2

~~Table of Contents~~

~~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, as issued by the International Accounting Standard Board (IFRS). 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.

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 25, 2019~~

F-3

~~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, ~~2018~~2020 and ~~2017,~~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, ~~2018,~~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, ~~2018~~2020 and ~~2017,~~2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2018,~~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~~Company's internal control over financial reporting as of December 31, ~~2018,~~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 ~~25, 2019~~29, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the ~~Company’s~~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.

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 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 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 ~~25, 2019~~29, 2021

F-4

F-5

~~Table~~

Report of ~~Contents~~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

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.

Mancera, S.C.

A member practice of

Ernst & Young Global Limited

/s/ MANCERA, S.C.

Mexico City, Mexico

April 29, 2021

F-7

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)

	2018			At December 31,						At January, 1
	(Thousands of U.S.						2017			2017			(Thousands of			At December 31,
	*dollars)**			2018			Adjusted			Adjusted			U.S. dollars*) 2020			2020			2019
Assets
Current assets:
Cash and cash equivalents (Note 6)	US$	297,870		Ps.	5,862,942		Ps.	6,950,879		Ps.	7,071,251		US$	506,468		Ps.	10,103,385		Ps.	7,979,972
Accounts receivable:
Related parties (Note 7)	420			8,266			—			—				3,641			72,629			23,442
Other accounts receivable (Note 8)	25,834			508,479			478,467			427,403
Other accounts receivable, net (Note 8)														28,104			560,640			923,000
Recoverable value added tax and others	31,100			612,146			400,464			342,348				46,242			922,458			938,532
Recoverable income tax	17,162			337,799			570,361			192,967				23,643			471,652			435,360
Inventories (Note 9)	15,103			297,271			294,850			243,884				13,984			278,959			301,908
Prepaid expenses and other current assets (Note 10)	36,059			709,750			767,713			1,562,526				42,631			850,425			781,131
Financial instruments (Notes 3 and 5)	3,172			62,440			497,403			543,528				10			206			133,567
Guarantee deposits (Note 11)	40,169			790,635			1,352,893			1,167,209				57,245			1,141,956			600,327
Total current assets	466,889			9,189,728			11,313,030			11,551,116				721,968			14,402,310			12,117,239

Non-current assets:
Rotable spare parts, furniture and equipment, net (Note 12)	293,772			5,782,282			4,375,697			2,525,008				364,994			7,281,157			7,385,334
Right-of-use assets (Note 14)														1,720,223			34,316,217			34,128,766
Intangible assets, net (Note 13)	9,100			179,124			190,420			114,041				9,603			191,562			167,397
Financial instruments (Notes 3 and 5)	—			—			—			324,281				16			326			2,695
Deferred income taxes (Note 19)	30,143			593,302			562,445			559,083				156,830			3,128,555			1,542,536
Guarantee deposits (Note 11)	321,980			6,337,496			6,098,252			6,559,878				422,320			8,424,738			7,644,421
Other assets	7,863			154,757			126,423			148,364				5,975			119,202			165,546
Other long-term assets	3,757			73,962			—			—				16,294			325,046			141,193
Total non-current assets	666,615			13,120,923			11,353,237			10,230,655				2,696,255			53,786,803			51,177,888
Total assets	US$	1,133,504		Ps.	22,310,651		Ps.	22,666,267		Ps.	21,781,771		US$	3,418,223		Ps.	68,189,113		Ps.	63,295,127

Liabilities and equity
Short-term liabilities:
Unearned transportation revenue	US$	123,890		Ps.	2,438,516		Ps.	2,293,309		Ps.	2,228,051
Current liabilities:
Unearned transportation revenue (Note 1d)													US$	293,298		Ps.	5,850,917		Ps.	3,679,926
Suppliers	55,149			1,085,499			1,077,438			861,805				112,275			2,239,736			1,597,099
Related parties (Note 7)	903			17,775			40,931			65,022				6,266			124,993			58,554
Accrued liabilities (Note 15a)	117,787			2,318,392			2,050,973			1,785,439				118,118			2,356,287			2,531,861
Lease liabilities (Note 14)														325,038			6,484,092			4,720,505
Other taxes and fees payable (Note 1q)	98,160			1,932,082			1,245,247			1,476,242				112,096			2,236,161			2,102,455
Income taxes payable	207			4,065			111,292			196,242				201			4,005			140,609
Financial instruments (Notes 3 and 5)	6,246			122,948			—			14,144				484			9,657			-
Financial debt (Note 5)	61,590			1,212,259			2,403,562			1,051,237				78,144			1,558,884			2,086,017
Other liabilities (Note 15c)	5,981			117,724			280,744			284,200				5,074			101,218			407,190
Total short-term liabilities	469,913			9,249,260			9,503,496			7,962,382
Total current liabilities														1,050,994			20,965,950			17,324,216

Long-term liabilities:
Non-current liabilities:
Financial debt (Note 5)	117,409			2,310,939			1,079,152			943,046				190,276			3,795,749			2,889,952
Accrued liabilities (Note 15b)	6,972			137,233			199,848			169,808				3,343			66,698			90,796
Lease liabilities (Note 14)														1,887,163			37,646,450			35,796,540
Other liabilities (Note 15c)	16,661			327,934			216,702			136,555				133,727			2,667,683			1,469,595
Employee benefits (Note 16)	922			18,153			19,289			13,438				2,538			50,627			38,206
Deferred income taxes (Note 19)	55,655			1,095,452			1,616,282			1,836,950				10,014			199,771			156,139
Total long-term liabilities	197,619			3,889,711			3,131,273			3,099,797
Total non-current liabilities														2,227,061			44,426,978			40,441,228
Total liabilities	667,532			13,138,971			12,634,769			11,062,179				3,278,055			65,392,928			57,765,444

Equity (Note 18):
Capital stock	151,073			2,973,559			2,973,559			2,973,559				171,761			3,426,406			2,973,559
Treasury shares	(6,232		)	(122,661		)	(85,034		)	(83,365		)		(11,216	)		(223,744	)		(169,714	)
Contributions for future capital increases	—			1			1			1				-			1			1
Legal reserve	14,794			291,178			291,178			38,250				14,596			291,178			291,178
Additional paid-in capital	93,333			1,837,073			1,804,528			1,800,613				236,618			4,720,221			1,880,007
Retained earnings	216,730			4,265,876			4,948,376			5,853,092
Accumulated other comprehensive income	(3,726		)	(73,346		)	98,890			137,442
Retained (losses) earnings														(193,265	)		(3,855,379	)		438,412
Accumulated other comprehensive (loss) income														(78,326	)		(1,562,498	)		116,240
Total equity	465,972			9,171,680			10,031,498			10,719,592				140,168			2,796,185			5,529,683
Total liabilities and equity	US$	1,133,504		Ps.	22,310,651		Ps.	22,666,267		Ps.	21,781,771		US$	3,418,223		Ps.	68,189,113		Ps.	63,295,127

*Convenience translation to U.S. dollars ~~(Ps. 19.6829) —~~(Ps.19.9487) – Note 1y.

The accompanying notes are an integral part of these consolidated financial statements.

F-5

~~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)

	2018 (Thousands of U.S. *dollars, except**			For the years ended December 31,
	for earnings						2017			2016			(Thousands of U.S. dollars*, except for earnings			For the years ended December 31,
	per share)			2018			Adjusted			Adjusted			per share) 2020			2020			2019			2018
Operating revenues (Notes 1d and 24):
Passenger revenues:
Fare revenues	US$	939,285		Ps.	18,487,858		Ps.	17,791,317		Ps.	17,790,130		US$	645,314		Ps.	12,873,174		Ps.	23,129,991		Ps.	18,487,858
Other passenger revenues	400,982			7,892,497			6,098,504			4,919,452				431,777			8,613,398			10,569,208			7,892,497
	1,340,267			26,380,355			23,889,821			22,709,582				1,077,091			21,486,572			33,699,199			26,380,355
Non- passenger revenues
Other non-passenger revenues (Note 1d)	35,430			697,357			727,392			590,355				44,231			882,360			897,586			697,357
Cargo	11,555			227,438			170,973			171,623				10,120			201,881			228,836			227,438
Non-derivatives financial instruments														(20,614	)		(411,222	)		(72,949	)		-
	1,387,252			27,305,150			24,788,186			23,471,560				1,110,828			22,159,591			34,752,672			27,305,150

Other operating income (Note 20)	(31,600		)	(621,973		)	(96,765		)	(496,742		)		(36,611	)		(730,333	)		(327,208	)		(621,973	)
Fuel	514,913			10,134,982			7,255,636			5,741,403
Aircraft and engine rent expenses (Note 14c)	320,833			6,314,930			6,072,502			5,590,058
Fuel expense, net														332,895			6,640,820			11,626,069			10,134,982
Landing, take-off and navigation expenses	232,840			4,582,967			4,009,915			3,272,051				205,069			4,090,864			5,108,489			4,573,319
Depreciation of right of use assets (Note 14)														253,098			5,048,976			4,702,971			4,043,691
Salaries and benefits	158,787			3,125,393			2,823,647			2,419,537				173,113			3,453,382			3,600,762			3,125,393
Maintenance expenses														58,536			1,167,720			1,488,431			1,497,989
Sales, marketing and distribution expenses	76,269			1,501,203			1,691,524			1,413,348				92,278			1,840,819			1,447,637			1,501,203
Maintenance expenses	77,104			1,517,626			1,433,147			1,344,110
Aircraft and engine variable lease expenses														92,500			1,845,254			961,657			956,010
Other operating expenses (Note 20)	57,406			1,129,911			1,088,440			952,452				58,011			1,157,240			1,112,927			1,059,098
Depreciation and amortization (Notes 12 and 13)	25,435			500,641			548,687			536,543				45,038			898,445			675,514			500,641
Operating (loss) income	(44,735		)	(880,530		)	(38,547		)	2,698,800				(163,099	)		(3,253,596	)		4,355,423			534,797

Finance income (Note 21)	7,753			152,603			105,795			102,591				5,089			101,511			207,799			152,603
Finance cost (Note 21)	(6,114		)	(120,334		)	(86,357		)	(35,116		)		(151,313	)		(3,018,484	)		(2,269,829	)		(1,876,312	)
Foreign exchange (loss) gain, net	(3,682		)	(72,475		)	(793,854		)	2,169,505
Foreign exchange gain (loss), net														23,591			470,594			1,440,501			(103,790	)

(Loss) income before income tax	(46,778		)	(920,736		)	(812,963		)	4,935,780				(285,732	)		(5,699,975	)		3,733,894			(1,292,702	)
Income tax benefit (expense) (Note 19)	12,104			238,236			161,175			(1,457,182		)		70,490			1,406,184			(1,094,831	)		349,820
Net (loss) income	US$	(34,674	)	Ps.	(682,500	)	Ps.	(651,788	)	Ps.	3,478,598		US$	(215,242	)	Ps.	(4,293,791	)	Ps.	2,639,063		Ps.	(942,882	)

(Loss) Earnings per share basic:	US$	(0.034	)	Ps.	(0.674	)	Ps.	(0.644	)	Ps.	3.438
(Loss) Earnings per share diluted:	US$	(0.034	)	Ps.	(0.674	)	Ps.	(0.644	)	Ps.	3.438
(Loss) earnings per share basic:													US$	(0.211	)	Ps.	(4.203	)	Ps.	2.608		Ps.	(0.932	)
(Loss) earnings per share diluted:													US$	(0.211	)	Ps.	(4.203	)	Ps.	2.608		Ps.	(0.932	)

*Convenience translation to U.S. dollars ~~(Ps. 19.6829) —~~(Ps.19.9487) – Note 1y.

The accompanying notes are an integral part of these consolidated financial statements.

F-6

~~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)

	2018			For the years ended December 31,									(Thousands of			For the years ended December 31,
	(Thousands of						2017			2016			U.S. dollars*)
	*U.S. dollars)**			2018			Adjusted			Adjusted			2020			2020			2019			2018
Net (loss) income for the year	US$	(34,674	)	Ps.	(682,500	)	Ps.	(651,788	)	Ps.	3,478,598		US$	(215,242	)	Ps.	(4,293,791	)	Ps.	2,639,063		Ps.	(942,882	)
Other comprehensive (loss) income:
Other comprehensive (loss) income to be reclassified to profit or loss in subsequent periods:
Net (loss) gain on cash flow hedges (Note 22)	(14,413		)	(283,691		)	(42,148		)	624,694				(87,609	)		(1,747,686	)		263,495			(283,691	)
Income tax effect (Note 19)	4,324			85,107			12,017			(187,408		)		2,348			46,835			(74,820	)		85,107
Exchange differences on translation of foreign operations	1,126			22,156			(7,178		)	(4,756		)		1,202			23,970			8,045			22,156
Other comprehensive (loss) income not to be reclassified to profit or loss in subsequent periods:
Remeasurement gain (loss) of employee benefits (Note 16)	304			5,989			(1,776		)	(442		)
Remeasurement (loss) gain of employee benefits (Note 16)														(133	)		(2,651	)		(10,192	)		5,989
Income tax effect (Note 19)	(91		)	(1,797		)	533			132				40			794			3,058			(1,797	)
Other comprehensive (loss) income for the year, net of tax	US$	(8,750	)	Ps.	(172,236	)	Ps.	(38,552	)	Ps.	432,220		US$	(84,152	)	Ps.	(1,678,738	)	Ps.	189,586		Ps.	(172,236	)
Total comprehensive (loss) income for the year, net of tax	US$	(43,424	)	Ps.	(854,736	)	Ps.	(690,340	)	Ps.	3,910,818		US$	(299,394	)	Ps.	(5,972,529	)	Ps.	2,828,649		Ps.	(1,115,118	)

*Convenience translation to U.S. dollars ~~(Ps. 19.6829) —~~(Ps.19.9487) – Note 1y.

The accompanying notes are an integral part of these consolidated financial statements.

F-7

~~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, ~~2018, 2017 (adjusted)~~2020, 2019 and ~~2016 (adjusted)~~2018

(In thousands of Mexican pesos)

	Capital stock			Treasury shares				Contributions for future capital increases			Legal Reserve			Additional paid-in capital				Retained earnings (Accumulated losses)				Remeasurement of employee benefits				Cash flow hedges			Exchange differences on translation of foreign operations				Total equity				Capital stock		Treasury Shares			Contributions for future capital increases		Legal reserve		Additional paid- in capital			Retained (losses) earnings			Other comprehensive (loss) income			Total equity
Balance as of December 31, 2015	Ps.	2,973,559		Ps.	(91,328		)	Ps.	1		Ps.	38,250		Ps.	1,791,040			Ps.	2,374,494			Ps.	(2,304		)	Ps.	(292,474	)	Ps.	—			Ps.	6,791,238
Treasury shares	—			(17,025			)	—			—			17,025				—				—				—			—				—
Exercise of stock options (Note 17)	—			17,536				—			—			—				—				—				—			—				17,536
Forfeited shares from incentive plan	—			963				—			—			(963			)	—				—				—			—				—
Long-term incentive plan cost (Note 17)	—			6,489				—			—			(6,489			)	—				—				—			—				—
Net income for the period	—			—				—			—			—				3,519,489				—				—			—				3,519,489
IFRS 15 adoption (Note 1x)																		(40,891			)												(40,891			)
Other comprehensive (loss) income items	—			—				—			—			—				—				(310			)	437,286			(4,756			)	432,220
Total comprehensive income (loss)	—			—				—			—			—				3,478,598				(310			)	437,286			(4,756			)	3,910,818
Balance as of December 31, 2016	2,973,559			(83,365			)	1			38,250			1,800,613				5,853,092				(2,614			)	144,812			(4,756			)	10,719,592
Legal reserve increase (Note 18)	—			—				—			252,928			—				(252,928			)	—				—			—				—
Treasury shares	—			(10,108			)	—			—			10,108				—				—				—			—				—
Exercise of stock options (Note 17)	—			638				—			—			—				—				—				—			—				638
Long-term incentive plan cost (Note 17)	—			7,801				—			—			(6,193			)	—				—				—			—				1,608
Net loss for the period	—			—				—			—			—				(594,599			)	—				—			—				(594,599			)
IFRS 15 adoption (Note 1x)																		(57,189			)												(57,189			)
Other comprehensive (loss)items	—			—				—			—			—				—				(1,243			)	(30,131		)	(7,178			)	(38,552			)
Total comprehensive (loss)	—			—				—			—			—				(651,788			)	(1,243			)	(30,131		)	(7,178			)	(690,340			)
Balance as of December 31, 2017	2,973,559			(85,034			)	1			291,178			1,804,528				4,948,376				(3,857			)	114,681			(11,934			)	10,031,498				Ps.	2,973,559	Ps.	(85,034	)	Ps.	1	Ps.	291,178	Ps.	1,804,528		Ps.	(1,257,769	)	Ps.	98,890		Ps.	3,825,353
Treasury shares	—			(57,320			)	—			—			41,590				—				—				—			—				(15,730			)		-		(57,320	)		-		-		41,590			-			-			(15,730	)
Exercise of stock options (Note 17)	—			10,648				—			—			—				—				—				—			—				10,648					-		10,648			-		-		-			-			-			10,648
Long-term incentive plan cost (Note 17)	—			9,045				—			—			(9,045			)	—				—				—			—				—					-		9,045			-		-		(9,045	)		-			-			-
Net loss for the period	—			—				—			—			—				(682,500			)	—				—			—				(682,500			)		-		-			-		-		-			(682,500	)		-			(682,500	)
Other comprehensive gain (loss) items	—			—				—			—			—				—				4,192				(198,584		)	22,156				(172,236			)
Total comprehensive (loss)	—			—				—			—			—				(682,500			)	4,192				(198,584		)	22,156				(854,736			)
IFRS 16 adoption																																						-		-			-		-		-			(260,382	)		-			(260,382	)
Other comprehensive loss items																																						-		-			-		-					-			(172,236	)		(172,236	)
Total comprehensive loss																																						-		-			-		-		-			(942,882	)		(172,236	)		(1,115,118	)
Balance as of December 31, 2018	Ps.	2,973,559		Ps.	(122,661		)	Ps.	1		Ps.	291,178		Ps.	1,837,073			Ps.	4,265,876			Ps.	335			Ps.	(83,903	)	Ps.	10,222			Ps.	9,171,680				2,973,559		(122,661	)		1		291,178		1,837,073			(2,200,651	)		(73,346	)		2,705,153
Treasury shares																																						-		(75,375	)		-		-		56,483			-			-			(18,892	)
Exercise of stock options (Note 17)																																						-		14,773			-		-		-			-			-			14,773
Long-term incentive plan cost (Note 17)																																						-		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 18)																																						452,847		-			-		-		2,819,985			-			-			3,272,832
Treasury shares																																						-		(94,564	)		-		-		60,763			-			-			(33,801	)
Long-term incentive plan cost (Note 17)																																						-		40,534			-		-		(40,534	)		-			-			-
Net loss for the period																																						-		-			-		-		-			(4,293,791	)		-			(4,293,791	)
Other comprehensive income 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																																					Ps.	3,426,406	Ps.	(223,744	)	Ps.	1	Ps.	291,178	Ps.	4,720,221		Ps.	(3,855,379	)	Ps.	(1,562,498	)	Ps.	2,796,185
	US$		151,073	US$		(6,232	)	US$		—	US$		14,793	US$		93,333		US$		216,730		US$		17		US$	(4,263	)	US$		520		US$		465,971		US$	171,761	US$	(11,216	)	US$	-	US$	14,596	US$	236,618		US$	(193,265	)	US$	(78,326	)	US$	140,168

*Convenience translation to U.S. dollars ~~(Ps. 19.6829) —~~19.9487) – Note 1y.

The accompanying notes are an integral part of these consolidated financial statements.

F-8

~~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,									(Thousands of			For the years ended December 31,
	*U.S. dollars)**						2017			2016			U.S. dollars*)
	2018			2018			Adjusted			Adjusted			2020			2020			2019			2018
Operating activities
(Loss) income before income tax	US$	(46,778	)	Ps.	(920,736	)	Ps.	(812,963	)	Ps.	4,935,780		US$	(285,732	)	Ps.	(5,699,975	)	Ps.	3,733,894		Ps.	(1,292,702	)
Non-cash adjustment to reconcile income before tax to net cash flows from operating activities:
Depreciation and amortization (Notes 12 and 13)	25,435			500,641			548,687			536,543
Provision for doubtful accounts (Note 8)	540			10,621			4,720			9,164
Non-cash adjustment to reconcile (loss) income before income tax to net cash flows from operating activities:
Depreciation and amortization (including right-of-use-assets) (Notes 12, 13 and 14)														298,136			5,947,421			5,378,485			4,544,332
Allowance for credit losses (Note 8)														685			13,664			40,393			10,621
Finance income (Note 21)	(7,753		)	(152,603		)	(105,795		)	(102,591		)		(5,089	)		(101,511	)		(207,799	)		(152,603	)
Finance cost (Note 21)	6,114			120,334			86,357			35,116				128,406			2,561,526			2,265,242			1,876,312
Net foreign exchange differences	7,142			140,575			504,366			(1,054,333		)		(28,753	)		(573,591	)		(1,722,985	)		171,874
Financial instruments (Notes 4 and 22)	(23,117		)	(455,009		)	50,007			353,943
Financial instruments (Notes 3 and 4)														65,496			1,306,557			67,629			(455,009	)
Amortized Cost (CEBUR)														347			6,930			3,306			-
Net gain on disposal of rotable spare parts, furniture and equipment and gain on sale of aircraft (Note 20)	(30,829		)	(606,812		)	(64,978		)	(483,565		)		(35,487	)		(707,918	)		(275,805	)		(606,812	)
Employee benefits (Note 16)	325			6,401			4,657			3,122				555			11,079			10,086			6,401
Aircraft and engine lease extension benefit and other benefits from service agreements	(4,945		)	(97,330		)	(100,580		)	(82,178		)		(533	)		(10,633	)		(10,634	)		(12,693	)
Management incentive and long-term incentive plans (Note 17)	656			12,919			8,783			4,826
Management incentive and long-term incentive plans														2,445			48,772			32,257			12,919
Cash flows from operating activities before changes in working capital	(73,210		)	(1,440,999		)	123,261			4,155,827				140,476			2,802,321			9,314,069			4,102,640
Changes in operating assets and liabilities:
Related parties	(1,596		)	(31,422		)	(24,091		)	50,706				864			17,252			25,603			(31,422	)
Other accounts receivable	87			1,711			139,774			(157,370		)		39,754			793,045			(367,603	)		1,711
Recoverable and prepaid taxes	974			19,168			(438,966		)	(361,377		)		(1,103	)		(22,010	)		(425,410	)		19,168
Inventories	(123		)	(2,421		)	(50,966		)	(80,811		)		1,150			22,949			(4,637	)		(2,421	)
Prepaid expenses	(305		)	(6,001		)	726,020			(1,027,040		)		3,670			73,220			(369,860	)		(6,001	)
Other assets	(571		)	(11,228		)	21,941			19,540				2,843			56,717			(10,789	)		(11,228	)
Guarantee deposits	11,788			232,019			57,425			(1,957,350		)		(70,036	)		(1,397,131	)		(1,168,537	)		232,019
Suppliers	712			14,022			196,082			136,178				44,726			892,232			518,189			14,022
Accrued liabilities	18,961			373,203			289,920			231,656				(28,131	)		(561,229	)		352,475			540,471
Other taxes and fees payable	28,359			558,174			353,014			523,524				8,260			164,777			119,700			558,174
Unearned transportation revenue	7,377			145,207			65,258			237,204				108,829			2,170,991			1,241,410			145,207
Financial instruments	41,033			807,644			126,053			(450,902		)		(63,759	)		(1,271,904	)		(18,943	)		807,644
Other liabilities	(1,976		)	(38,875		)	11,198			528,365				38,661			771,229			191,099			(38,875	)
	31,510			620,202			1,595,923			1,848,150				226,204			4,512,459			9,396,766			6,331,109
Interest received	7,753			152,602			105,795			102,591				5,089			101,511			207,799			152,602
Income tax paid	(10,517		)	(207,004		)	(715,849		)	(972,009		)		(12,759	)		(254,525	)		(94,922	)		(207,004	)
Net cash flows provided by operating activities	28,746			565,800			985,869			978,732				218,534			4,359,445			9,509,643			6,276,707

Investing activities
Acquisitions of rotable spare parts, furniture and equipment (Note 12)	(139,368		)	(2,743,155		)	(2,521,752		)	(2,198,697		)		(169,263	)		(3,376,576	)		(3,483,368	)		(2,743,155	)
Acquisitions of intangible assets (Note 13)	(3,608		)	(71,007		)	(130,908		)	(60,792		)		(6,252	)		(124,724	)		(77,325	)		(71,007	)
Pre-delivery payments reimbursements (Note 12)	33,957			668,365			213,947			1,733,093
Pre-delivery payments reimbursements														85,737			1,710,338			704,852			668,365
Proceeds from disposals of rotable spare parts, furniture and equipment	38,429			756,402			178,273			498,438				86,382			1,723,205			976,500			756,402
Net cash flows used in investing activities	(70,590		)	(1,389,395		)	(2,260,440		)	(27,958		)		(3,396	)		(67,757	)		(1,879,341	)		(1,389,395	)

Financing activities
Net proceeds from public offering (Note 18)														164,062			3,272,832			-			-
Proceeds from exercised stock options (Note 17)	541			10,648			638			20,186				-			-			14,773			10,648
Treasury shares purchase	(2,912		)	(57,320		)	(10,108		)	(17,025		)		(4,740	)		(94,564	)		(75,375	)		(57,320	)
Interest paid	(8,899		)	(175,170		)	(105,388		)	(39,350		)		(14,007	)		(279,423	)		(217,018	)		(175,170	)
Other finance interest paid	(1,451		)	(28,567		)	—			(137,830		)		(612	)		(12,214	)		(60,824	)		(28,567	)
Payments of principal portion of lease liabilities (Note 14)														(306,314	)		(6,110,569	)		(6,499,802	)		(5,710,907	)
Payments of financial debt	(60,641		)	(1,193,589		)	(924,867		)	(1,531,460		)		(107,285	)		(2,140,194	)		(1,181,726	)		(1,193,589	)
Proceeds from financial debt	61,416			1,208,846			2,438,025			1,716,244				116,464			2,323,292			2,781,132			1,208,846
Net cash flows (used in) provided by financing activities	(11,946		)	(235,152		)	1,398,300			10,765
Net cash flows used in financing activities														(152,432	)		(3,040,840	)		(5,238,840	)		(5,946,059	)

(Decrease) increase in cash and cash equivalents	(53,790		)	(1,058,747		)	123,729			961,539
Increase (decrease) in cash and cash equivalents														62,706			1,250,848			2,391,462			(1,058,747	)
Net foreign exchange differences on cash balance	(1,483		)	(29,190		)	(244,101		)	952,399				43,737			872,565			(274,432	)		(29,190	)
Cash and cash equivalents at beginning of year	353,143			6,950,879			7,071,251			5,157,313				400,025			7,979,972			5,862,942			6,950,879
Cash and cash equivalents at end of year	US$	297,870		Ps.	5,862,942		Ps.	6,950,879		Ps.	7,071,251		US$	506,468		Ps.	10,103,385		Ps.	7,979,972		Ps.	5,862,942

*Convenience translation to U.S. dollars ~~(Ps. 19.6829) —~~(19.9487) – Note 1y.

The accompanying notes are an integral part of these consolidated financial statements.

F-9

~~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, ~~2018, 2017~~2020, 2019 and ~~2016~~2018

(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 Mexican Corporate laws on October 27, 2005.

Controladora is domiciled in Mexico City at Av. Antonio Dovali Jaime No. 70, 13^th Floor, Tower B, Colonia Zedec Santa Fe, Mexico City.

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. The Company 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 (“IPO”) 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 Rican civil aviation authorities 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 1, 2016, Volaris Costa Rica started operations.

F-10

~~Table of Contents~~

The accompanying consolidated financial statements and notes were authorized for issuance by the Company’s Chief Executive Officer, Enrique Beltranena, and Vice-president and Chief Financial Officer, Sonia Jerez Burdeus, on April 11, 2019. Those consolidated financial statements and notes were approved by the ~~Company´s~~Company's Board of Directors and by the Shareholders on April ~~24, 2019. The accompanying~~26, 2021. These consolidated financial statements were also approved for issuance in the ~~Company´s~~Company's annual report on Form 20-F by the ~~Company´s~~Company's Vice President and Chief Executive Officer, Enrique Beltranena, and ~~Vice-president~~the Senior Vice President and Chief Financial Officer, Jaime E. Pous, on April ~~25,~~30, 2021 and subsequent events were considered through that date (Note 25).

a)Relevant events

Upsized Offering of ADSs

On December 11, 2020, Controladora Vuela Compañía de Aviación, S.A.B. de C.V 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 (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 (Note 18).

Covid-19 commentary

The ongoing outbreak of COVID-19 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.

The Company has taken actions to preserve liquidity and sustain its operations during the period, establishing vendor and supplier’s payment deferral, reducing management’s compensations and other salaries and deferring capital expenditures and certain other measures.

Liquidity and cash

The Company implemented a strict liquidity preservation program, which resulted in approximately U.S. $200 million of savings as of December 31, 2020 through items such as cost reductions and deferral agreements with suppliers. In addition, the Company negotiated cost reductions with more than 360 suppliers and cut non-essential expenses. The Company also implemented online training and leave of absence programs in order to reduce costs. As of December 31, 2020, our cash and cash equivalents were Ps.10,103,385.

Fleet plan

The new contractual fleet plan with Airbus allows to the Company to maintain a “cautiously” sized fleet, that will remain at approximately 85 aircraft, net of new deliveries and redeliveries, until 2023.

Customers and employees

Additionally, the Company launched a new biosecurity and cleaning protocol and are communicating proactively with all staff, especially with crews and airport staff, regarding health and COVID-19 developments.

Commercial and network growth opportunities.

The Company is closely monitoring capacity reductions from competitors for possible opportunities, testing new ancillary products and running targeted promotions to test potential stimulation of air travel.

The Company remained focused on price sensitive visiting friends and relatives, leisure and small and medium sized enterprises segments, which continued to show the strongest demand for air travel in Mexico as the market recovers from COVID-19. As of December 31, 2020, Volaris was positioned as the domestic market leader in 2020.

In addition, the Company considered the impact of Covid-19 in preparing their financial statements.

Since the Company business and the airline industry have experienced material adverse impacts due to the COVID-19 pandemic, the Company 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.

Issuance asset backed trust notes

On June 20, 2019, the Company, through its subsidiary 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 TIIE 28 plus 175 basis points (Note 5b).

Shares conversion

On February 16, 2018, one of the Company´s shareholders concluded the conversion of 45,968,598 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. ~~(Note 18)~~

~~New code-share agreement~~

~~On January 16, 2018, the Company and Frontier Airlines (herein after Frontier) entered into a code-share operations agreement, which started operations in September.~~

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. Tickets from Frontier can be purchased directly from the Volaris’ website.

~~Purchase of 80 A320 New Engine Option (“NEO”) 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, to support the Company’s targeted growth markets in Mexico, United States and Central America. The related commitments for the acquisitions of such aircraft are disclosed in Note 23.

b) Basis of preparation

Statement of compliance

These consolidated financial statements comprise the financial statements of the Company and its subsidiaries at December 31, ~~2018, 2017~~2020 and ~~2016~~2019 and for each of the three years ~~in the period~~ ended December 31, ~~2018~~2020, 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 the entity operates (“functional currency”). The presentation currency of the Company’s consolidated financial statements is the Mexican peso, which is used also for compliance with its legal and tax obligations. All values in the consolidated financial statements are rounded to the nearest thousand (Ps.000), except when otherwise indicated.

F-11

~~Table of Contents~~

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.

The Company presents an additional statement of financial position at January 1 2017, due to a retrospective application of accounting policies as a result of the adoption of IFRS 15 “Revenue from contracts with customers” See Note 1 x.

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 and investments in marketable securities measured at fair value through profit and loss (“FVTPL”).

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-16

c) Basis of consolidation

The accompanying consolidated financial statements comprise the financial statements of the Company and its subsidiaries. At December 31, ~~2018, 2017~~2020 and ~~2016,~~2019, for accounting purposes the companies included in the consolidated financial statements are as follows:

	Principal		% Equity interest
Name									Principal Activities	Country	% Equity interest
Name	Activities	Country	2018		2017		2016		Principal Activities	Country	2020	2019
Concesionaria	Air transportation services for passengers, cargo and mail throughout Mexico and abroad	Mexico	100	%	100	%	100	%	Air transportation services for passengers, cargo and mail throughout Mexico and abroad	Mexico	100%	100%
Volaris Costa Rica	Air transportation services for passengers, cargo and mail in Costa Rica and abroad	Costa Rica	100	%	100	%	100	%
Vuela, S.A. (“Vuela”)*	Air transportation services for passengers, cargo and mail in Guatemala and abroad	Guatemala	100	%	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	%	—		—		Air transportation services for passengers, cargo and mail in El Salvador and abroad	El Salvador	100%	100%
Comercializadora Volaris, S.A. de C.V.	Merchandising of services	Mexico	100	%	100	%	100	%	Merchandising of services	Mexico	100%	100%
Servicios Earhart, S.A.*	Recruitment and payroll	Guatemala	100	%	100	%	100	%	Recruitment and payroll	Guatemala	100%	100%
Servicios Corporativos Volaris, S.A. de C.V. (“Servicios Corporativos”)	Recruitment and payroll	Mexico	100	%	100	%	100	%	Recruitment and payroll	Mexico	100%	100%
Servicios Administrativos Volaris, S.A. de C.V. (“Servicios Administrativos”)	Recruitment and payroll	Mexico	100	%	100	%	100	%	Recruitment and payroll	Mexico	100%	100%
Comercializadora V Frecuenta, S.A. de C.V. (“Loyalty Program”)**	Loyalty Program	México	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”)~~(1)~~	Travel agency	Mexico	100	%	100	%	100	%	Travel agency	Mexico	100%	100%
Deutsche Bank México, S.A., Trust 1710	Pre-delivery payments financing (Note 5)	Mexico	100	%	100	%	100	%	Pre-delivery payments financing (Note 5)	Mexico	100%	100%
Deutsche Bank México, S.A., Trust 1711	Pre-delivery payments financing (Note 5)	Mexico	100	%	100	%	100	%	Pre-delivery payments financing (Note 5)	Mexico	100%	100%
Irrevocable Administrative Trust number F/307750 “Administrative Trust”	Share administration trust (Note 17)	Mexico	100	%	100	%	100	%	Share administration trust (Note 17)	Mexico	100%	100%
Irrevocable Administrative Trust number F/745291	Share administration trust (Note 17)	Mexico	100	%	100	%	100	%
Irrevocable Administrative Trust number F/745291 “Administrative Trust”									Share administration trust (Note 17)	Mexico	100%	100%
Irrevocable Administrative Trust number CIB/3081 “Administrative Trust”	Share administration trust (Note 17)	Mexico	100	%	—		—		Share administration trust (Note 17)	Mexico	100%	100%
Irrevocable Administrative Trust number CIB/3249 “Administrative Trust”									Asset backed securities trustor & administrator (Note 5)	Mexico	100%	100%

*The Companies have not started operations yet in Guatemala and El Salvador.

**The Company has not started operations yet

~~(1)~~ ~~With effect from July 16, 2018, the name of the Company was changed from Operaciones Volaris, S.A. de C.V. to Viajes Vuela, S.A. de C.V.~~

F-12

~~Table of Contents~~

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).~~

(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.

~~(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.~~

~~(ii)~~ ~~Rights arising from other contractual arrangements.~~

~~(iii)~~ ~~The Company’s voting rights and potential voting rights.~~

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

(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.~~full on consolidation.

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 exchange rates prevailing at the dates of the transactions. 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

As of January 1, 2018, the Company adopted IFRS 15 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, 2016.

The main impact of IFRS 15 is the timing of recognition of certain air travel-related services (“ancillaries”). Under the new standard, certain ancillaries are recognized when the Company satisfies its performance obligations which is typically when the air transportation service is rendered (at the time of the flight). This change arises primarily because those ancillaries do not constitute separate performance obligations or represent administrative tasks that do not represent a different promised service and therefore should be accounted for together with the air fare as a single performance obligation of providing passenger transportation.

F-13

~~Table of Contents~~

~~Also, certain complementary services including re-accommodation in other airlines provided to customers are recorded as a reduction of revenues.~~

The classification of certain ancillary fees in the statement of operations, such as advanced seat selection, fees charged for excess baggage, itinerary changes and other air travel-related services, changed with adoption of IFRS 15, since they are part of the single performance obligation of providing passenger transportation See Note 1 x.

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, ~~since customer simultaneously receives and consumes~~as a modification of the ~~benefits provided~~tickets sold to V Club members.

Tickets sold by other airlines where the Company provides the transportation are recognized as passenger revenue when the service is provided.

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 partners, the Company has determined that it is 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). 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.~~Company for any segments flown by other airlines.

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.

F-14

~~Table of Contents~~

The Company 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 provided by the Company.

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

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.

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 of 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 does not have any obligations for returns, refunds and other similar obligations. All revenues from~~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 ~~or services~~ are rendered through aan approximate period of ~~time less than~~ 12 months.

~~Breakdown of revenues:~~

As of December 31, ~~2018, 2017~~2020, the Company recorded an amount of Ps.1,720,939 related to vouchers to be redeemed by passengers, which were presented as part of the unearned transportation revenues.

Breakdown of revenues:

As of December 31, 2020, 2019 and ~~2016,~~2018, the revenues from customers of contracts is described as follows:

Revenue recognition as of

At the flight time

At the sale

Total

At the flight time

At the sale

Total

December 31, 2018

Domestic

International

Domestic

International

Revenues

December 31, 2020

Domestic

International

Domestic

International

Revenues

Passenger Revenues

Fare Revenues

Ps.

12,336,095

Ps.

6,151,763

Ps.

—

Ps.

—

Ps.

18,487,858

Ps.

8,455,647

Ps.

4,417,527

Ps.

12,873,174

Other Passenger Revenues

5,182,572

2,598,375

68,264

43,286

7,892,497

6,920,141

1,536,206

124,450

32,601

8,613,398

17,518,667

8,750,138

68,264

43,286

26,380,355

15,375,788

5,953,733

124,450

32,601

21,486,572

Non-Passenger Revenues

Other Non-Passenger revenues

685,219

12,138

—

697,357

875,610

6,750

882,360

Cargo

221,324

6,114

—

227,438

196,349

5,532

201,881

Total

Ps.

18,425,210

Ps.

8,768,390

Ps.

68,264

Ps.

43,286

Ps.

27,305,150

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

Revenue recognition as of	At the flight time				At the sale				Total
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

Revenue recognition as of	At the flight time				At the sale				Total
December 31, 2018	Domestic		International		Domestic		International		Revenues
Passenger Revenues
Fare Revenues	Ps.	12,336,095	Ps.	6,151,763	Ps.	-	Ps.	-	Ps.	18,487,858
Other Passenger Revenues		5,182,572		2,598,375		68,264		43,286		7,892,497
		17,518,667		8,750,138		68,264		43,286		26,380,355
Non-Passenger Revenues
Other Non-Passenger revenues		685,219		12,138		-		-		697,357
Cargo		221,324		6,114		-		-		227,438
Total	Ps.	18,425,210	Ps.	8,768,390	Ps.	68,264	Ps.	43,286	Ps.	27,305,150

F-15

~~Table of Contents~~

Revenue recognition as of

At the flight time

At the sale

Total

December 31, 2017 (Adjusted)

Domestic

International

Domestic

International

Revenues

Passenger Revenues

Fare Revenues

Ps.
12,284,795

Ps.
5,506,522

Ps.
—

Ps.
—

Ps.
17,791,317

Other Passenger Revenues

4,087,664

1,992,696

11,283

6,861

6,098,504

16,372,459

7,499,218

11,283

6,861

23,889,821

Non-Passenger Revenues

Other Non-Passenger revenues

723,297

4,095

—

—

727,392

Cargo

165,907

5,066

—

—

170,973

Total

Ps.
17,261,663

Ps.
7,508,379

Ps.
11,283

Ps.
6,861

Ps.
24,788,186

Revenue recognition as of

At the flight time

At the sale

Total

December 31, 2016 (Adjusted)

Domestic

International

Domestic

International

Revenues

Passenger Revenues

Fare Revenues

Ps.
11,701,014

Ps.
6,089,116

Ps.
—

Ps.
—

Ps.
17,790,130

Other Passenger Revenues

3,238,826

1,680,626

—

—

4,919,452

14,939,840

7,769,742

—

—

22,709,582

Non-Passenger Revenues

Other Non-Passenger revenues

587,270

3,085

—

—

590,355

Cargo

166,934

4,689

—

—

171,623

Total

Ps.
15,694,044

Ps.
7,777,516

Ps.
—

Ps.
—

Ps.
23,471,560

Transactions from unearned transportation revenues.

				2017			2016
	2018			Adjusted			Adjusted			2020			2019
January 1,	Ps.	2,293,309		Ps.	2,228,051		Ps.	1,957,254		Ps.	3,679,926		Ps.	2,438,516
Deferred	26,254,391			23,714,649			22,778,110				23,657,563			34,940,609
Recognized in revenue during the year	(26,109,184		)	(23,649,391		)	(22,507,313		)		(21,486,572	)		(33,699,199	)
December 31,	Ps.	2,438,516		Ps.	2,293,309		Ps.	2,228,051		Ps.	5,850,917		Ps.	3,679,926

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

e) Cash and cash equivalents

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 doesn’t have significant cash reserve requirements.

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-16

~~Table of Contents~~i) Financial assets

~~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:

Financial assets at FVTPL which include financial assets held for trading.

1. ~~Financial assets at FVTPL which include financial assets held for trading.~~

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.

Financial assets at fair value through OCI with recycling of cumulative gains and losses.

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. ~~Derivative financial instruments are designated for hedging purposes under the cash flow hedge (“CFH”) accounting model and are measured at fair value.~~

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;~~

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

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.

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~~Table of Contents~~

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 ~~impaired in the Cash Generating Units (CGU).~~impaired. An impairment exists if one or more events has 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 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.

Further disclosures related to impairment of financial assets are also provided in Note ~~2vi) and Note~~ 8.

For trade receivables, the Company ~~records allowance for~~applies a simplified approach in calculating expected credit losses (ECLs). Therefore, the Company does not track changes in ~~accordance with the objective evidence of the incurred losses.~~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, ~~2018, 2017 and 2016,~~2020 y 2019 the Company recorded expected credit losses on accounts receivable of ~~Ps.10,621, Ps.4,720~~Ps.13,664 and ~~Ps.9,164,~~Ps.40,393, respectively (Note 8).

iii) Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL, 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.

F-18

~~Table of Contents~~

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 EIR method. 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. During the years ended December 31, ~~2018, 2017~~2020 and ~~2016~~2019 the Company has ~~did~~ not designated any financial liability as at FVTPL.

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.

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

~~(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.

~~(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.

F-19

~~Table of Contents~~

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 on the basis of the method of specific identification and expensed when 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, 2020 and 2019, the Company did not record any impairment loss in the value of its intangible assets.

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).

Aircraft maintenance deposits paid to lessors

Most of the Company’s lease agreements require the Company to pay maintenance deposits to aircraft lessors to be held as collateral in advance of the Company’s performance of 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 related to the specific maintenance event.

Substantially all these maintenance deposits are calculated based on a utilization measure of the leased aircrafts and engines, such as flight hours or cycles, and are used solely to collateralize the lessor for maintenance time run off the aircraft and engines until the completion of the maintenance of the aircraft and engines.

F-20

~~Table of Contents~~

Maintenance deposits expected to be recovered from lessors are reflected as guarantee deposits in the accompanying consolidated statement of financial position. These deposits are recorded as a monetary asset and are revaluated in order to record the foreign currency changes at each reported period. The portion of prepaid maintenance deposits that is deemed unlikely to be recovered, primarily relating to the rate differential between the maintenance deposits and the expected cost for the next related maintenance event that the deposits serve to collateralize, is recognized as supplemental rent in the consolidated statements of operations. Thus, any excess of the required deposit over the expected cost of the major maintenance event is recognized as supplemental rent in the consolidated statements of operations starting from the period the determination is made. For the years ended December 31, 2018, 2017 and 2016, the Company expensed as supplemental rent Ps.87,019, Ps.103,648 and Ps.143,923, respectively.

Any usage-based maintenance deposits to be paid to the lessor, related with a major maintenance event that (i) is not expected to be performed before the expiration of the lease agreement, (ii) is nonrefundable to the Company and (iii) is not substantively related to the maintenance of the leased asset, is accounted for as supplemental rent in the consolidated statements of operations. The Company records lease payment as supplemental rent when it becomes probable and reasonably estimable that the maintenance deposits payments will not be refunded.

During the year ended December 31, 2018, 2017 and 2016, the Company added ten, five and 17 new net aircraft to its fleet, respectively. Some lease agreements of these aircraft do not require the obligation to pay maintenance deposits to lessors in advance in order to ensure major maintenance activities, so the Company does not record guarantee deposits regarding these aircraft. However, some lease agreements provide the obligation to make a maintenance adjustment payment to the lessors at the end of the contract period.

The maintenance adjustment covers maintenance events that are not expected to be made before the termination of the contract; for such agreements the Company accrues a liability related to the amount of the costs to be incurred at the lease term, since no maintenance deposits had been made, Note 15c). The Company recognizes supplemental rent as incurred in the consolidated statement of operations.

~~For the years ended December 31, 2018, 2017 and 2016, the Company expensed as supplemental rent for these maintenance tasks Ps.212,582, Ps.162,108 and Ps.201,434, respectively.~~

The Company makes certain assumptions at the inception of the lease and at each consolidated statement of financial position date to determine the recoverability of maintenance deposits. These assumptions are based on various factors such as the estimated time between the maintenance events, the date the aircraft is due to be returned to the lessor, and the number of flight hours the aircraft and engines is estimated to be utilized before it is returned to the lessor.

InSome other aircraft lease agreements do not require the ~~event~~obligation to pay maintenance deposits to lessors in advance in order to ensure major maintenance activities, so the Company does not record guarantee deposits regarding these aircraft. However, certain of these lease agreements include the obligation to make a maintenance adjustment payment to the lessors at the end of the lease period. These maintenance adjustments cover maintenance events that are not expected to be made before the termination of the lease; for such agreements the Company accrues a liability related to the amount of the costs to be incurred at the lease ~~extensions~~term, since no maintenance deposits had been made, Note 15c). The portion of prepaid maintenance deposits that is deemed unlikely to be recovered and accruals in lien of maintenance deposits, are ~~negotiated, any extension benefit is recognized~~recorded as a ~~deferred~~variable lease ~~incentive. The aggregate benefit~~payment and is presented as supplemental rent in the consolidated statements of ~~extension is recognized~~operations. For the years ended December 31, 2020, 2019 and 2018, the Company expensed as ~~a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.~~supplemental rent Ps.421,030, Ps.295,720 and Ps.299,601, respectively.

During the year ended December 31, 2020, 2019 and 2018, the Company added seven, seven and ten new net leases aircraft to its fleet, respectively (Note 14).

During the year ended December 31, 2020, the Company did not extend the lease term of aircraft and engines agreements. During the years ended December 31, ~~2018, 2017~~2019 and ~~2016,~~2018, the Company extended the lease term of ~~two, three~~one and two aircraft agreements, respectively. Additionally, the Company extended the lease term of one spare engine in 2019 and two spare engines in 2018 and two spare engines during 2017. These extensions made available to the Company maintenance deposits that were recognized in prior periods in the consolidated statements of operations as supplemental rent of Ps.0, Ps.65,716 and Ps.92,528 during 2018, 2017 and 2016, respectively.2018. The maintenance event for which the maintenance deposits were previously expensed was scheduled to occur after the original

F-21

~~Table of Contents~~

lease term and as such the supplemental rental payments were expensed. However, when the leases were amended the maintenance deposits amounts became probable of recovery due to the longer lease term and as such they are being recognized as an asset.

The effect of these lease extensions ~~were recognized as a guarantee deposit and a lease incentive in the consolidated statements of financial position at the time of lease extension.~~

Because the lease extension benefits are considered lease incentives, the benefits are deferred in the statement of financial position and are being recognized on a straight-line basis over the remaining revised lease terms. For the years ended December 31, 2018, 2017 and 2016, the Company amortized Ps.84,637, Ps.88,224 and Ps.74,748, respectively, of lease incentives which was recognized as a ~~reduction~~lease incentive reducing the right of ~~rent expenses in the consolidated statements of operations.~~use asset (Note 14).

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 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 typically are required approximately every 22 months.

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 approximately 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 usage. The United States Federal Aviation Administration (“FAA”) and the Mexican Federal Civil ~~Aeronautic Authority~~Aviation Agency (~~Direcció~~Agencia Federal de Aviación ~~General de Aeronáutica~~ Civil~~or “DGAC”~~) 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

F-22

~~Table of Contents~~

additional expense over a shorter period.

During the years ended December 31, ~~2018, 2017~~2020 and ~~2016,~~2019, the Company capitalized major maintenance events as part of leasehold improvements to flight equipment for an amount of ~~Ps.676,457, Ps.529,331~~Ps.646,219 and ~~Ps.226,526, respectively (Note 12).~~

Ps.659,082, respectively. For the years ended December 31, ~~2018, 2017~~2020 and ~~2016,~~2019, the amortization of major maintenance leasehold improvement costs was ~~Ps.313,464, Ps.382,745~~Ps.652,091 and ~~Ps.404,659 respectively (Note 12).~~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~~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 ~~12d)~~12e).

Pre-delivery payments refer to prepayments made to aircraft and engine manufacturers during the manufacturing stage of the aircraft.

F-23

~~Table of Contents~~

The borrowing costs related to the acquisition or construction of a qualifying asset are capitalized as part of the cost of that asset.

During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the Company capitalized borrowing costs which amounted to ~~Ps.357,920 Ps.193,389~~Ps.384,038, Ps.456,313 and ~~Ps.95,445,~~Ps.357,920, respectively (Note 21). The rate used to determine the amount of borrowing cost was ~~4.41%~~3.58%, ~~3.30%~~5.10% and ~~2.88%~~4.41%, for the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, respectively.

F-27

Depreciation rates are as follows:

		Annual depreciation rate
~~Aircraft parts and rotable spare parts~~ Flight equipment		~~8.3-16.7%~~	4.0-16.7%
~~Aircraft spare engines~~ Constructions and improvements		~~4.0-8.3%~~
~~Standardization~~		Remaining contractual lease term
Computer equipment		25%
~~Communications equipment~~ Workshop tools		~~10%~~	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%
~~Electric power equipment~~		~~10%~~
~~Workshop machinery and equipment~~		~~10%~~
~~Service carts on board~~		~~20%~~
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 ~~and salvage values~~ 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 an objective evidence that rotable spare parts, furniture and equipment isand right of use asset are impaired in the ~~Cash Generating Unit (CGU). The Company identified only one CGU, which is the fleet.~~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.

During ~~2018,~~2020, the Company performed its annual impairment test. The recoverable amount of ~~rotable spare parts, furniture and equipment assets~~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 ~~fair value less costs~~carrying amount of ~~disposal~~the CGU did not exceed the value in use. Consequently, for the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, there were no impairment charges recorded in respect of the Company’s ~~value of rotable, spare parts, furniture and equipment.~~cash generating unit.

F-24

~~Table~~For the years ended December 31, 2020, there was no impairment charges recorded in respect of ~~Contents~~the Company’s cash generating unit despite of the consequence of decreased operations as a result of Covid-19.

F-28

m) Foreign currency transactions and exchange differences

The Company’s consolidated financial statements are presented in Mexican peso, which is the reporting and functional 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 the entity operates (“the functional currency”).

The financial statements of foreign subsidiaries prepared under IFRS and denominated in their respective local currencies, are translated into the 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.~~

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 were translated at the exchange rate at the consolidated statement of financial position date.~~

All monetary assets and liabilities were translated at the exchange rate at the consolidated statement of financial position date.

· ~~All non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.~~

All non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

· ~~Equity accounts are translated at the prevailing exchange rate at the time the capital contributions were made and the profits were generated.~~

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.~~

Revenues, costs and expenses are translated at the average exchange rate during the applicable period.

Any differences resulting from the currency translation are recognized in the consolidated statements of ~~operations.~~operations and the OCI.

For the year ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the exchange rates of local currencies translated to functional currencies are as follows:

Exchange rates of local
currencies translated to
functional currencies

Exchange rates of local currencies translated to functional currencies

Exchange rates of local currencies translated to
functional currencies

Country

Local
currency

Functional
currency

Average
exchange rate
for 2018

Exchange rate
as of 2018

Average
exchange rate
for 2017

Exchange rate
as of 2017

Average
exchange rate
for 2016

Exchange rate
as of 2016

Local
currency

Functional
currency

Average exchange rate for 2020

Exchange rate
as of 2020

Average exchange rate for 2019

Exchange rate
as of 2019

Average exchange rate for 2018

Exchange rate
as of 2018

Costa Rica

Colon

U.S. dollar

₵.

580.8534

₵.

609.6100

₵.

572.2000

₵.

572.5600

₵.

564.3332

₵.

561.1000

Colon

U.S. dollar

₵.

588.4240

₵.

615.7800

₵.

590.9574

₵.

573.4400

₵.

580.8534

₵.

609.6100

Guatemala

Quetzal

U.S. dollar

7.5337

7.7440

7.3509

7.3448

7.4931

7.5221

Quetzal

U.S. dollar

7.7292

7.8095

7.7066

7.6988

7.5337

7.7440

El Salvador

U.S Dollar

U.S. dollar

21.4961

19.9487

19.2618

18.8452

The exchange rates used to translate the above amounts to Mexican pesos at December 31, 2020, 2019 and 2018, ~~2017~~were Ps.19.9487, Ps.18.8452 and ~~2016, were~~ Ps.19.6829, ~~Ps.19.7354 and Ps.20.6640,~~ respectively, per U.S. dollar.

Foreign currency differences arising on translation into the presentation currency are recognized in OCI. Exchange differences on translation of foreign entities for the year ended December 31, 2020, 2019 and 2018, ~~2017~~were Ps.23,970, Ps.8,045 and ~~2016, were~~ Ps.22,156, ~~Ps.(7,178) and Ps.(4,756),~~ respectively.

F-25

~~Table of Contents~~

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.

For the operating leases, the Company is contractually obligated to return the leased aircraft in a specific condition. The Company accrues for restitution costs related to aircraft held under operating leases throughout the term of the lease, based upon the estimated cost of satisfying the return condition criteria for each aircraft. These return obligations are related to the costs to be incurred in the reconfiguration of aircraft (interior and exterior), painting, carpeting and other costs, which are estimated based on current cost adjusted for inflation. The return obligation is estimated at the inception of each leasing arrangement and recognized over the term of the lease (Note 15c).

~~The Company records aircraft lease return obligation reserves based on the best estimate of the return obligation costs under each aircraft lease agreement.~~

Employee benefits

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 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 supplemental rent 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, 2018, 2017 and 2016, the Company expensed as supplemental rent Ps.659,106, Ps.851,410 and Ps.933,730, respectively.

~~o) Employee benefits~~

~~i) Personnel vacations~~

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~~

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.

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~~Table of Contents~~

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, ~~2018, 2017~~2020 and ~~2016,~~2019, no termination benefits provision has been recognized.

~~iii) Seniority premiums~~

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, ~~2018.~~ 2020. 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, (~~Certificados de la Tesorería de la Federación, or~~ ~~“CETES” in Mexico),~~ less the fair value of plan assets out of which the obligations are to be settled.

For entities in Costa Rica, Guatemala and ~~Guatemala~~El Salvador there is no obligation to pay seniority premium, ~~or other retirement benefits.~~these countries have Post- Employee Benefits.

iv)

Incentives

~~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, ~~2018, 2017~~2020, 2019 and ~~2016~~2018 the Company expensed ~~Ps.67,680, Ps.48,384~~Ps.25,918, Ps.62,825 and ~~Ps.40,829,~~Ps.67,680, respectively, as quarterly incentive bonuses, recorded under the caption salaries and benefits.

~~During the year ended December 31, 2015, the~~The Company ~~adopted~~has a ~~new~~ 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. During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018 the Company recorded an expense for an amount of ~~Ps.50,000,~~ Ps.0, Ps.80,634 and ~~Ps.53,738,~~Ps.50,000, respectively, under the caption salaries and benefits.

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~~Table of Contents~~

Long-term incentive plan (“LTIP”) and long-term retention plan (LTRP)

~~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.~~2014.

During 2020, 2019 and 2018, 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

~~vi) Share-based payments~~

LTIP

~~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 17).

During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the Company expensed ~~Ps19,980, Ps.13,508~~Ps.75,040, Ps.49,659 and ~~Ps.7,816,~~Ps.19,980, 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 17).

During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the Company recorded aan expense (benefit) expense for Ps.(1,901), Ps.2,964 and Ps.(186), ~~Ps.(8,999), Ps.31,743,~~ respectively, related to the SARs included in the LTIP. These amounts were recorded under the caption salaries and benefits.

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~~Table of Contents~~

Management incentive plan (“MIP”)

~~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 requisite service period (Note 17). The total cost of this plan has been totally recognized during the required service period.

·- 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 17).

During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~206,~~2018, the Company recorded aan expense (benefit) ~~expense~~ for Ps.107,204, Ps.37,760 and Ps.(5,052), ~~Ps.(16,499) and Ps.54,357,~~ respectively, related to MIP II into the consolidated statement of operations.

~~c) Board of Directors Incentive Plan (BODIP)~~

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 four years period with an exercise price share at Ps.16.12, 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~~

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 ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the employee profit sharing is ~~Ps.14,106, Ps.8,342~~Ps.13,458, Ps.22,134 and ~~Ps.9,967,~~Ps.14,106, respectively, and is presented as an expense in the consolidated statements of operations. Subsidiaries in Central America do not have such ~~profit sharing~~profit-sharing benefit, as it is not required by local regulation.

F-29

~~Table of Contents~~

~~p) Leases~~

Leases

The ~~determination of~~Company assesses at contract inception whether ~~an arrangement~~a contract is, or contains, a ~~lease,~~lease. That is, ~~based on~~if the ~~substance of~~contract conveys the ~~arrangement at inception date, whether fulfillment of the arrangement is dependent on~~right to control the use of an identified asset for a ~~specific asset or~~period of time 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 to make lease payments and right-of-use assets orrepresenting the ~~arrangement conveys a~~ right to use the underlying assets.

Right-of-use assets

The Company recognize 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 ~~even if that right is not explicitly specified in an arrangement.~~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.

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

Aircraft and engines	up to 18 years
Spare engines	up to 14 years
Buildings leases	one to ten years
Maintenance component	up to eight years

ii)

Lease Liabilities

At the commencement date of the lease, ~~agreements~~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 ~~finance leases if~~expenses in the ~~risks and benefits incidental to ownership~~period in which the event or condition that triggers the payment occurs.

In calculating the present value of ~~the leased assets have been transferred to~~lease payments, the Company ~~when (i)~~uses its incremental borrowing rate at the ~~ownership~~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 ~~leased asset~~accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is ~~transferred to~~remeasured if there is a modification, a change in the ~~Company upon termination~~lease term, a change in the lease payments or a change in the assessment of ~~the lease; (ii) the agreement includes~~ an option to purchase the asset at a reduced price; (iii) the term of the lease is for the major part of the economic life of the leased asset; (iv) the present value of minimum lease payments is at least substantially all of the fair value of the leased asset; or (v) the leased asset is of a specialized nature for the Company.underlying asset.

~~When the risks and benefits incidental to the ownership of the leased asset remain mostly with the lessor, they are classified as operating~~The short-term leases and ~~rental payments~~leases of low value assets are ~~charged to results of operations~~recognized as expense on a straight-line basis over the ~~term of the lease.~~lease term.

~~The Company’s lease contracts for aircraft, engines~~During the years ended December 31, 2020, 2019 and ~~components parts are classified as operating leases.~~2018, there were no impairment charges recorded in respect of the Company right-of-use asset.

~~Sale and leaseback~~

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. ~~Leases under sale and~~

The Company measures the right-of-use asset arising from the leaseback ~~agreements meet~~at the ~~conditions for treatment as operating leases. If a sale and lease back transaction is at fair value and results as an operating lease,~~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 ~~profit~~gain or loss that relates to the rights transferred to the buyer-lessor. The rest of the gain is ~~recognized immediately.~~amortized over the lease term.

iv)

Return obligations

~~q) Other taxes~~

The aircraft lease agreements of the Company also require that the aircraft and ~~fees payable~~engines 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 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, 2020, 2019 and 2018, the Company expensed as variable rent of Ps.1,428,179, Ps.680,964 and Ps.659,106, respectively.

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.

~~r) Income taxes~~

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.

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~~Table of Contents~~

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 provided using the liability method on 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 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.

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.

F-31

~~Table of Contents~~

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.

The charge for income taxes incurred is computed based on tax laws approved in Mexico, Costa Rica, Guatemala and ~~Guatemala~~El Salvador at the date of the consolidated statement of financial position.

~~s) Derivative financial instruments and hedge accounting~~

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.~~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.~~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. During the years ended December 31, ~~2018, 2017~~2019 and ~~2016,~~2018, there was no ineffectiveness with respect to derivative financial instruments. 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, 2020, the Company recorded the ineffective portion of Ps.448.6 million with respect to derivative financial instruments.

The realized gain or loss of derivative financial instruments and non-derivative financial instruments that qualify as CFH isare recorded in the same caption of the hedged item in the consolidated statement of operations.

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.

F-32

~~Table of Contents~~

~~t) Financial instruments — Disclosures~~

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).

~~u) Treasury shares~~

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, issue 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 are settled with treasury shares (Note 17).

~~v) Operating segments~~

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 and Central America) Note 24.

~~w) Current versus non-current classification~~

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.

~~x) Impact of new International Financial Reporting Standards~~

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, ~~2018.~~2020. The Company has not early adopted any other standard interpretation or amendment that has been issued but is not yet ~~effective different from IFRS 9 that was adopted in the 2014 consolidated financial statements.~~effective.

~~Although~~The nature and the effect of these ~~new standards~~changes are disclosed below:

Amendments to IFRS 3: Definition of a Business

The amendment to IFRS 3 Business Combinations clarifies that to be considered a business, an integrated set of activities and ~~amendments applied for~~assets must include, at a minimum, an input and a substantive process that, together, significantly contribute to the ~~first time in 2018, except for IFRS 15, they~~ability to create output. Furthermore, it clarifies that a business can exist without including all of the inputs and processes needed to create outputs. These amendments did not have ~~a material~~an impact on ~~the annual~~ consolidated financial statements of the Company. ~~The nature and the impact of these changes to each new standard and amendment are described below:~~

F-33

~~Table of Contents~~

~~IFRIC 22 — Foreign Currency Transactions and Advance Considerations~~

IFRIC 22 clarifies that 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 an entity initially recognizes the non-monetary asset or non-monetary liability arising from the advance consideration.

~~This interpretation does not have any impact on the Company’s consolidated financial statements.~~

~~IFRS 15 Revenue from Contracts with Customers~~

IFRS 15 was issued in May 2014 and amended in April 2016 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard will supersede all current revenue recognition requirements under IFRS. IFRS 15 also requires additional disclosures about the nature, timing, and uncertainty of revenue cash flows arising from customer contracts, including significant judgments and changes in judgments.

The Company adopted the new standard on the required effective date as of January 1, 2018, using the full retrospective method of adoption, in order to provide for comparative results in all periods presented, recognizing the effect in retained earnings as of January 1, 2016.

In 2018, the Company modified certain amounts in the consolidated statements of financial position as of December 31, 2017 and in the consolidated statements of operations for the years period ended December 31, 2017 and 2016 as required by IAS 1 Presentation of Financial Statements, as part of the effect of adopting IFRS 15 is, as follows:

~~Impact of adoption on the consolidated statements of financial position~~

As previously
reported as of
December 31, 2017

Adjustment

Adjusted
As of December
31, 2017

Short-term liabilities

Unearned transportation revenue

Ps.
2,161,636

Ps.
131,673

Ps.
2,293,309

Equity

Retained earnings

Ps.
5,080,049

Ps.
(131,673
)
Ps.
4,948,376

As previously
reported as of
December 31, 2016

Adjustment

Adjusted
As of December
31, 2016

Short-term liabilities

Unearned transportation revenue

Ps.
2,153,567

Ps.
74,484

Ps.
2,228,051

Equity

Retained earnings

Ps.
5,927,576

Ps.
(74,484
)
Ps.
5,853,092

F-34

~~Table of Contents~~

~~Impact of adoption on the consolidated statements of operations~~

As previously
reported as of
December 31, 2017

Adjustment

Adjusted
As of December
31, 2017

Operating revenues

Passenger revenues

Fare revenues

Ps.
17,791,317

Ps.
—

Ps.
17,791,317

Other passenger revenues

—

6,098,504

6,098,504

Ps.
17,791,317

Ps.
6,098,504

Ps.
23,889,821

Non- passenger revenues

Other non-passenger revenues

Ps.
6,883,085

Ps.
(6,155,693
)
Ps.
727,392

Cargo

170,973

—

170,973

Ps.
7,054,058

Ps.
(6,155,693
)
Ps.
898,365

Ps.
24,845,375

Ps.
(57,189
)*
Ps.
24,788,186

Operating expenses

Ps.
24,826,733

—

Ps.
24,826,733

Operating income (loss)

18,642

(57,189
)

(38,547
)
Net loss

Ps.
(594,599
)
Ps.
(57,189
)
Ps.
(651,788
)

As previously
reported as of
December 31, 2016

Adjustment

Adjusted
As of December
31, 2016

Operating revenues

Passenger revenues

Fare revenues

Ps.
17,790,130

Ps.
—

Ps.
17,790,130

Other passenger revenues

—

4,919,452

4,919,452

Ps.
17,790,130

Ps.
4,919,452

Ps.
22,709,582

Non- passenger revenues

Other non-passenger revenues

Ps.
5,550,698

Ps.
(4,960,343
)
Ps.
590,355

Cargo

171,623

—

171,623

Ps.
5,722,321

Ps.
(4,960,343
)
Ps.
761,978

Ps.
23,512,451

Ps.
(40,891
)*
Ps.
23,471,560

Operating expenses

Ps.
20,772,760

Ps.
—

Ps.
20,772,760

Operating income (loss)

2,739,691

(40,891
)

2,698,800

Net income

Ps.
3,519,489

Ps.
(40,891
)
Ps.
3,478,598

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~~Table of Contents~~

~~Impact on basic and diluted earnings per share (EPS)~~

As previously
reported as of
December 31,
2017

As Adjusted

Loss per share

Ps.
(0.588
)
Ps.
(0.644
)

As previously
reported as of
December 31,
2016

As Adjusted

Earnings per share

Ps.
3.478

Ps.
3.438

* The nature of the adjustments is described as follows:

The main impact of the IFRS 15 adoption, is the timing of recognition of certain air travel-related services (“ancillaries”). Under IAS 18, certain ancillaries, such as channel fee, itinerary changes and more flexibility, were recognized as revenue at the time of the booking by customer (or when the service was provided); however, under IFRS 15, those ancillaries are recognized when the air transportation service is rendered (at the time of the flight) or at ticket expiration.

This change arises primarily because those ancillaries do not constitute separate performance obligations but represent administrative tasks that do not constitute a distinct performance obligation and therefore should be accounted for together with the air fare as a single performance obligation of providing passenger transportation. Also, certain complimentary services including re-accommodation in other airlines provided to customers are recorded as reduction to revenues.

Additionally, the classification of certain ancillary fees in the statement of operations, such as advanced seat selection, fees charges for excess baggage, itinerary changes and other air travel-related services, changed upon adoption of IFRS 15, since they are part of the single performance obligation of providing passenger transportation services.

The Company has also identified and implemented changes to its accounting policies and practices, systems and controls, as well as designed and implemented specific controls over its evaluation of the impact of the new guidance on the Company, including the cumulative effect calculation, disclosure requirements and the collection of relevant data into the reporting process.

F-36

~~Table of Contents~~

Amendments to IFRS ~~2 Classification~~7, IFRS 9 and ~~Measurement of Share-based Payment Transactions~~IAS 39 Interest Rate Benchmark Reform

The ~~IASB issued~~ amendments to IFRS ~~2 Share-based Payment~~9 and IAS 39 Financial Instruments: Recognition and Measurement provide a number of reliefs, which apply to all hedging relationships that ~~address three main areas:~~are directly affected by interest rate benchmark reform. A hedging relationship is affected if the ~~effects~~reform gives rise to uncertainty about the timing and/or amount of ~~vesting conditions on~~benchmark-based cash flows of the ~~measurement of a cash-settled share-based payment transaction;~~hedged item or the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply thehedging instrument. These amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The Company’s accounting policy for cash-settled share-based payments is consistent with the approach clarified in the amendments. In addition, the Company hashad no share-based payment transaction with net settlement features for withholding tax obligations and had not made any modifications to the terms and conditions of its share-based payment transaction. Therefore, these amendments do not have any impact on the consolidated financial ~~statements.~~

~~New amended standards and interpretations not yet effective~~statements of the Company.

~~IFRS 16 Leases~~Amendments to IAS 1 and IAS 8 Definition of Material

The amendments provide a new definition of material that states, “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact on the consolidated financial statements of, nor is there expected to be any future impact to the Company.

Conceptual Framework for Financial Reporting issued on March 29, 2018

~~IFRS 16 was issued~~The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in ~~January 2016~~any standard. The purpose of the Conceptual Framework is to assist the IASB in developing standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and ~~it replaces IAS 17~~ ~~Leases~~~~, IFRIC 4~~ ~~Determining Whether an Arrangement Contains a Lease~~~~, SIC-15~~ ~~Operating Leases-Incentives~~to assist all parties to understand and ~~SIC-27~~ ~~Evaluating~~interpret the ~~Substance~~standards. This will affect those entities which developed their accounting policies based on the Conceptual Framework. The revised Conceptual Framework includes some new concepts, updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These amendments had no impact on the consolidated financial statements 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 similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees — leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less).Company.

F-38

Amendments to IFRS 16 Covid-19 Related Rent Concessions

On 28 May 2020, the ~~commencement date~~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 amodification. A lessee ~~will recognize 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 will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., athat makes this election accounts for any change in ~~the lease term, a change in future~~ 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 ~~change in an index or rate used to determine those payments). The lessee will generally recognize~~lease modification. This amendment had impact on 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 the functional currency~~consolidated financial statements of the Company ~~(which is the Mexican Peso) the lease liability will be remeasured with a charge to foreign exchange of the period.~~

~~IFRS 16 also requires lessees to make more extensive disclosures than under IAS 17.~~

IFRS 16 is effective for annual periods beginning on or after January 1, 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain relief.

F-37

~~Table of Contents~~

~~Transition to IFRS 16~~

The Company adopted IFRS 16 on the mandatory date January 1, 2019, through the full retrospective method starting on January 1, 2017.The Company applied the standard to contracts that were previously identified as leases applying IAS 17 and IFRIC 4, see Note 14 for more information on the Company´s lease agreements.

~~During 2018, the Company performed a detailed impact assessment of IFRS 16. In summary, the impact of IFRS 16 adoption is expected to be as follows:~~

~~The estimated impact on the statements of financial situation as of January 1, 2017, December 31, 2017 and December 31, 2018:~~

As of January 1,
2017

As of
December 31,
2017

As of
December 31,
2018

Assets

Property, plant and equipment (Right-of-use-assets)

Ps.
23,709,968

Ps.
25,075,501

Ps.
31,985,598

Deferred income tax

2,699,552

2,231,702

2,271,031

Prepaid expenses

(266,959
)
—

—

Liabilities

Lease liabilities

Ps.
32,639,927

Ps.
32,436,015

Ps.
39,463,811

Equity

Retained Earnings

Ps.
6,497,366

~~The estimated impact on the statements of operations for the years ended December 31, 2017 and 2018:~~

For the year
ended December
31, 2017

For the year
ended December
31, 2018

Depreciation expense

Ps.
3,522,738

Ps.
4,123,513

Operating lease expense

(5,038,920
)
(5,718,657
)
Operating income

(1,516,182
)
(1,595,144
)
Financial costs

1,381,027

1,682,420

Foreign exchange (gain) loss

(1,434,290
)
30,423

Income tax expense (benefit)

467,850

(39,328
)
Net (income) loss

Ps.
(1,101,595
)
Ps.
78,371

Due to the adoption of IFRS 16, the Company operating profit will improve, while its interest expense will increase. This is due to the change in the accounting for expenses of leases that were classified as operating leases under IAS 17.

F-38

~~Table of Contents~~(Note 14).

~~IFRIC 23 — Uncertainty over Income Tax Treatments~~Amendments to IFRS 9 Prepayment Features with Negative Compensation

~~IFRIC 23 clarifies~~Under IFRS 9, a debt instrument can be measured at amortized cost or at fair value through other comprehensive income, provided that the ~~accounting~~contractual cash flows are ‘solely payments of principal and interest on the principal amount outstanding’ (the SPPI criterion) and the instrument is held within the appropriate business model for ~~uncertainties in income taxes,~~that classification. The amendments to IFRS 9 clarify that a financial asset passes the ~~interpretation is to be applied to~~SPPI criterion regardless of an event or circumstance that causes the ~~determination~~early termination of ~~taxable profit (tax loss), tax bases, unused tax losses, unused tax credits~~the contract and ~~tax rates, when there is uncertainty over income tax treatments under IAS 12.~~irrespective of which party pays or receives reasonable compensation for the early termination of the contract.

~~An entity has to consider whether it is probable that~~These amendments had no impact on the ~~relevant authority will accept each tax treatment, or group~~consolidated financial statements of ~~tax treatments, that it used or plans to use in its income tax filing; if~~ the entity concludes that it is probable that a particular tax treatment is accepted, the entity has to determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment included in its income tax filings.Company.

Convenience translation

~~IFRIC 23 is effective for annual reporting periods beginning on or after January 1, 2019. Earlier application is permitted. The Company expects to adopt this interpretation at the effective date.~~

~~y) Convenience translation~~

U.S. dollar amounts at December 31, ~~2018~~2020 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.19.6829~~Ps.19.9487 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, ~~2018.~~2020. 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 solely for information purposes and does not represent that the amounts are in accordance with IFRS 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.

F-39

~~Table of Contents~~

~~i) Aircraft maintenance deposits paid~~For Leases significant accounting judgments, estimates and assumptions refer to ~~lessors~~

The Company makes certain assumptions at the inception of a lease and at each reporting date to determine the recoverability of maintenance deposits. The key assumptions include the estimated time between the maintenance events, the costs of future maintenance, the date the aircraft is due to be returned to the lessor and the number of flight hours the aircraft is estimated to be flown before it is returned to the lessor (Note 11)Note 1p (iv).

~~ii)~~i) LTIP, LTRP and MIP (equity settled)

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 earnings, 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. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest.

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model, including the expected life of the share option, volatility and dividend yield, and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in (Note 17).

SARs plan (cash settled)

The cost of the SARs plan is measured initially at fair value at the grant date, further details of which are given in (Note 17). This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to, and including the settlement date, with changes in fair value recognized in salaries and benefits expense together with the grant date fair value. As with the equity settled awards described above, the valuation of cash settled award also requires using similar inputs, as appropriate.

~~iii)~~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.

F-40

~~Table of Contents~~

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 19).

During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the Company used ~~Ps.154,353, Ps.16,378~~Ps.0, Ps.214,460 and ~~Ps.195,116,~~Ps.154,353, respectively, of the available tax loss ~~carry-forwards (Note 19).~~carry-forwards.

~~iv)~~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).

v)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. ~~The value-in-use calculation is~~

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 ~~a discounted cash flow model, using~~additional assumptions such as asset utilization, length of service the Company’s 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 rateasset will be used in the ~~calculation.~~Company’s operations, excluding additions and extensions.

~~vi)~~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.

The Company has assessed whether any impairment of its long-lived assets existed and has determined that no charges were deemed necessary under applicable accounting standards as of December 31, 2020.

v) Allowance for expected credit loss

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

vi) 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.

F-41

~~Table of Contents~~

The sources of these financial risks exposures 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, ~~such as operating leases,~~ 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, 2020, 2019 and 2018 ~~2017~~represented 28%, 38% and ~~2016 represented 36%, 29% and 28%~~38%, 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, ~~2018, the Company entered into US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options~~2020 and US Gulf Coast Jet fuel 54 Asian call options designated to hedge 45.6 thousand gallons. Such hedges represent a portion of the projected consumption for the next twelve months. Additionally, as of December 31, 2017,2019, the Company entered into US Gulf Coast Jet fuel 54 Asian call options designated to hedge ~~61.1 million gallons.~~23,967 and 13,492 thousand gallons respectively. Such hedges represented a portion of the projected consumption for the ~~next nine months~~2Q 2020, 3Q 2020 & 1Q 2021 and for the 4Q 2019, respectively. Additionally, during the same period, the Company entered into US Gulf Coast Jet Fuel 54 Asian Zero-Cost collar options designated to hedge 81,646 thousand gallons and 70,136 thousand gallons, respectively. Such hedges represent a portion of ~~operations.~~the projected consumption for the 2Q 2020, 2H 2020 & 2Q 2021 and the year 2020, respectively.

Furthermore, the Company restructured part of its hedging portfolio by unwinding put legs on two Zero-Cost Collars instruments with maturity dates of June & July to reduce crude market exposure, in line with capacity adjustments due to COVID-19 outbreak.

For the year ended December 31, 2020, the Company recognized an unwind of the Zero cost collar of Ps.42,644 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 a book adjustment in the Company’s inventories.

F-42

~~Table of Contents~~

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 ~~collar options.~~Collars.

The Company has a hedging policy in place to stablish guidelines to hedge fuel consumption; nevertheless, with COVID-19 outbreak, capacity was considerably reduced, thereby, ineffectiveness arose in the hedging relationship.

As of December 31, ~~2018, 2017~~2020 and ~~2016,~~2019, the fair value of the outstanding US Gulf Coast Jet Fuel Asian call options was ~~Ps.48,199, Ps.497,403~~Ps.206 and ~~Ps.867,809, respectively, as for~~Ps.0, respectively. As of December 31, 2020 and 2019 the Zero-Cost ~~collars it~~Collars outstanding balance was ~~a (loss)~~ of Ps.~~(122,948)~~(9,657) and isPs.133,567, respectively and are presented as part of the financial assets and financial liabilities in the consolidated statement of financial position. (See Note 5)4). ~~The~~

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, 2018, the intrinsic value of the Asian call options recycled to the fuel cost was a benefit of Ps.402,493.

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 and 2018 the intrinsic value of the Zero-Cost Collars recycled to the fuel cost was an expense of Ps.9,477. As of December 31, 2018, the Company did not ~~hold any position in Zero-Cost collars for~~have intrinsic value recycled to the ~~periods ended 2017 and 2016.~~fuel cost as settlements started taking place on 2019.

The ~~amount of~~ cost of hedging derived from the extrinsic value changes of ~~these options~~the jet fuel hedged position as of December 31, ~~2018~~2020 recognized in other comprehensive income totals ~~Ps.134,096 (the positive~~Ps.21,650. The (benefit) cost of hedging in December ~~2017~~2019 and ~~2016~~2018 totals ~~Ps.163,836~~Ps.(133,567) and ~~Ps.218,038, respectively),~~Ps.134,096, and will be recycled to the fuel cost during ~~2019,~~2021, as these options expire on a monthly basis and the jet fuel is consumed. ~~During the years ended December 31, 2018, 2017 and 2016, the net (positive) /negative cost of these options recycled to the fuel cost was Ps.(402,493), Ps.26,980 and Ps.305,166, respectively.~~

The following table includes the notional amounts and strike prices of the derivative financial instruments outstanding as of the end of the year:

	Position as of December 31, 2018									Position as of December 31, 2020
	Jet fuel Asian call and Zero-Cost collars option contracts maturities									Jet fuel Asian call and Zero-Cost
	1 Half 2019			2 Half 2019			2019 Total			collars option contracts maturities
Jet fuel risk Asian Calls										1 Half 2021			2 Half 2021			2021 Total
Notional volume in gallons (thousands)*	12,790			13,842			26,632					7,280			-			7,280
Strike price agreed rate per gallon (U.S. dollars)**	US$	1.84		US$	1.84		US$	1.84
Approximate percentage of hedge (of expected consumption value)	10		%	10		%	10		%
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)*	18,963			—			18,963					7,556			-			7,556
Strike price agreed rate per gallon (U.S. dollars)**	US$	1.91/2.46		US$	—		US$	1.91/2.46
Approximate percentage of hedge (of expected consumption value)	15		%	—		%	15		%
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)	25		%	10		%	18		%
Approximate percentage of hedge (of expected
consumption value)												12%			-%			6%

* US Gulf Coast Jet 54 as underlying asset

** Weighted average

F-43

~~Table of Contents~~

Position as of December 31, 2019

Jet fuel Zero-Cost Collar

collars option contracts maturities

1 Half 2020

2 Half 2020

2020 Total

Jet fuel risk Zero-Cost collars

Notional volume in gallons (thousands)*

34,480

22,164

56,644

Strike price agreed rate per gallon (U.S. dollars)**

US$

1.63/1.82

US$

1.65/1.81

US$

1.64/1.82

Approximate percentage of hedge (of expected

consumption value)

25%

15%

20%

All-in

Approximate percentage of hedge (of expected

consumption value)

25%

15%

20%

Position as of December 31, 2017

Jet fuel Asian call option contracts maturities

1 Half 2018

2 Half 2018

2018 Total

Jet fuel risk

Notional volume in gallons (thousands)*

69,518

61,863

131,381

Strike price agreed rate per gallon (U.S. dollars)**

US$
1.6861

US$
1.8106

US$
1.7447

Approximate percentage of hedge (of expected consumption value)

60
%
50
%
55
%

* US Gulf Coast Jet 54 as underlying asset

** Weighted average

Position as of December 31, 2016

Jet fuel Asian call option contracts maturities

1 Half 2017

2 Half 2017

2017 Total

1 Half 2018

3Q 2018

2018 Total

Jet fuel risk

Notional volume in gallons (thousands)*

55,436

63,362

118,798

62,492

7,746

70,238

Strike price agreed rate per gallon (U.S. dollars)**

US$
1.6245

US$
1.4182

US$
1.5145

US$
1.6508

US$
1.5450

US$
1.6392

Approximate percentage of hedge (of expected consumption value)

51
%
53
%
52
%
45
%
10
%
24
%

* US Gulf Coast Jet 54 as underlying asset

** Weighted average

The following table illustrates the sensitivity of US Gulf Coast Jet Fuel 54 Zero Cost Collars to a reasonably possible change in fuel prices, with all other variables held constant, on the caption of accumulated other comprehensive income.

The calculations were made considering a parallel movement of +/-5% in the spot price of the US Gulf Coast Jet 54 as of December 31, ~~2018:~~2020:

Sensitivity of position
as of December 31, 2018

effect on equity
(thousands of U.S. dollars)

US Gulf Coast Jet Fuel 54 spot level

+5%

1.67

-5%

-1.51

	Sensitivity of position as of December 31, 2020
	effect on equity (U.S. dollars)
US Gulf Coast Jet Fuel 54
spot level
+5%		+0.16M
-5%		-0.16M

Please note this sensitivity was calculated with the net position delta of the portfolio, as change on the underlying price is small enough to be a good proxy.

b) Foreign currency risk

Though the Mexican ~~Peso~~peso is the functional currency of the Company, a significant portion of its operating expenses are denominated in U.S. dollar; thus, Volaris relies on sustained U.S. dollar cash flows coming from operations in the United States of America and Central America to support part of its commitments in such currency, however there’s still a mismatch.

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.

F-44

~~Table of Contents~~

While most of the Company’s revenue is generated in Mexican pesos, ~~although 32%~~27% of its revenues came from operations in the United States of America and Central America for the year ended at December 31, ~~2018 (30%~~2020, (29% at December 31, ~~2017~~2019 and ~~33%~~32% at December 31, ~~2016)~~2018) and U.S. dollar denominated collections accounted for ~~38%~~44%, ~~40%~~43% and 38%, of the Company’s total collections in ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, respectively.

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 foreign exchange on and off-balance sheet exposure as of December 31, ~~2018, 2017~~2020 and ~~2016~~2019 is as set forth below:

	Thousands of U.S. dollars						Thousands of U.S. dollars
	2018		2017		2016		2020				2019
Assets:
Cash and cash equivalents	US$	279,829	US$	344,038	US$	297,565		US$	495,612			US$	373,099
Other accounts receivable	10,957		13,105		11,619
Aircraft maintenance deposits paid to lessors	329,983		352,142		343,787
Deposits for rental of flight equipment	32,166		25,343		30,025
Other accounts receivable, net									39,997				23,620
Guarantee deposits									479,566				437,499
Derivative financial instruments	3,172		25,204		41,996				10				7,088
Total assets	656,107		759,832		724,992			US$	1,015,185			US$	841,306

Liabilities:
Financial debt (Note 5)	155,455		128,296		76,789			US$	183,806			US$	176,927
Foreign suppliers	51,012		53,729		56,109
Taxes and fees payable	14,823		10,304		6,874
Lease liabilities									2,334,153				2,263,849
Suppliers									174,553				76,471
Other taxes and fees payable									16,105				22,486
Derivative financial instruments	6,246		—		684				484				-
Total liabilities	227,536		192,329		140,456				2,709,101				2,539,733
Net foreign currency position	US$	428,571	US$	567,503	US$	584,536		US$	(1,693,916	)		US$	(1,698,427	)

At April ~~25, 2019,~~29, 2021, date of issuance of these financial statements, the exchange rate was ~~Ps.18.9578~~Ps.19.9785 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.

Thousands of U.S. dollars

2018

2017

2016

Off-balance sheet transactions exposure:

Aircraft and engine operating lease payments (Note 14)

US$
2,334,767

US$
1,840,316

US$
1,727,644

Aircraft and engine commitments (Note 23)

1,070,187

1,123,377

315,326

Total

US$
3,404,954

US$
2,963,693

US$
2,042,970

F-45

~~Table~~As of ~~Contents~~December 31, 2020, the Company did not enter foreign exchange rate derivatives financial instruments. As of December 31, 2019, the Company did not enter 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).

During the year ended December 31, 2018, ~~and 2017,~~ the Company entered into foreign currency forward contracts in U.S. dollars to hedge approximately, 20% ~~and 9%~~ of its future 12 and 6 months of aircraft rental expenses. A portion of the Company’s ~~position~~ foreign currency forwards position matured throughout the fourth quarter of 2018 (November & December), all of the Company’s position in foreign currency forward contracts from 2017 matured throughout the second half of the year (August, September, November and December), therefore there was no outstanding balance as of December 31, 2017.

. As of December 31, 2018, the unrealized gains of Ps.14,241, respectively relating to the foreign currency forward contracts is included in OCI.

For the ~~year~~years ended December 31, 2019 and 2018, the net ~~loss~~gains (loss) on the foreign currency forward contracts iswere Ps.4,199 and Ps.52,516, respectively, which ~~was~~were recognized as part of rental expense in the consolidated statements of operations.

Foreign currency sensitivity

The following tables demonstrate the sensitivity to a reasonably possible change in USD exchange rates, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the fair value of monetary assets and liabilities excluding the assets and liabilities associated with non-derivative financial instruments. The Company’s exposure to foreign currency changes for all other currencies is not material.

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

2019		+5	%	Ps.	(155,593	)
		-5	%		155,593

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, where the functional currency of the entity is a currency other than US dollars.

i)	Hedging relationships designating non-derivative financial instruments as hedging instruments for Foreign Exchange (FX) risk

Regarding the foreign currency risk effective since January 1^st, 2019, the Company implemented two hedging strategies associated to forecasted FX exposures, by using non-derivatives financial assets and liabilities denominated in a non-functional currency (the USD in this case) 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. The lease liability amount designated as a hedging item during 2019 was USD$2.1 billion.

The outstanding USD balance designated under this hedging strategy as of December 31, 2020 and 2019 amount to US$1.5 billion and USD$1.7 billion respectively, represented by recognized leasing liabilities, which have been designated as hedging instruments tagged to USD denominated forecasted revenues over the remaining lease term.

The second FX strategy consists 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 has been designated as hedged item; while the hedging instrument is 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.

The outstanding USD balance designated under this hedging strategy as of December 31, 2020 and 2019 amount to US$60.5 million and USD$166.7 million respectively, which does represent a portion of the recognized financial assets.

Since the hedged items on for both hedging strategies are targeted at mitigating the cash flow variability of highly expected forecasted transactions, these are represented by multiple hedging relationships which do follow the Cash Flow Hedge Accounting Model.

The effective portion of the hedging instrument’s changes in fair value, are 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 are recycled to profit and loss on a time basis as corresponding USD denominated Income and/or Jet Fuel consumptions do also impact 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 matter, as USD denominated income and jet fuel consumption are recognized within operating earnings, hence reflecting a portion of both operating income and expenses amounts, net of both FX Hedging activities.

During the year ended December 31, ~~2017,~~2020, the Company determined that a portion of its non-derivative financial instruments designated as hedge accounting were no longer effective, since the jet fuel consumption was lower than anticipated as a result of the adverse effect of COVID-19. The impact of this adjustment in 2020 was a benefit of Ps.111 million in the Company´s net loss onfor the ~~foreign currency forward contracts~~period. This amount was ~~Ps.11,290 which was recognized~~reclassified from other comprehensive income to comprehensive financial result. Further, Ps.94 million were also reclassified from other comprehensive income to operating expenses during 2020 as ~~part~~a result of ~~rental expense~~the completion of a forecasted transaction designated in ~~the consolidated statements of operations.~~a hedge relationship.

~~As there were no~~ ~~foreign currency forward contracts as of December 31, 2016, no impact was recognized in the consolidated statements of operations.~~

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 ~~operating~~ 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”).

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 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 and have the same amortization schedule. Thus, the cash flows of the CEBUR are perfectly matched by the hedging instrument.

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 coupons for reference rate determination, coupon term, and fair value.

At December 31, 2020 and December 31, 2019, the Company’s outstanding hedging contracts in the form of interest rate caps with notional amount of Ps.1.5 billion had fair values of Ps.326 and Ps.2,695, respectively, recorded in assets.

During the years ended December 31, 2018, ~~and 2017,~~ the Company did not have any outstanding interest rate swaps. As of December 31, 2016, the Company had outstanding hedging contracts in the form of interest rate swaps with notional amount of US$ 70 million and fair value of Ps.14,144, respectively, recorded in liabilities. For the years ended December 31, 2017 and 2016, the reported loss on the interest rate swaps was Ps.13,827 and Ps.48,777, respectively, which was recognized as part of rental expense in the consolidated statements of operations. All the Company’s position in the form of interest rate swaps matured on March 31 and April 30, 2017 consequently there is no outstanding balance as of December 31, 2018 and 2017.derivatives.

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~~Table of Contents~~

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~~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 ~~operating lease contracts and~~ aircraft purchase contracts. The Company concluded that it has a low concentration of risk since it has access to alternate sources of funding.

The table below presents the Company’s contractual principal payments required on its financial liabilities and the derivative financial instruments fair value:

December 31, 2018

December 31, 2020

Within one
year

One to five
years

Total

Within one
year

One to five
years

Total

Interest-bearing borrowings:

Pre-delivery payments facilities (Note 5)

Ps.

734,635

Ps.

2,310,939

Ps.

3,045,574

Ps.

1,096,543

Ps.

2,554,069

Ps.

3,650,612

Short-term working capital facilities (Note 5)

461,260

—

461,260

200,000

Asset backed trust note (Note 5)

250,000

1,250,000

1,500,000

Derivative financial instruments:

Jet fuel Asian Zero-Cost collars options contracts

122,948

—

122,948

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.

1,318,843

Ps.

2,310,939

Ps.

3,629,782

Ps.

8,127,093

Ps.

43,868,202

Ps.

51,995,295

December 31, 2017

Within one
year

One to five
years

Total

Interest-bearing borrowings:

Pre-delivery payments facilities (Note 5)

Ps.
1,449,236

Ps.
1,079,152

Ps.
2,528,388

Short-term working capital facilities (Note 5)

948,354

—

948,354

Total

Ps.
2,397,590

Ps.
1,079,152

Ps.
3,476,742

	December 31, 2016						December 31, 2019
	Within one year		One to five years		Total		Within one year		One to five years		Total
Interest-bearing borrowings:
Pre-delivery payments facilities (Note 5)	Ps.	328,845	Ps.	943,046	Ps.	1,271,891	Ps.	1,855,956	Ps.	1,452,553	Ps.	3,308,509
Short-term working capital facilities (Note 5)	716,290		—		716,290			200,000		-		200,000
Asset backed trust note (Note 5)								-		1,500,000		1,500,000

Derivative financial instruments:
Interest rate swaps contracts	14,144		—		14,144
Lease liabilities:
Aircraft, engines, land and buildings leases								4,720,505		35,796,540		40,517,045
Aircraft and engine lease return obligation								383,093		1,469,595		1,852,688
Total	Ps.	1,059,279	Ps.	943,046	Ps.	2,002,325	Ps.	7,159,554	Ps.	40,218,688	Ps.	47,378,242

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~~Table of Contents~~

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.

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. At December 31, ~~2018,~~2020, 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-48

~~Table of Contents~~

f)g) Capital management

Management believes that the resources available to the Company are ~~sufficient~~enough for its present requirements and will be sufficient to meet its anticipated requirements for capital expenditures and other cash requirements for the ~~2018~~2020 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, ~~2018, 2017~~2020 and ~~2016.~~2019. The Company is not subject to any externally imposed capital requirement, other than the legal reserve ~~(Note~~
(Note 18).

4. Fair value measurements

The only financial assets and liabilities ~~recognized~~measured at fair value ~~on a recurring basis~~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.~~

(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.~~

·	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

F-49

~~Table of Contents~~

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.

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									Carrying amount						Fair value
	2018			2017			2016			2018			2017			2016			2020			2019			2020			2019
Assets
Derivative financial instruments	Ps.	62,440		Ps.	497,403		Ps.	867,809		Ps.	62,440		Ps.	497,403		Ps.	867,809		Ps.	532		Ps.	136,262		Ps.	532		Ps.	136,262

Liabilities
Financial debt	(3,506,834		)	(3,476,742		)	(1,988,181		)	(3,515,550		)	(3,481,741		)	(1,988,445		)		(5,350,612	)		(5,008,509	)		(5,527,332	)		(5,194,316	)
Derivative financial instruments	(122,948		)	—			(14,144		)	(122,948		)	—			(14,144		)		(9,657	)		-			(9,657	)		-
Total	Ps.	(3,567,342	)	Ps.	(2,979,339	)	Ps.	(1,134,516	)	Ps.	(3,576,058	)	Ps.	(2,984,338	)	Ps.	(1,134,780	)	Ps.	(5,359,737	)	Ps.	(4,872,247	)	Ps.	(5,536,457	)	Ps.	(5,058,054	)

The following table summarizes the fair value measurements at December 31, ~~2018:~~2020:

	Fair value measurement										Fair value measurement
	Quoted prices in active markets Level 1		Significant observable inputs Level 2			Significant unobservable inputs Level 3		Total			Quoted prices in active markets Level 1		Significant observable inputs Level 2			Significant unobservable inputs Level 3		Total
Assets
Derivatives financial instruments:
Jet fuel Asian call options contracts*	Ps.	—	Ps.	48,199		Ps.	—	Ps.	48,199		Ps.	-	Ps.	206		Ps.	-	Ps.	206
Foreign currency forward	—		14,241			—		14,241
Interest rate Caps												-		326			-		326
Liabilities
Derivatives financial instruments:
Jet fuel Asian Zero-Cost collars options contracts*	—		(122,948		)	—		(122,948		)		-		(9,657	)		-		(9,657	)
Liabilities for which fair values are disclosed:
Interest-bearing loans and borrowings**	—		(3,515,550		)	—		(3,515,550		)		-		(5,527,332	)		-		(5,527,332	)
Net	Ps.	—	Ps.	(3,576,058	)	Ps.	—	Ps.	(3,576,058	)	Ps.	-	Ps.	(5,536,457	)	Ps.	-	Ps.	(5,536,457	)

* Jet fuel forwards levels and LIBOR curve.

** 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.

F-50

~~Table of Contents~~

The following table summarizes the fair value measurements at December 31, ~~2017:~~2019:

	Fair value measurement										Fair value measurement
	Quoted prices in active markets Level 1		Significant observable inputs Level 2			Significant unobservable inputs Level 3		Total			Quoted prices in active markets Level 1		Significant observable inputs Level 2			Significant unobservable inputs Level 3		Total
Assets
Derivatives financial instruments:
Jet fuel Asian call options contracts*	Ps.	—	Ps.	497,403		Ps.	—	Ps.	497,403
Jet fuel Zero-Cost collar options contracts*											Ps.	-	Ps.	133,567		Ps.	-	Ps.	133,567
Interest rate Caps												-		2,695			-		2,695
Liabilities for which fair values are disclosed:
Interest-bearing loans and borrowings**	—		(3,481,741		)	—		(3,481,741		)		-		(5,194,316	)		-		(5,194,316	)
Net	Ps.	—	Ps.	(2,984,338	)	Ps.	—	Ps.	(2,984,338	)	Ps.	-	Ps.	(5,058,054	)	Ps.	-	Ps.	(5,058,054	)

* Jet fuel forwards levels and LIBOR curve.

** 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 ~~fair value measurements at December 31, 2016:~~

Fair value measurement

Quoted prices
in active
markets
Level 1

Significant
observable
inputs
Level 2

Significant
unobservable
inputs
Level 3

Total

Assets

Derivatives financial instruments:

Jet fuel Asian call options contracts*

Ps.
—

Ps.
867,809

Ps.
—

Ps.
867,809

Liabilities

Derivatives financial instruments:

Interest rate swap contracts**

—

(14,144
)
—

(14,144
)
Liabilities for which fair values are disclosed:

Interest-bearing loans and borrowings**

—

(1,988,445
)
—

(1,988,445
)
Net

Ps.
—

Ps.
(1,134,780
)
Ps.
—

Ps.
(1,134,780
)

* Jet fuel forwards levels and LIBOR curve.

** 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.~~

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~~Table of Contents~~

~~The following table summarizes the loss~~(loss) gain from derivatives financial instruments recognized in the consolidated statements of operations for the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016:~~2018:

~~Consolidated statements of operations~~

Instrument	Financial statements line	2020			2019			2018
Jet fuel Asian call options contracts	Fuel	Ps.	(20,646	)	Ps.	(61,069	)	Ps.	402,493
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			52,516
Interest rate cap	Finance cost		(1,468	)		(1,282	)		-
Total		Ps.	(1,306,557	)	Ps.	(67,629	)	Ps.	455,009

Instrument

Financial statements line

2018

2017

2016

Jet fuel Asian call options contracts

Fuel

Ps.
(402,493
)
Ps.
26,980

Ps.
305,166

Foreign currency forward

Aircraft and engine rent expenses

(52,516
)
11,290

—

Interest rate swap contracts

Aircraft and engine rent expenses

—

13,827

48,777

Total

Ps.
(455,009
)
Ps.
52,097

Ps.
353,943

The following table summarizes the net gain (loss) ~~gain~~ on CFH before taxes recognized in the consolidated statements of comprehensive income for the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016:~~2018:

Consolidated statements of other comprehensive (loss) income

Instrument

Financial
statements line

2018

2017

2016

Jet fuel Asian call options Contracts

OCI

Ps.
(174,984
)
Ps.
(54,202
)
Ps.
583,065

Jet fuel Zero cost collars

OCI

(122,948
)
—

—

Interest rate swap contracts

OCI

—

14,144

41,629

Foreign currency forward

OCI

14,241

(2,090
)
—

Total (Note 22)

Ps.
(283,691
)
Ps.
(42,148
)
Ps.
624,694

Instrument	Financial statements line	2020			2019			2018
Jet fuel Asian call options contracts	OCI	Ps.	(11,993	)	Ps.	11,148		Ps.	(174,984	)
Jet fuel Zero cost collars	OCI		(143,224	)		256,515			(122,948	)
Foreign currency contracts	OCI		-			(14,241	)		14,241
Interest rate cap	OCI		(900	)		(4,023	)		-
Non derivative financial instruments	OCI		(1,591,569	)		14,096			-
Total		Ps.	(1,747,686	)	Ps.	263,495		Ps.	(283,691	)

The exchange rates used to translate the above amounts to Mexican pesos at December 31, 2020, 2019 and 2018 ~~2017~~were Ps.19.9487, Ps.18.8452 and ~~2016 were~~ Ps.19.6829, ~~Ps.19.7354 and Ps.20.6640,~~ respectively, per U.S. dollar.

5. Financial assets and liabilities

At December 31, ~~2018, 2017~~2020 and ~~2016,~~2019, the Company’s financial assets are represented by cash and cash equivalents, trade and other accounts receivable, accounts receivable with carrying amounts that approximate their fair value.

a) Financial assets

	2018		2017		2016		2020		2019
Derivative financial instruments designated as cash flow hedges (effective portion recognized within OCI)
Jet fuel Asian call options	Ps.	48,199	Ps.	497,403	Ps.	867,809	Ps.	206	Ps.	-
Foreign currency forward contracts	14,241		—		—
Jet fuel Zero-Cost collars								-		133,567
Interest rate cap								326		2,695
Total financial assets	Ps.	62,440	Ps.	497,403	867,809		Ps.	532	Ps.	136,262

Presented on the consolidated statements of financial position as follows:
Current	Ps.	62,440	Ps.	497,403	543,528		Ps.	206	Ps.	133,567
Non-current	Ps.	—	Ps.	—	Ps.	324,281	Ps.	326	Ps.	2,695

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F-54

~~Table of Contents~~

~~b) Financial debt~~

Financial debt

~~(i)~~ ~~At December 31, 2018, 2017 and 2016, the Company’s short-term and long-term debt consists of the following:~~

(i)	At December 31, 2020 and 2019, the Company’s short-term and long-term debt consists of the following:

2018

2017

2016

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 May 31, 2022, bearing annual interest rate at the three-month LIBOR plus a spread of 260 basis points.

Ps.
3,045,574

Ps.
2,528,388

Ps.
1,271,891

II.         In December 2016, the Company entered into a short-term working capital facility with Banco Nacional de México S.A. (“Citibanamex”) in Mexican pesos, bearing annual interest rate at TIIE 28 days plus a 90 basis points.

461,260

948,354

406,330

III.    In December 2016, the Company entered into a U.S. dollar denominated short-term working capital facility with Bank of America México S.A. Institución de Banca Múltiple (“Bank of America”) in U.S. dollars, bearing annual interest rate at the one-month LIBOR plus 160 basis points.

—

—

309,960

IV.  Accrued interest

16,364

5,972

6,102

3,523,198

3,482,714

1,994,283

Less: Short-term maturities

1,212,259

2,403,562

1,051,237

Long-term

Ps.
2,310,939

Ps.
1,079,152

Ps.
943,046

		2020			2019
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.	3,650,612		Ps.	3,308,509

II.	The Company issued in the Mexico market Asset backed trust notes (“CEBUR”), in Mexican pesos, maturing on June 20^th, 2024 bearing annual interest rate at TIIE 28 days plus 175 basis points.		1,500,000			1,459,871

III.	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.		200,000			200,000
IV.	Amortized transaction costs		(15,542	)		(22,472	)
V.	Accrued interest and other financial cost		19,563			30,061
			5,354,633			4,975,969
Less: Short-term maturities			1,558,884			2,086,017
Long-term		Ps.	3,795,749		Ps.	2,889,952

TIIE: Mexican interbank rate

~~(ii) The following table provides a summary of the Company’s scheduled principal payments of financial debt and accrued interest at December 31, 2018:~~

(ii)	The following table provides a summary of the Company’s scheduled principal payments of financial debt and accrued interest at December 31, 2020:

2019

2020

2021

2022

Total

2021

2022

2023

2024

Total

Finance debt denominated in foreign currency:

Santander/Bancomext

Ps.

748,865

Ps.

1,508,757

Ps.

777,095

Ps.

25,087

Ps.

3,059,804

Ps.

1,112,629

Ps.

2,554,069

Ps.

3,666,698

Citibanamex

463,394

—

463,394

CEBUR

252,605

500,000

250,000

1,502,605

Banco Sabadell

200,872

Total

Ps.

1,212,259

Ps.

1,508,757

Ps.

777,095

Ps.

25,087

Ps.

3,523,198

Ps.

1,566,106

Ps.

3,054,069

Ps.

500,000

Ps.

250,000

Ps.

5,370,175

F-53

~~Table of Contents~~

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.

(iii) Since 2011, the Company has financed the pre-delivery payments for the acquisition of its aircraft through a revolving financing facility. During the year ended December 31, 2018, the pre-delivery payments for one A320NEO aircraft were financed through this revolving financing facility.

On August 1, 2013, the Company signed an amendment to the loan agreement to finance the pre-delivery payments of eight additional A320CEO (“Current Engine Option”) that were delivered in 2015 and 2016.

On February 28, 2014 and November 27, 2014, the Company signed amendments to the loan agreement to finance pre-delivery payments of two and four additional A320CEO, respectively, one was delivered in 2014 and five in 2016.

On August 25, 2015, the Company signed an amendment to the loan agreement to finance pre-delivery payments of eight additional A320NEO aircraft to be delivered between 2017 and 2018. One of this aircraft was incorporated to the Company´s fleet during 2017.

On November 30, 2016, the Company signed an additional amendment to the loan agreement to finance pre-delivery payments of 22 additional A320NEO aircraft to be delivered between 2019 and 2020. This amendment was modified on December 19, 2017 to reschedule the delivery dates of the aircraft listed on August 25, 2015 and November 30, 2016, seven and 22 aircraft, respectively. The new delivery date will be between 2019 and 2021. In accordance with this amendment the revolving line with Santander Bancomext will expire as of November 30, 2021. This amendment was modified on November 30, 2018 to reschedule the delivery dates of 26 aircraft listed between 2019 and 2021. The new delivery date will be between 2019 and 2022. In accordance with this last amendment the revolving line with Santander Bancomext will expire as of May 31, 2022.

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 are met.~~

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.

Declare and pay dividends or make any distribution on the Company’s share capital unless certain financial ratios are met.

At December 31, ~~2018, 2017~~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 ~~2016,~~fourth quarter of 2020 and the first and second quarter of 2021. The waiver was provided by both banks, Santander and Bancomext. At December 31, 2019, the Company was in compliance with the covenants under the above-mentioned loan agreement.

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 ~~(Deutsche~~(CI Banco, S.A. (previously Deutsche Bank ~~Mexico,~~México, S.A. Trust 1710 and 1711)).

F-54

~~Table of Contents~~

~~(iv)~~ At December 31, ~~2018,~~2020, the Company ~~have~~has available credit lines totaling ~~Ps.6,721,139,~~Ps.9,256,978 of which ~~Ps.4,063,947~~Ps.6,851,338 were related to financial debt (Ps.1,500,726 were undrawn) and ~~Ps.2,657,192~~Ps.2,405,640 were related to letters of credit ~~(Ps.1,048,241~~(Ps.214,012 were undrawn). At December 31, ~~2017,~~2019, the Company ~~had~~has available credit lines totaling ~~Ps.7,368,346,~~Ps.9,005,008, of which ~~Ps.4,616,861~~Ps.6,649,358 were related to financial debt (Ps.1,640,849 were undrawn) and ~~Ps.2,751,485~~Ps.2,355,650 were related to letters of credit ~~(Ps.1,739,775 were undrawn). At December 31, 2016, the Company had available credit lines totaling~~
~~Ps.6,936,237, of which Ps.5,048,477 were related to financial debt and Ps.1,887,760 were related to letters of credit (Ps.3,703,184~~(Ps.86,066 were undrawn).

On June 20, 2019, the Company, through its subsidiary Concesionaria issued 15,000,000 asset backed trust notes under the ticket VOLARCB 19 for the amount of Ps.1.5 billion Mexican pesos through the Irrevocable Trust number 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 reductions 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.

The asset backed trust notes 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 begins in July of 2021. In addition, early amortization applies if:

An event of retention is not cover in a period of 90 consecutive days.

ii)

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.

iii)

Insolvency event of Concesionaria.

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:

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

During the years ended on December 31, 2020 and 2019, we were in compliance with the covenants under the terms and conditions of the asset backed trusted notes and short-term working capital facilities.

Changes in liabilities arising from financing activities

At December 31, ~~2018, 2017~~2020 and ~~2016,~~2019, the changes in liabilities from financing activities from the Company are summarized in the following table:

January 1,
2018

Net cash
Flows

Accrued
Interest

Foreign
exchange
movement

Current vs non-
current
reclassification
and other

December, 31,
2018

January 1,
2020

Net cash
Flows

Accrued
Interest

Foreign
exchange
movement

Current vs non-
current
reclassification

Other

December 31,
2020

Current interest-bearing loans and borrowings

Ps.

2,403,562

Ps.

(793,363

)

Ps.

10,392

Ps.

71,380

Ps.

(479,712

)

Ps.

1,212,259

Ps.

2,086,017

Ps.

(1,231,695

)

Ps.

(10,498

)

Ps.

(32,491

)

Ps.

747,551

Ps.

1,558,884

Non-current interest - bearing loans and borrowings

1,079,152

808,620

—

(56,945

)

480,112

2,310,939

2,889,952

1,374,678

231,612

(747,551

)

47,058

3,795,749

Total liabilities from financing activities

Ps.

3,482,714

Ps.

15,257

Ps.

10,392

Ps.

14,435

Ps.

400

Ps.

3,523,198

Ps.

4,975,969

Ps.

142,983

Ps.

(10,498

)

Ps.

199,121

Ps.

47,058

Ps.

5,354,633

	January 1, 2017		Net cash Flows		Accrued Interest			Foreign exchange movement			Current vs non- current reclassification and other			December, 31, 2017		January 1, 2019		Net cash Flows			Accrued Interest		Foreign exchange movement			Current vs non- current reclassification			Other			December 31, 2019
Current interest-bearing loans and borrowings	Ps.	1,051,237	Ps.	419,350	Ps.	(130	)	Ps.	25,924		Ps.	907,181		Ps.	2,403,562	Ps.	1,212,259	Ps.	(633,609	)	Ps.	13,698	Ps.	(41,173	)	Ps.	1,534,842		Ps.	-		Ps.	2,086,017
Non-current interest - bearing loans and borrowings	943,046		1,093,808		—			(50,521		)	(907,181		)	1,079,152			2,310,939		2,273,143			-		(122,466	)		(1,534,842	)		(36,822	)		2,889,952
Total liabilities from financing activities	Ps.	1,994,283	Ps.	1,513,158	Ps.	(130	)	Ps.	(24,597	)	Ps.	—		Ps.	3,482,714	Ps.	3,523,198	Ps.	1,639,534		Ps.	13,698	Ps.	(163,639	)	Ps.	-		Ps.	(36,822	)	Ps.	4,975,969

January 1,
2016

Net cash
Flows

Accrued
Interest

Foreign exchange
movement

Current vs non-
current
reclassification
and other

December, 31,
2016

Current interest-bearing loans and borrowings

Ps.
1,371,202

Ps.
(753,897
)
Ps.
(1,239
)
Ps.
121,269

Ps.
313,902

Ps.
1,051,237

Non-current interest - bearing loans and borrowings

219,817

938,681

—

98,450

(313,902
)
943,046

Total liabilities from financing activities

Ps.
1,591,019

Ps.
184,784

Ps.
(1,239
)
Ps.
219,719

Ps.
—

Ps.
1,994,283

Other financial liabilities

F-55

~~Table of Contents~~

		2020		2019
Derivative financial instruments designated as CFH (effective portion recognized within OCI):
Zero-Cost Collar options	Ps.	9,657	Ps.	-
Total financial liabilities	Ps.	9,657	Ps.	-
Presented on the consolidated statements of financial position as follows:
Current	Ps.	9,657	Ps.	-
Non-current	Ps.	-	Ps.	-

~~c) Other financial liabilities~~

2018

2017

2016

Derivative financial instruments designated as CFH (effective portion recognized within OCI):

Zero cost collar options

Ps.
122,948

Ps.
—

Ps.
—

Interest rate swap contracts

—

—

14,144

Total financial liabilities

Ps.
122,948

Ps.
—

Ps.
14,144

Presented on the consolidated statements of financial position as follows:

Current

Ps.
122,948

Ps.
—

Ps.
14,144

Non-current

Ps.
—

Ps.
—

Ps.
—

~~6. Cash and cash equivalents~~

Cash and cash equivalents

An analysis of this caption is as follows:

	2018		2017		2016		2020		2019
Cash in banks							Ps.	6,907,295	Ps.	4,612,927
Short-term investments	Ps.	4,796,554	Ps.	5,982,314	Ps.	4,433,559		3,068,618		3,231,125
Cash in banks	1,061,150		963,162		2,632,878
Cash on hand	5,238		5,403		4,814			36,432		44,880
Restricted funds held in trust related to debt service reserves								91,040		91,040
Total cash and cash equivalents	Ps.	5,862,942	Ps.	6,950,879	Ps.	7,071,251	Ps.	10,103,385	Ps.	7,979,972

~~7. Related parties~~As of December 31, 2020 and 2019, the Company recorded a portion of advance ticket sales by an amount of Ps.91,040 and Ps.91,040, respectively, as a restricted fund (Note 1e). The restricted funds held in Trust are used to constitute the debt service reserves and cannot be used for purposes other than those established in the contract of the Trust.

Related parties

~~a) An analysis of balances due from/to related parties at December 31, 2018, 2017 and 2016 is provided below.~~

An analysis of balances due from/to related parties at December 31, 2020 and 2019 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:

Type of transaction

Country
of origin

2018

2017

2016

Terms

Type of transaction

Country
of origin

2020

2019

Terms

Due from:

Frontier Airlines Inc. (“Frontier”)

Code-share

USA

Ps.

8,266

Ps.

—

Ps.

—

30 days

Code-share

USA

Ps.

72,629

Ps.

23,442

30 days

Ps.

8,266

Ps.

—

Ps.

—

Ps.

72,629

Ps.

23,442

Due to:

Grupo Aeroportuario del Centro Norte (“OMA”)

Airport Services

Mexico

Ps.

80,681

Ps.

30 days

Aeromantenimiento, S.A. (“Aeroman”)

Aircraft and engine maintenance

Mexico/El
Salvador

39,284

1,474

30 days

Chevez, Ruiz, Zamarripa y Cía., S.C.

Professional fees

Mexico

4,823

30 days

Mijares, Angoitia, Cortés y Fuentes, S.C.

Professional fees

Mexico

166

996

30 days

Frontier Airlines Inc. (“Frontier”)

Code-share

USA

16,246

30 days

One Link, S.A. de C.V. (“One Link”)

Call center fees

El Salvador

39,838

30 days

Ps.

124,993

Ps.

58,554

Type of transaction

Country
of origin

2018

2017

2016

Terms

Due to:

One Link, S.A. de C.V. (“One Link”)

Call center fees

El Salvador

Ps.
—

Ps.
24,980

Ps.
33,775

30 days

Aeromantenimiento, S.A. (“Aeroman”)

Aircraft and engine maintenance

El Salvador

15,024

15,951

30,627

30 days

Frontier Airlines Inc. (“Frontier”)

Code-share

USA

2,751

—

—

30 days

SearchForce, Inc. (“SearchForce”)

Internet services

Mexico

—

—

620

30 days

Ps.
17,775

Ps.
40,931

Ps.
65,022

During the years ended December 31, 2020, 2019 and 2018, the Company had the following transactions with related parties:

F-56

~~Table of Contents~~

~~b) During the years ended December 31, 2018, 2017 and 2016, the Company had the following transactions with related parties:~~

Related party transactions

Country of origin

2018

2017

2016

Country of origin

2020

2019

2018

Revenues:

Transactions with affiliates

Frontier

Frontier Airlines Inc

Code-share

USA

Ps.

8,358

Ps.

—

Ps.

—

USA

Ps.

148,964

Ps.

208,968

Ps.

8,358

Expenses:

Transactions with affiliates

Aeroman

Aeromantenimiento, S.A.

Aircraft and engine maintenance

El Salvador/Guatemala

Ps.

341,726

Ps.

249,266

Ps.

304,399

Mexico/El Salvador

Ps.

239,118

Ps.

201,624

Ps.

341,726

One Link, Mijares Angoitia, Servprot and Human Capital

Call center fees and other fees

Mexico/El Salvador

4,800

202,689

173,197

Aeroman

Technical support

Mexico/El Salvador/ Guatemala

4,796

8,088

8,105

Mexico/El Salvador

3,945

5,815

4,796

Onelink, S.A. de C.V.

Call center fees

Mexico/El Salvador

73,167

37,026

Grupo Aeroportuario del Centro Norte

Airport services

Mexico

32,193

Mijares, Angoitia, Cortés y Fuentes, S.C.

Professional fees

Mexico

5,582

1,321

1,672

Chevez, Ruiz, Zamarripa y Cía, S.C.

Professional fees

Mexico

4,823

Servprot, S.A. de C.V.

Security services

México

3,464

3,120

2,804

Human Capital International HCI, S.A. de C.V.

Professional fees

México

324

Frontier started having transactions with the Company in September 2018. ~~During the years ended December 31, 2017 and 2016 the Company did not have any revenue transactions with related parties.~~

As of December 31, ~~2018, 2017~~2020 and ~~2016,~~2019, there have been no guarantees provided or received for any related party receivables or payables. For the years ended December 31, ~~2018, 2017~~2020 and ~~2016,~~2019, no provision for expected credit losses had been recognized.

~~c) Servprot~~

Servprot

Servprot S.A. de C.V. (“Servprot”) is a related party because Enrique Beltranena, the Company’s President and Chief Executive Officer, and Rodolfo Montemayor, who served as an alternate member of ~~the board of directors, and Rodolfo Montemayor, a member of the~~our board of directors until April 19, 2018, ~~is shareholder~~are shareholders of such company. Servprot provides security services for Mr. Beltranena and his family, as well as for Mr. Montemayor. As of December 31, 2020 and 2019 Servprot did not have net balance under this agreement. During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018 the Company expensed ~~Ps.2,804, Ps.1,838~~Ps.3,464, Ps.3,120 and ~~Ps.1,733,~~Ps.2,804, respectively for this concept.

~~d) Aeroman~~

Aeroman

Aeroman is a related party, because ~~Roberto José Kriete Ávila,~~Marco Baldocchi a member of the board of the Company’s board of directors ~~and members of his immediate family are shareholders~~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 ~~has to~~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 years~~5-year term. As of December 31, ~~2018, 2017~~2020 and ~~2016,~~2019, the balances due under the agreement with Aeroman were ~~Ps.15,024, Ps.15,951~~Ps.39,284 and ~~Ps.30,627,~~Ps.1,474, respectively. The Company incurred expenses in aircraft, engine maintenance and technical support under this agreement of ~~Ps.346,522, Ps.251,731~~Ps.243,063, Ps.207,439 and ~~Ps.308,731~~Ps.346,522 for the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, respectively.

F-57

~~Table of Contents~~

Human Capital International

~~e) Human Capital International~~

~~The Company entered into a professional services agreement with~~ Human Capital International HCI, S.A. de C.V.~~, or~~ (“Human Capital ~~International, on February 25, 2015, for the selection and hiring of executives.~~International”), was a related party until April 19, 2018, because Rodolfo Montemayor Garza, a former member of the Company’s board of directors, ~~until April 19, 2018,~~ is a founder and chairman of the board of directors of Human Capital International. Human Capital International provided the Company with services regarding the selection and hiring of executives. As of December 31, 2018, ~~2017 and 2016,~~Human Capital International did not have net balance under this agreement. For the year ended December 31, 2018, the Company recognized an expense under this agreement of ~~Ps.324, Ps.816 and Ps.3,127, respectively.~~Ps.324.

~~f) One Link~~

OneLink

~~One Link~~Onelink, S.A. de C.V. (“Onelink”) was a related party until December 31, 2017, because Marco Baldocchi, ~~an alternate~~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, ~~One Link~~Onelink received calls from the customers to book flights and provides customers with information about fares, schedules and availability.

As of December 31, ~~2017~~2020 and ~~2016,~~2019, the ~~balance due~~account payable under this agreement was ~~Ps.24,980~~Ps.0 and ~~Ps.33,775, respectively,~~Ps.39,838, respectively. For the years ended December 31, 2020, 2019 and ~~the~~2018, Company recognized an expense under this agreement of ~~Ps.200,035~~Ps.73,167, Ps.37,026 and ~~Ps.168,337 for the years ended December 31, 2017 and 2016,~~Ps.0, respectively.

~~g) SearchForce~~

SearchForce is a related party because William Dean Donovan, a member of the board, is a director of the Company. Pursuant to this agreement, SearchForce provides consultation services, reports, findings, analysis or other deliverables to us regarding the software and the implementation of the internet marketing strategy developed to the Company at its request. As of December 31, 2018, 2017 and 2016, the balance due under this agreement was Ps.0, Ps.0 and Ps.620.

~~The Company recognized an expense under this agreement of Ps.0, Ps.1,946 and Ps.3,446 for the years ended December 31, 2018, 2017 and 2016, respectively.~~

~~h) Mijares, Angoitia, Cortés y Fuentes~~

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 ~~Mijares, Angoitia, Cortés y Fuentes.~~the Company. As of December 31, ~~2018,~~2020 and 2019, MACF, the balance due under ~~this~~the agreement was ~~Ps.0~~Ps.166 and Ps.996, respectively. For the ~~Company recognized an expense under this agreement of Ps.1,672, for the year~~years ended December 31, ~~2018.~~2020, 2019 and 2018, the Company expensed Ps.5,582, Ps.1,321 and Ps.1,672, respectively, for this concept.

~~i) Frontier~~

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 have significant investments in both Companies. As of December 31, ~~2018,~~2020 and 2019, the ~~net balance due~~account receivable under this agreement was ~~Ps.8,266~~Ps.72,629 and Ps.23,442, respectively. Additionally, as of December 31, 2020 and 2019, the account payable under this agreement was Ps.39 and Ps.16,246, respectively. For the year ended December 31, 2020, 2019 and 2018 the Company recognized revenue under this agreement of Ps.148,964, Ps.208,968 and Ps.8,358, ~~for~~respectively.

Grupo Aeroportuario del Centro Norte (OMA)

In 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 the Company and OMA. Mr. Ricardo Maldonado Yañez is also an independent member of the board of directors the Company and OMA. As of December 31, 2020, the account payable under this agreement was Ps.80,681. For the year ended December 31, ~~2018.~~2020, the Company expensed Ps.32,193 for this concept.

F-58

Chevez, Ruiz, Zamarripa y Cia, S.C. (Chevez)

~~Table~~

Chevez, Ruiz, Zamarripa y Cia, S.C. (Chevez) is a related party because Mr. José Luis Fernández Fernández is an independent member of ~~Contents~~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, 2020, the balances due to Chevez under the tax advisory services provided to the Company were Ps.4,823. For the year ended December 31, 2020, the Company expensed Ps.4,823 for this concept.

~~j) Directors and officers~~

Directors and officers

During the year ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the chairman and the independent members of the Company’s board of directors received an aggregate compensation of approximately ~~Ps.7,178, Ps.8,993~~Ps.5,762, Ps.8,085 and ~~Ps.7,751,~~Ps.7,178, respectively, and the rest of the directors received a compensation of ~~Ps.5,217, Ps.7,834~~Ps.3,692, Ps.4,367 and ~~Ps.7,308,~~Ps.5,217, respectively.

During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, all the Company’s senior managers received an aggregate compensation of short and long-term benefits of ~~Ps.180,001, Ps.134,370~~Ps.253,681, Ps.237,846 and ~~Ps.160,762,~~Ps.180,001, respectively, these amounts were recognized in salaries and benefits in the consolidated statement of operations.

For the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018 the cost of the share-based payments transactions (MIP and LTIP) were Ps.75,040, Ps.49,659 and Ps.19,980, ~~Ps.13,508 and Ps.7,816,~~ respectively. ~~Cash-settled~~The cost (benefit) of the cash-settled payments transactions MIP II and SARs were Ps.105,303, Ps.40,724 and Ps.(5,238), ~~Ps.(25,498) and Ps.86,100,~~ respectively (Note 17).

~~Starting 2015, the~~The Company ~~adopted~~has a ~~new~~ short-term benefit plan for certain personnel whereby cash bonuses are awarded for meeting certain Company’s performance target. During the years ended December 31, ~~2018,2017~~2020, 2019 and ~~2016,~~2018, the Company recorded a provision in the amount of ~~Ps.50,000,~~ Ps.0, Ps.80,634 and ~~Ps.53,738~~Ps.50,000, respectively.

~~8. Other accounts receivable, net~~

Other accounts receivable, net

An analysis of other accounts receivable at December 31, ~~2018~~2020 and ~~2017,~~2019, is detailed below:

	2018			2017			2016			2020			2019
Current:
Credit cards	Ps.	96,646		Ps.	191,322		Ps.	253,374		Ps.	231,260		Ps.	389,634
Benefits from suppliers	68,946			—			—				105,947			26,989
Other accounts receivable	101,487			117,582			26,236				87,204			189,904
Other points of sales	71,054			54,719			23,867				67,315			102,002
Affinity credit card	55,172			40,517			8,950
Cargo clients	41,408			34,655			29,901				45,201			46,600
Employees											36,287			29,681
Travel agencies and insurance commissions	39,806			27,925			20,477				16,099			76,975
Marketing services receivable	7,999			13,435			11,070				4,020			7,024
Airport services	9,991			5,898			9,479				15			42,894
Employees	27,274			8,878			7,551
Affinity credit card											-			49,040
Settlement receivable											-			2,422
Insurance claims	—			1,345			55,815				-			143
	519,783			496,276			446,720				593,348			963,308
Allowance for credit losses	(11,304		)	(17,809		)	(19,317		)		(32,708	)		(40,308	)
	Ps.	508,479		Ps.	478,467		Ps.	427,403		Ps.	560,640		Ps.	923,000

F-59

~~Table of Contents~~

Accounts receivable have the following aging:

Days	2018 Impaired			2018 Not impaired			Total 2018			2017 Impaired		2017 Not impaired		Total 2017		2016 Impaired		2016 Not impaired		Total 2016			Days	2020 Impaired		2020 Not impaired		Total 2020		2019 Impaired		2019 Not impaired		Total 2019
0–30	Ps.		8,725	Ps.		388,644	Ps.		397,369	Ps.	16,962	Ps.	415,847	Ps.	432,809	Ps.	15,723	Ps.	398,721	Ps.		414,444	0–30	Ps.	4,090	Ps.	486,001	Ps.	490,091	Ps.	5,804	Ps.	722,651	Ps.	728,455
31–60	—			69,648			69,648			—		38,705		38,705		—		11,231		11,231			31–60		-		13,872		13,872		-		64,983		64,983
61–90	—			27,138			27,138			—		17,918		17,918		—		14,492		14,492			61–90		-		6,081		6,081		-		19,274		19,274
91–120	2,579			23,049			25,628			847		5,997		6,844		3,594		2,959		6,553			91–120		28,618		54,686		83,304		34,504		116,092		150,596
	Ps.	11,304		Ps.	508,479		Ps.	519,783		Ps.	17,809	Ps.	478,467	Ps.	496,276	Ps.	19,317	Ps.	427,403	Ps.	446,720			Ps.	32,708	Ps.	560,640	Ps.	593,348	Ps.	40,308	Ps.	923,000	Ps.	963,308

The movement in the allowance for credit losses from January 1, ~~2016~~2018 to December 31, ~~2018~~2020 is as follows:

Balance as of January ~~1, 2016~~ 1st, 2018	Ps.	~~(24,612~~ (17,809	)
Write-offs	~~14,459~~	17,126
Increase in allowance	~~(9,164~~	(10,621	)
~~Balance as of December 31, 2016~~	~~(19,317~~		)
~~Write-offs~~	~~6,228~~
~~Increase in allowance~~	~~(4,720~~		)
~~Balance as of December 31, 2017~~	~~(17,809~~		)
~~Write-offs~~	~~17,126~~
~~Increase in allowance~~	~~(10,621~~		)
Balance as of December 31, 2018		(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	Ps.	~~(11,304~~ (32,708	)

~~9. Inventories~~

Inventories

An analysis of inventories aton December 31, ~~2018, 2017~~2020 and ~~2016~~2019 is as follows:

	2018		2017		2016		2020		2019
Spare parts and accessories of flight equipment	Ps.	289,737	Ps.	285,185	Ps.	235,330	Ps.	271,454	Ps.	294,390
Miscellaneous supplies	7,534		9,665		8,554			7,505		7,518
	Ps.	297,271	Ps.	294,850	Ps.	243,884	Ps.	278,959	Ps.	301,908

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. During the years ended as of December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the amount of consumption of inventories, recorded as an operating expense as part of maintenance expense was ~~Ps.290,206, Ps.242,265~~Ps.234,691, Ps.284,687 and ~~Ps.186,719,~~Ps.290,206, respectively.

F-60

~~Table of Contents~~

~~10. Prepaid expenses and other current assets~~

10.

Prepaid expenses and other current assets

An analysis of prepaid expenses and other current assets at December 31, ~~2018, 2017~~2020 and ~~2016~~2019 is as follows:

	2018		2017		2016		2020		2019
Flight credits							Ps.	389,927	Ps.	-
Advances to suppliers	Ps.	273,251	Ps.	346,263	Ps.	705,105		163,044		283,340
Prepaid aircraft rent	274,254		215,784		668,306
Sales commission to travel agencies (Note 1d)								151,342		84,239
Other prepaid expenses								81,803		115,054
Prepaid insurance	76,896		68,712		47,663			64,309		88,941
Other prepaid expenses	22,682		65,642		33,555
Sales commission to travel agencies (Note 1d)	59,620		54,501		73,413
Advances for constructions of aircraft and engines	—		13,764		31,437
Loss on sale and leaseback transactions to be amortized (Note 14)	3,047		3,047		3,047
Advances to components suppliers								-		209,557
	Ps.	709,750	Ps.	767,713	Ps.	1,562,526	Ps.	850,425	Ps.	781,131

~~11. Guarantee deposits~~

11.

Guarantee deposits

An analysis of this caption aton December 31, ~~2018, 2017~~2020 and ~~2016~~2019 is as follows:

	2018		2017		2016		2020		2019
Current asset:
Credit letters deposits							Ps.	829,918	Ps.	-
Aircraft maintenance deposits paid to lessors (Note 1j)	Ps.	729,899	Ps.	1,317,663	Ps.	1,145,913		279,390		576,505
Deposits for rental of flight equipment	1,220		17,178		14,155			23,584		-
Other guarantee deposits	59,516		18,052		7,141			9,064		23,822
	790,635		1,352,893		1,167,209			1,141,956		600,327
Non-current asset:
Aircraft maintenance deposits paid to lessors (Note 1j)	5,765,122		5,631,304		5,951,831			7,641,544		7,047,360
Deposits for rental of flight equipment	531,261		441,110		589,804			741,871		557,530
Other guarantee deposits	41,113		25,838		18,243			41,323		39,531
	6,337,496		6,098,252		6,559,878			8,424,738		7,644,421
	Ps.	7,128,131	Ps.	7,451,145	Ps.	7,727,087	Ps.	9,566,694	Ps.	8,244,748

12.

Rotable spare parts, furniture and equipment, net

~~12. Rotable spare parts, furniture and equipment, net~~

	Gross value						Accumulated depreciation									Net carrying value						Gross value						Accumulated depreciation						Net carrying value
	At December 31, 2018		At December 31, 2017		At December 31, 2016		At December 31, 2018			At December 31, 2017			At December 31, 2016			At December 31, 2018		At December 31, 2017		At December 31, 2016		At December 31, 2020			At December 31, 2019			At December 31, 2020			At December 31, 2019			At December 31, 2020			At December 31, 2019
Leasehold improvements to flight equipment	Ps.	3,221,167	Ps.	2,382,687	Ps.	1,709,868	Ps.	(2,083,053	)	Ps.	(1,769,589	)	Ps.	(1,386,844	)	Ps.	1,138,114	Ps.	613,098	Ps.	323,024	Ps.	5,092,049		Ps.	4,220,672		Ps.	(3,354,166	)	Ps.	(2,679,884	)	Ps.	1,737,883		Ps.	1,540,788
Pre-delivery payments	3,672,090		2,783,303		1,206,330		—			—			—			3,672,090		2,783,303		1,206,330
Aircraft parts and rotable spare parts	609,232		506,735		393,522		(233,403		)	(181,091		)	(137,712		)	375,829		325,644		255,810
Aircraft spare engines	323,410		323,410		323,025		(34,917		)	(18,132		)	(1,337		)	288,493		305,278		321,688
Pre-delivery payments*																							4,920,126			4,507,770			-			-			4,920,126			4,507,770
Flight equipment																							1,689,473			1,287,102			(1,223,560	)		(553,852	)		465,913			733,250
Construction and improvements in process	142,738		193,607		255,374		—			—			—			142,738		193,607		255,374			53,545			474,240			-			-			53,545			474,240
Standardization	203,611		192,808		176,975		(127,136		)	(113,407		)	(94,864		)	76,475		79,401		82,111
Constructions and improvements	132,446		131,503		120,886		(117,211		)	(106,335		)	(85,873		)	15,235		25,168		35,013			175,407			172,460			(148,391	)		(131,510	)		27,016			40,950
Computer equipment	44,563		30,113		24,172		(28,016		)	(20,790		)	(16,972		)	16,547		9,323		7,200			49,945			47,566			(42,126	)		(34,495	)		7,819			13,071
Workshop tools	23,454		20,500		20,500		(20,085		)	(18,229		)	(15,915		)	3,369		2,271		4,585			27,727			26,875			(24,398	)		(22,023	)		3,329			4,852
Electric power equipment	15,438		15,439		14,818		(10,316		)	(9,185		)	(7,890		)	5,122		6,254		6,928			20,448			20,412			(12,773	)		(11,400	)		7,675			9,012
Communications equipment	12,305		11,229		9,261		(7,394		)	(6,502		)	(5,706		)	4,911		4,727		3,555			14,803			14,099			(9,038	)		(8,322	)		5,765			5,777
Workshop machinery and equipment	9,530		8,405		7,240		(5,049		)	(4,345		)	(3,622		)	4,481		4,060		3,618			20,574			16,301			(7,641	)		(6,092	)		12,933			10,209
Motorized transport equipment platform	5,496		5,587		5,703		(5,050		)	(4,701		)	(4,346		)	446		886		1,357			15,247			15,026			(7,924	)		(5,392	)		7,323			9,634
Service carts on board	5,403		5,403		5,403		(5,277		)	(5,021		)	(4,645		)	126		382		758			9,216			7,675			(6,112	)		(5,554	)		3,104			2,121
Office furniture and equipment	66,546		44,749		36,310		(28,240		)	(22,454		)	(18,653		)	38,306		22,295		17,657			67,035			70,709			(35,309	)		(34,049	)		31,726			36,660
Allowance for obsolescence																							(3,000	)		(3,000	)		-			-			(3,000	)		(3,000	)
Total	Ps.	8,487,429	Ps.	6,655,478	Ps.	4,309,387	Ps.	(2,705,147	)	Ps.	(2,279,781	)	Ps.	(1,784,379	)	Ps.	5,782,282	Ps.	4,375,697	Ps.	2,525,008	Ps.	12,152,595		Ps.	10,877,907		Ps.	(4,871,438	)	Ps.	(3,492,573	)	Ps.	7,281,157		Ps.	7,385,334

*During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018, the Company capitalized borrowing costs of ~~Ps.357,920, Ps.193,389~~Ps.384,038, Ps.456,313 and ~~Ps.95,445,~~Ps.357,920, respectively. The amount of this line is net of disposals of capitalized borrowing costs related to sale and leaseback transactions of Ps.401,862, Ps.328,571 and Ps.242,678, ~~Ps.110,274 and Ps.84,936,~~ respectively.

F-61
Flight equipment Constructions and
improvements Computer
equipment Office furniture
and equipment Electric power
equipment Workshop

Tools Motorized
transport
equipment
platform Communications
equipment Workshop
machinery
and
equipment Service
carts on
board

Allowance for
obsolescence
Pre-delivery
payments Construction and
improvements
in process Leasehold
improvements to
flight equipment Total
Net book amount as of
  December 31, 2018 Ps. 664,322 Ps. 15,235 Ps. 16,547 Ps. 38,306 Ps. 5,122 Ps. 3,369 Ps. 446 Ps. 4,911 Ps. 4,481 Ps. 126 Ps. - Ps. 3,672,090 Ps. 142,738 Ps. 1,214,589 Ps. 5,782,282
Additions 692,186 5,596 1,730 1,461 2,487 3,137 - 355 4,278 2,273 (3,000 ) 1,412,790 525,556 661,954 3,310,803
Disposals and transfers (538,370 ) - (131 ) (10 ) - - - (2 ) (35 ) - - (704,852 ) (3,957 ) - (1,247,357 )
Borrowing costs, net* - - - - - - - - - - - 127,742 - - 127,742
Other movements - 34,840 1,999 2,757 2,487 284 9,529 1,446 2,529 - - - (190,097 ) 133,939 (287 )
Depreciation (84,888 ) (14,721 ) (7,074 ) (5,854 ) (1,084 ) (1,938 ) (341 ) (933 ) (1,044 ) (278 ) - - - (469,694 ) (587,849 )
As of December 31, 2019 733,250 40,950 13,071 36,660 9,012 4,852 9,634 5,777 10,209 2,121 (3,000 ) 4,507,770 474,240 1,540,788 7,385,334
Cost 1,287,102 172,460 47,566 70,709 20,412 26,875 15,026 14,099 16,301 7,675 (3,000 ) 4,507,770 474,240 4,220,672 10,877,907
Accumulated depreciation (553,852 ) (131,510 ) (34,495 ) (34,049 ) (11,400 ) (22,023 ) (5,392 ) (8,322 ) (6,092 ) (5,554 ) - - - (2,679,884 ) (3,492,573 )
Net book amount as of
  December 31, 2019 733,250 40,950 13,071 36,660 9,012 4,852 9,634 5,777 10,209 2,121 (3,000 ) 4,507,770 474,240 1,540,788 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 book amount as of
  December 31, 2020 Ps. 465,913 Ps. 27,016 Ps. 7,819 Ps. 31,726 Ps. 7,675 Ps. 3,329 Ps. 7,323 Ps. 5,765 Ps. 12,933 Ps. 3,104 Ps. (3,000) Ps. 4,920,126 Ps. 53,545 Ps. 1,737,883 Ps. 7,281,157

~~Table of Contents~~

Aircraft
parts
and
rotable
spare
parts

Aircraft
spare
Engines

Constructions
and
improvements

Standardization

Computer
equipment

Office
furniture
and
equipment

Electric
power
equipment

Workshop
Tools

Motorized
transport
equipment
platform

Communications
equipment

Workshop
machinery
and
equipment

Service
carts
on
board

Pre-delivery
payments

Construction
and
improvements
in process

Leasehold
improvements
to flight
equipment

Total

Net book amount as of December 31, 2015

Ps.
179,947

Ps.
—

Ps.
18,202

Ps.
83,886

Ps.
4,195

Ps.
12,932

Ps.
9,033

Ps.
4,815

Ps.
1,326

Ps.
3,764

Ps.
4,179

Ps.
1,453

Ps.
1,583,835

Ps.
140,926

Ps.
501,157

Ps.
2,549,650

Additions

110,592

323,025

2,218

21,953

740

517

1,467

4,217

505

129

131

36

1,345,081

161,560

226,526

2,198,697

Disposals and transfers

(1,299
)
—

—

—

—

(110
)
(1,626
)
—

(49
)
—

—

—

(1,733,093
)
(2,132
)
—

(1,738,309
)
Borrowing costs, net*

—

—

—

—

—

—

—

—

—

—

—

—

10,507

—

—

10,507

Other movements

—

—

32,441

—

4,814

7,877

—

25

46

493

—

—

—

(44,980
)
—

716

Depreciation

(33,430
)
(1,337
)
(17,848
)
(23,728
)
(2,549
)
(3,559
)
(1,946
)
(4,472
)
(471
)
(831
)
(692
)
(731
)
—

—

(404,659
)
(496,253
)
As of December 31, 2016

255,810

321,688

35,013

82,111

7,200

17,657

6,928

4,585

1,357

3,555

3,618

758

1,206,330

255,374

323,024

2,525,008

Cost

393,522

323,025

120,886

176,975

24,172

36,310

14,818

20,500

5,703

9,261

7,240

5,403

1,206,330

255,374

1,709,868

4,309,387

Accumulated depreciation

(137,712
)
(1,337
)
(85,873
)
(94,864
)
(16,972
)
(18,653
)
(7,890
)
(15,915
)
(4,346
)
(5,706
)
(3,622
)
(4,645
)
—

—

(1,386,844
)
(1,784,379
)
Net book amount as of December 31, 2016

Ps.
255,810

Ps.
321,688

Ps.
35,013

Ps.
82,111

Ps.
7,200

Ps.
17,657

Ps.
6,928

Ps.
4,585

Ps.
1,357

Ps.
3,555

Ps.
3,618

Ps.
758

Ps.
1,206,330

Ps.
255,374

Ps.
323,024

Ps.
2,525,008

Additions

115,173

385

—

15,833

1,845

6,805

—

—

—

—

123

—

1,707,805

206,932

529,331

2,584,232

Disposals and transfers

(930
)
—

—

—

—

(15
)
—

—

—

—

—

—

(213,947
)
(3,555
)
(101,224
)
(319,671
)
Borrowing costs, net*

—

—

—

—

—

—

—

—

—

—

—

—

83,115

—

—

83,115

Other movements

—

—

10,371

—

4,087

1,649

620

—

—

1,968

1,041

—

—

(265,144
)
244,712

(696
)
Depreciation

(44,409
)
(16,795
)
(20,216
)
(18,543
)
(3,809
)
(3,801
)
(1,294
)
(2,314
)
(471
)
(796
)
(722
)
(376
)
—

—

(382,745
)
(496,291
)
As of December 31, 2017

325,644

305,278

25,168

79,401

9,323

22,295

6,254

2,271

886

4,727

4,060

382

2,783,303

193,607

613,098

4,375,697

Cost

506,735

323,410

131,503

192,808

30,113

44,749

15,439

20,500

5,587

11,229

8,405

5,403

2,783,303

193,607

2,382,687

6,655,478

Accumulated depreciation

(181,091
)
(18,132
)
(106,335
)
(113,407
)
(20,790
)
(22,454
)
(9,185
)
(18,229
)
(4,701
)
(6,502
)
(4,345
)
(5,021
)
—

—

(1,769,589
)
(2,279,781
)
Net book amount as of December 31, 2017

Ps.
325,644

Ps.
305,278

Ps.
25,168

Ps.
79,401

Ps.
9,323

Ps.
22,295

Ps.
6,254

Ps.
2,271

Ps.
886

Ps.
4,727

Ps.
4,060

Ps.
382

Ps.
2,783,303

Ps.
193,607

Ps.
613,098

Ps.
4,375,697

Additions

106,240

260,131

689

10,803

5,316

652

—

2,673

—

1,050

1,040

—

1,485,643

142,703

676,457

2,693,397

Disposals and transfers

(1,735
)
(260,131
)
—

—

—

—

—

—

—

—

(2
)
—

(712,098
)
(89
)
—

(974,055
)
Borrowing costs, net*

—

—

—

—

—

—

—

—

—

—

—

—

115,242

—

—

115,242

Other movements

—

—

67

—

9,123

21,568

—

281

42

26

110

—

—

(193,483
)
162,023

(243
)
Depreciation

(54,320
)
(16,785
)
(10,689
)
(13,729
)
(7,215
)
(6,209
)
(1,132
)
(1,856
)
(482
)
(892
)
(727
)
(256
)
—

—

(313,464
)
(427,756
)
As of December 31, 2018

375,829

288,493

15,235

76,475

16,547

38,306

5,122

3,369

446

4,911

4,481

126

3,672,090

142,738

1,138,114

5,782,282

Cost

609,232

323,410

132,446

203,611

44,563

66,546

15,438

23,454

5,496

12,305

9,530

5,403

3,672,090

142,738

3,221,167

8,487,429

Accumulated depreciation

(233,403
)
(34,917
)
(117,211
)
(127,136
)
(28,016
)
(28,240
)
(10,316
)
(20,085
)
(5,050
)
(7,394
)
(5,049
)
(5,277
)
—

—

(2,083,053
)
(2,705,147
)
Net book amount as of December 31, 2018

Ps.
375,829

Ps.
288,493

Ps.
15,235

Ps.
76,475

Ps.
16,547

Ps.
38,306

Ps.
5,122

Ps.
3,369

Ps.
446

Ps.
4,911

Ps.
4,481

Ps.
126

Ps.
3,672,090

Ps.
142,738

Ps.
1,138,114

Ps.
5,782,282

a) Depreciation expense for the years ended December 31, 2020, 2019 and 2018, ~~2017~~was Ps.797,827, Ps.587,849 and ~~2016, was~~ Ps.427,756, ~~Ps.496,291 and Ps.496,253,~~ respectively. Depreciation charges for the year are recognized as a component of operating expenses in the consolidated statements of operations.

b) 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.

F-62

~~Table of Contents~~

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.

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 Volaris used its rights on the Airbus Purchase Agreement to convert six A320NEO into A321NEO. In July 2020, we amended the agreement with Airbus to reschedule the 80 aircraft deliveries between 2023 and 2028. In October 2020, we amended the agreement with Airbus to reschedule the remaining 18 fleet deliveries between 2020 and 2022.

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 ~~2020.~~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 ~~2020.~~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.

The Company received credit notes from P&W in December 2017 of Ps.58,530 (US$3.06 million), which are being amortized on a straight-line basis, prospectively during the term of the agreement. As of December 31, ~~2018,~~2020, and ~~2017,~~2019, the Company amortized a corresponding benefit from these credit notes of Ps.4,878 and ~~Ps.1,219,~~Ps.4,878, respectively, which is recognized as an offset to maintenance expenses in the consolidated statements of operations.

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.

~~In November 2018, the Company amended the agreement with Airbus to reschedule the remaining 26 fleet deliveries between 2019 and 2022.~~

During the years ended December 31, ~~2018, 2017~~2020 and ~~2016,~~2019, the amounts paid for aircraft and spare engine pre-delivery payments were of ~~Ps.1,485,643~~Ps.2,185,902 (US$~~77.1 million), Ps.1,707,805 (US$90.0~~102.7 million) and ~~Ps.1,345,081~~Ps.1,412,790 (US$~~82.7~~75.0 million), respectively.

The current purchase agreement with Airbus requires the Company to accept delivery of ~~106~~96 Airbus A320 family aircraft during the following ~~nine~~eight years (from January ~~2019~~2021 to ~~November 2026)~~October 2028). The agreement provides for the addition of ~~106~~96 Aircraft to its fleet as follows: ~~three in 2019, eight in 2020, thirteen~~four in 2021, ~~thirteen~~twelve in 2022, ~~sixteen~~three in 2023, thirteen in 2024, fifteen in 2025, ~~and~~ twenty-five in 2026, eleven in 2027 and thirteen in 2028.

Commitments to acquisitions of property and equipment are disclosed in Note 23.

F-63

~~Table of Contents~~

During the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018 the Company entered into aircraft and spare engines sale and leaseback transactions, resulting in a gain of ~~Ps.609,168, Ps.65,886~~Ps.710,522, Ps.284,759 and ~~Ps.484,827,~~Ps.609,168, respectively, that was recorded under the caption other operating income in the consolidated statement of operations, only the amount of gains that relates to the rights transferred to the buyer-lessor. The rest of the gains are amortized under the lease term (Note 20).

During the year ended December 31, 2011, the Company entered into aircraft and spare engines sale and leaseback transactions, which resulted in a loss of Ps.30,706. This loss was deferred on the consolidated statements of financial position and is being amortized over the contractual lease term. As of December 31, 2018, 2017 and 2016, the current portion of the loss on sale amounts to Ps.3,047, Ps.3,047 and Ps.3,047, respectively recorded in the consolidated statement of operations as additional aircraft rental expense, that is recorded in the caption of prepaid expenses and other current assets (Note 10), and the non-current portion amounts to Ps.8,366, Ps.11,413 and Ps.14,460, respectively, which is recorded in the caption of other assets in the consolidated statements of financial position.

c) On August 27, 2012, the Company entered into a total support agreement with Lufthansa Technik AG (“LHT”) for a five-year term. This agreement includes a total component support agreement (power-by-the hour) and guarantees the availability of aircraft components for the Company’s fleet when they are required. The cost of the total component support agreement is recognized as maintenance expenses in the consolidated statement of operations.

As part of the original total support agreement with LHT, the Company received credit notes of Ps.46,461 (US$3.5 million), which were amortized on a straight-line basis, during the term of the agreement. As of December 31, 2018, 2017 and 2016, the Company amortized a corresponding benefit from these credit notes of Ps.0, Ps.6,580 and Ps.9,292, respectively, which was recognized as an offset to maintenance expenses in the consolidated statements of operations.

d) During December 2017, the Company entered into ~~a new~~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 ~~the new~~this agreement, the Company received credit notes of Ps.28,110 (US$1.5 million), which are being amortized on a straight-line basis, prospectively during the term of the agreement. As of December 31, 2020, 2019 and 2018, the Company amortized a corresponding benefit from these credit notes of Ps.5,230, Ps.5,230 and Ps.7,191, respectively, recognized as an offset to maintenance expenses in the consolidated statements of operations.

d)e) On ~~October 12, 2016 and December 12, 2016,~~September 5, 2019, the Company acquired ~~two~~one previously leased A319 aircraft ~~spare engines,~~from the lessor, which ~~were~~was accounted for ata cost for a total amount of ~~Ps.323,025. The assets contain two major components which are assumed to have different useful lives, the limited life parts (LLPs) have an estimated useful life~~Ps.392,076 (US$19,600). This transaction did not generate any gain or loses in our consolidated statements of ~~12 years, and the rest of the aircraft engine has an estimated useful life of 25 years.~~ operations.

The Company identified the major components as separate parts at their respective cost. These major components of the ~~spare engines~~aircraft are presented as part of the aircraft ~~spare engines~~ and depreciated over their useful life.

F-64

~~Table~~During the month of ~~Contents~~December 2019, the Company sold the recently acquired aircraft engines in a sale and lease back transaction. As of December 31, 2020, the carry amount of the remaining owned aircraft and the depreciation was Ps.52,984 and Ps.5,946, respectively. As of December 31, 2019, the carry amount of the remaining owned aircraft and the depreciation was Ps.54,771 and Ps.1,787, respectively.

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

2018

2017

2016

2018

2017

2016

2018

2017

2016

Software

1 – 4s

Ps.
503,467

Ps.
441,803

Ps.
313,028

Ps.
(324,343
)
Ps.
(251,383
)
Ps.
(198,987
)
Ps.
179,124

Ps.
190,420

Ps.
114,041

	Useful		Gross value				Accumulated amortization				Net carrying amount
	Life		At December 31,
	years		2020		2019		2020		2019		2020		2019
Software	1 – 4	Ps.	704,257	Ps.	579,360	Ps.	(512,695)	Ps.	(411,963)	Ps.	191,562	Ps.	167,397

Balance as of January ~~1, 2016~~ 1st, 2019	Ps.	~~94,649~~ 179,124
Additions	~~60,792~~	77,325
Disposals	~~(1,277~~	) -
Amortization	~~(40,290~~	(87,667	)
Exchange differences	~~167~~	(1,385	)
~~Balance as of January 1, 2017~~	~~114,041~~
~~Additions~~	~~130,908~~
~~Disposals~~	~~(1,976~~		)
~~Amortization~~	~~(52,396~~		)
~~Exchange differences~~	~~(157~~		)
Balance as of December 31, ~~2017~~ 2019	~~190,420~~	167,397
Additions	~~71,007~~	124,724
Disposals	~~(9,368~~	) -
Amortization	~~(72,885~~	(100,618	)
Exchange differences	~~(50~~	) 59
Balance as of December 31, ~~2018~~ 2020	Ps.	~~179,124~~191,562

Software amortization expense for the years ended December 31, 2020, 2019 and 2018 ~~2017~~was Ps.100,618, Ps.87,667 and ~~2016 was~~ Ps.72,885, ~~Ps.52,396 and Ps.40,290,~~ respectively. These amounts were recognized in depreciation and amortization in the consolidated statements of operations.

14. ~~Operating leases~~Leases

The most significant ~~operating~~ leases are as follows:

a) Aircraft and engine ~~rent.~~represent the Company´s most significant lease agreements. At December 31, ~~2018,~~2020, the Company leases 7785 aircraft ~~(71 and 69~~(81 as of December 31, ~~2017~~2019) and ~~2016, respectively) and 10~~18 spare engines under ~~operating leases (8 and 11~~lease agreements (14 as of December 31, ~~2017 and 2016, respectively)~~2019) that have maximum terms through ~~2032. Rents~~2033. These leases are generally guaranteed by ~~deposits~~either deposit in cash or letters of ~~credit. The aircraft lease agreements contain certain covenants to which the Company is bound. The most significant covenants include the following:~~

F-65

~~Table of Contents~~

~~(i)~~ ~~Maintain the records, licenses and authorizations required by the competent aviation authorities and make the corresponding payments.~~

~~(ii)~~ ~~Provide maintenance services to the equipment based on the approved maintenance program.~~

~~(iii)~~ ~~Maintain insurance policies on the equipment for the amounts and risks stipulated in each agreement.~~

~~(iv)~~ ~~Periodic submission of financial and operating information to the lessors.~~

~~(v)~~ ~~Comply with the technical conditions relative to the return of aircraft.~~

~~As of December 31, 2018, 2017 and 2016, the Company was in compliance with the covenants under the above mentioned aircraft lease agreements.~~credits.

Composition of the fleet and spare engines, ~~operating~~ leases*:

Aircraft
Type

Model

At December
31, 2018

At December
31, 2017

At December
31, 2016

A319

132

4

6

6

A319

133

4

6

9

A320

233

39

39

39

A320

232

4

4

4

A320NEO

271N

12

6

1

A321

231

10

10

10

A321NEO

271N

4

—

—

77

71

69

Engine
Type

Model

At December
31, 2018

At December
31, 2017

At December
31, 2016

V2500

V2527M-A5

3

3

3

V2500

V2527E-A5

3

3

4

V2500

V2527-A5

2

2

4

PW1100

PW1127G-JM

2

—

—

10

8

11

Aircraft Type	Model		At December 31, 2020		At December 31, 2019
A319		132		3		3
A319		133		2		4
A320		233		39		39
A320		232		1		2
A320NEO		271N		24		17
A321		231		10		10
A321NEO		271N		6		6
				85		81

Engine spare Type	Model		At December 31, 2020		At December 31, 2019
V2500		V2524-A5		2		2
V2500		V2527M-A5		3		3
V2500		V2527E-A5		5		3
V2500		V2527-A5		2		2
PW1100		PW1127G-JM		5		3
PW1100		PW1133G-JM		1		1
				18		14

* Certain of the Company’s aircraft and engine lease agreements include an option to extend the lease term period. Terms and conditions are subject to market conditions at the time of renewal.

During the year ended December 31, ~~2018,~~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 leased 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 ~~ten~~were subject to sale and leaseback transactions and their respective lease agreements were accounted as leases.

During the year ended December 31, 2019, the Company added seven new leased aircraft to its fleet (three ~~of them based on the terms of the~~A320 NEO´s acquired through sale and leaseback transactions under our existing Airbus purchase agreement and ~~seven~~four obtained directly from athe lessor´~~s order book)~~s). ~~These new aircraft lease agreements were accounted as operating leases.~~ Also, the Company extended the lease term of one spare engine (effective from 2019) and returned two aircraft to their respective lessors. All the aircraft incorporated through the lessor´s aircraft order book was not subject to sale and leaseback transactions.

During the year ended December 31, 2019, the Company also leased 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 as leases. Additionally, during 2019 the Company extended the lease term of one spare engine (effective from November 2019).

During the year ended December 31, 2018, the Company added ten new leased aircraft to its fleet (acquired three A320 NEO’s through sale leaseback transactions under our existing Airbus purchase agreement and seven obtained directly from the lessors). Also, the Company extended the lease term of Aircraft (effective from 2019) and two spare engines (effective from February and April 2018), and returned four aircraft to their respective lessors.

During the year ended December 31, 2018, the Company also ~~incorporated~~added two NEO spare engines to its fleet based on the terms of the Pratt ~~and~~& Whitney purchase agreement (FMP). These two engines incorporated were subject to sale and leaseback ~~transactions and their respective lease agreements were accounted as operating leases.~~transactions.

F-66

~~Table~~Set out below are the carrying amounts of ~~Contents~~right-of-use assets recognized and the movements during the period:

	Aircraft leases			Spare engine leases			Land and building leases			Total
As at January 1st, 2019	Ps.	31,126,169		Ps.	579,696		Ps.	176,188		Ps.	31,882,053
Additions	6,676,492			230,200			42,992				6,949,684
Depreciation on right of use assets	(4,490,572		)	(132,698		)	(79,701		)		(4,702,971	)
As at December 31, 2019	33,312,089			677,198			139,479				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 at December 31, 2020	Ps.	33,406,490		Ps.	829,200		Ps.	80,527		Ps.	34,316,217

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

	2020			2019
As at January 1^st	Ps.	40,517,045		Ps.	39,565,146
Additions	5,572,764			7,186,613
Disposals	(231,566		)	-
Accretion of interest	2,218,982			2,037,540
Foreign exchange effect	2,163,886			(1,772,452		)
Payments	(6,110,569		)	(6,499,802		)
As at 31 December	Ps.	44,130,542		Ps.	40,517,045
Current	Ps.	6,484,092		Ps.	4,720,505
Non-current	Ps.	37,646,450		Ps.	35,796,540

The Company applied practical expedients to leases from applying 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 following are the ~~year ended December 31, 2017, the~~amounts recognized in profit or loss:

	As of December 31, 2020			As of December 31, 2019			As of December 31, 2018
Depreciation of right-of-use assets	Ps.	(5,048,976	)	Ps.	(4,702,971)		Ps.	(4,043,691	)
Interest expense on lease liabilities and aircraft and engine lease return obligation (Note 21)	(2,350,250		)	(2,128,162		)	(1,755,978		)
Aircraft and engine variable expenses	(1,845,254		)	(961,657		)	(956,010		)
Total amount recognized in profit or loss	Ps.	(9,244,480	)	Ps.	(7,792,790	)	Ps.	(6,755,679	)

The Company ~~incorporated five aircraft to its fleet (one~~had total cash outflows for leases of ~~them based on the terms of the Airbus purchase agreement~~Ps.6,110,569 in 2020 (Ps.6,499,802 in 2019 and ~~four from a lessor´s order book)~~Ps.5,710,907 in 2018). ~~These new~~

Return obligations

The aircraft lease agreements ~~were accounted for as operating leases. Also,~~of the Company ~~returned three aircraft to their respective lessors. All~~also require that the aircraft ~~incorporated through~~and engines 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 ~~lessor´s aircraft order book were not subject to sale~~time it becomes likely such costs will be incurred and ~~leaseback transactions.~~

~~Additionally, during 2017~~can be estimated reliably. These return costs are recognized on a straight-line basis as a component of variable lease expenses and the Company extended the lease term of three aircraft (effective from 2018) and two spare engines (effective from July 2017 and September 2017, respectively). Such leases were accounted for as operating leases and were not subject to sale and leaseback transactions.

During the year ended December 31, 2016, the Company incorporated 17 aircraft to its fleet (eight of them based on the terms of the Airbus purchase agreement and 9 from a lessor’s aircraft order book). These new aircraft lease agreements were accounted for as operating leases. Also, the Company returned four aircraft to their respective lessors. All the aircraft incorporated through the lessor’s aircraft order book were not subject to sale and leaseback transactions.

Additionally, during 2016 the Company extended the lease term of two aircraft effective from 2016 and entered into certain agreements with different lessors to lease five spare engines which were received during the same period. Such leases were accounted for as operating leases and were not subject to sale and leaseback transactions. During 2016, the Company purchased two spare engines, which were accountedprovision is included as part of other liabilities, through the ~~property, plant~~remaining lease term.

The Company estimates the provision related to airframe, engine overhaul and ~~equipment (See Note 12). As of December 31, 2018, 2017 and 2016, all~~limited life parts using certain assumptions including the projected usage of the ~~Company’s~~ aircraft and ~~spare engines lease agreements were accounted for as operating leases.~~

~~Provided below is an analysis~~the expected costs of ~~future minimum aircraft and engine lease payments in U.S. dollars and its equivalent in Mexican pesos:~~

Aircraft operating leases

Engine operating leases

in U.S. dollars

in Mexican
pesos(1)

in U.S. dollars

in Mexican
pesos(1)

2019

US$
301,632

Ps.
5,936,992

US$
7,314

Ps.
143,961

2020

296,205

5,830,173

6,694

131,757

2021

288,462

5,677,769

6,537

128,667

2022

275,451

5,421,674

6,064

119,357

2023

238,970

4,703,623

5,066

99,714

2024 and thereafter

897,251

17,660,502

5,121

100,796

Total

US$
2,297,971

Ps.
45,230,733

US$
36,796

Ps.
724,252

~~(1) Using the exchange rate as of December 31, 2018 of Ps. 19.6829~~

~~Such amounts are determined based on the stipulated rent contained within the agreements without considering renewals and using the prevailing exchange rate and interest rates at December 31, 2018.~~

b) Rental of land and buildings. The Company has entered into land and property lease agreements with third parties for the premises where it provides its services and where its offices are located. These leases are recognized as operating leases.

F-67

~~Table of Contents~~

~~Provided below is an analysis of future minimum land and building lease payments denominated in U.S. dollars or Mexican pesos as established in the respective lease agreements:~~

Operating leases
denominated in
U.S. dollars

Equivalent in
Mexican pesos*

Operating leases
denominated in
Mexican pesos

2019

US$
9,754

Ps.
191,989

Ps.
131,166

2020

6,017

118,428

88,237

2021

3,111

61,243

16,114

2022

1,763

34,691

13,302

2023

721

14,201

10,108

2024 and thereafter

3,534

69,553

33,459

Total

US$
24,900

Ps.
490,105

Ps.
292,386

*Convenience translationmaintenance tasks to ~~U.S. dollars (Ps. 19.6829)~~

~~c) Rental expense charged to results of operations is as follows:~~

2018

2017

2016

Aircraft and engine (Note 1p)

Ps.
6,314,930

Ps.
6,072,502

Ps.
5,590,058

Real estate:

Airports facilities

56,288

44,251

40,591

Offices, maintenance warehouse and hangar (Note 20)

36,483

30,544

33,517

Total rental expenses on real estate

92,771

74,795

74,108

Total cost of operating leases

Ps.
6,407,701

Ps.
6,147,297

Ps.
5,664,166

~~During~~be performed. For the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018, the Company ~~entered into aircraft~~expensed as supplemental rent Ps.1,428,179, Ps.680,964 and spare engines sale and leaseback transactions, resulting in a gain of Ps.609,168, Ps.65,886 and Ps.484,827, respectively, that was recorded under the caption other income in the consolidated statement of operations (Note 20).Ps.659,106, respectively.

~~During the year ended~~Purchase of 80 A320 New Engine Option (“NEO”) aircraft

On December ~~31, 2011,~~28, 2017, the Company ~~entered into~~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, to support the Company’s targeted growth markets in Mexico, United States and ~~spare engines sale and leaseback transactions, which resulted~~Central America. The related commitments for the acquisitions of such aircraft are disclosed in a loss of Ps.30,706. This loss was deferred in the consolidated statements of financial position and is being amortized over the contractual lease term. As of December 31, 2018, 2017 and 2016, the current portion of the loss on sale amounts to Ps.3,047 each year, which is recorded in the caption of prepaid expenses and other current assets (Note 10), and the non-current portion amounts to Ps.8,366, Ps.11,413 and Ps.14,460, respectively, which is recorded in the caption of other assets in the consolidated statements of financial position.Note 23.

~~For each of the years ended December 31, 2018, 2017 and 2016, the Company amortized a loss of Ps.3,047, as additional aircraft rental expense.~~

F-68

~~Table of Contents~~

15. Accrued liabilities

a) An analysis of current accrued liabilities at December 31, ~~2018, 2017~~2020 and ~~2016~~2019 is as follows:

	2018		2017		2016		2020		2019
Fuel and traffic accrued expenses	Ps.	1,315,363	Ps.	1,106,913	Ps.	922,607	Ps.	1,285,931	Ps.	1,507,659
Maintenance and aircraft parts accrued expenses	79,280		194,366		130,897
Salaries and benefits							337,467		296,829
Sales, marketing and distribution accrued expenses	283,538		143,758		102,880		179,342		230,935
Maintenance deposits	141,371		132,519		179,288		174,549		132,085
Salaries and benefits	187,072		114,781		170,994
Accrued administrative expenses	67,306		90,459		80,981		122,729		81,124
Aircraft and engine lease extension benefit (Note 1j)	50,796		83,047		85,124
Deferred revenue from VClub membership	59,557		76,261		32,771
Maintenance and aircraft parts accrued expenses							98,942		120,254
Others							86,374		48,526
Information and communication accrued expenses	45,008		44,638		32,950		35,359		67,808
Deferred revenue from V Club membership							20,830		35,465
Supplier services agreement	10,634		10,634		6,333		10,634		10,634
Depositary services benefit	—		1,473		2,068
Benefits from suppliers							3,888		-
Advances from travel agencies	482		650		1,536		242		542
Others	77,985		51,474		37,010
	Ps.	2,318,392	Ps.	2,050,973	Ps.	1,785,439	Ps.	2,356,287	Ps.	2,531,861

b) ~~Accrued~~Non-current accrued liabilities ~~long-term:~~at December 31, 2020 and 2019 is as follows:

	2018		2017		2016		2020		2019
Aircraft and engine lease extension benefit (Note 1j)	Ps.	61,730	Ps.	107,400	Ps.	127,831
Supplier services agreement	66,539		77,174		4,350		Ps.	45,270	Ps.	55,905
Depositary services benefit	—		—		1,473
Benefits from suppliers							16,847		19,439
Other	8,964		15,274		36,154		4,581		15,452
	Ps.	137,233	Ps.	199,848	Ps.	169,808	Ps.	66,698	Ps.	90,796

c) An analysis of other liabilities is as follows:

Balance as of
January 1,
2018

Increase for
the year

Payments

Balance as of
December 31,
2018

Aircraft lease return obligation

Ps.
488,383

Ps.
774,614

Ps.
832,323

Ps.
430,674

Employee profit sharing (Note 16)

9,063

14,106

8,185

14,984

Ps.
497,446

Ps.
788,720

Ps.
840,508

Ps.
445,658

Short-term maturities

Ps.
117,724

Long-term

Ps.
327,934

	Balance as of January 1, 2020		Increase for the year		Payments			Balance as of December 31, 2020
Aircraft and engine lease return obligation	Ps.	1,852,688	Ps.	2,126,401	Ps.	(1,474,605)		Ps.	2,504,484
Guarantee deposit	-		250,000		-			250,000
Employee profit sharing (Note 16)	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

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~~Table of Contents~~

Balance as of
January 1,
2017

Increase for
the year

Payments

Balance as of
December 31,
2017

Aircraft lease return obligation

Ps.
410,060

Ps.
937,982

Ps.
859,659

Ps.
488,383

Employee profit sharing (Note 16)

10,695

8,342

9,974

9,063

Ps.
420,755

Ps.
946,324

Ps.
869,633

Ps.
497,446

Short-term maturities

Ps.
280,744

Long-term

Ps.
216,702

Balance as of
January 1,
2016

Increase for
the year

Payments

Balance as of
December 31,
2016

Aircraft lease return obligation

Ps.
149,326

Ps.
1,025,757

Ps.
765,023

Ps.
410,060

Employee profit sharing (Note 16)

10,173

9,967

9,445

10,695

Ps.
159,499

Ps.
1,035,724

Ps.
774,468

Ps.
420,755

Short-term maturities

Ps.
284,200

Long-term

Ps.
136,555

	Balance as of January 1, 2019		Increase for the year		Payments			Balance as of December 31, 2019
Aircraft and engine lease return obligation	Ps.	1,831,045	Ps.	725,506	Ps.	(703,863)		Ps.	1,852,688
Employee profit sharing (Note 16)	14,984		22,134		(13,021		)	24,097
	Ps.	1,846,029	Ps.	747,640	Ps.	(716,884)		Ps.	1,876,785

Current maturities								Ps.	407,190
Non-current								Ps.	1,469,595

During the years ended December 31, ~~2018, 2017~~2020 and ~~2016~~2019 no cancellations or write-offs related to these liabilities were recorded.

On September 12, 2012, the Company entered into a cobrand credit card agreement with Banco Invex, S.A., Institución de Banca Múltiple, Invex, Grupo Financiero Invex “Invex”.

On June 26, 2020, the Company signed a new amendment with 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 year ended December 31, 2020, Invex prepaid certain commissions to Volaris, which were recorded as part of other liabilities.

16. 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, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, are as follows:

	2018		2017		2016		2020		2019		2018
Analysis of net period cost:
Current service cost	Ps.	4,977	Ps.	3,657	Ps.	2,421	Ps.	8,449	Ps.	8,214	Ps.	4,977
Interest cost on benefit obligation	1,424		1,000		701		2,630		1,872		1,424
Net period cost	Ps.	6,401	Ps.	4,657	Ps.	3,122	Ps.	11,079	Ps.	10,086	Ps.	6,401

Changes in the defined benefit obligation are as follows:

2018

2017

2016

Defined benefit obligation at January 1,

Ps.
19,289

Ps.
13,438

Ps.
10,056

Net period cost charged to profit or loss:

Current service cost

4,977

3,657

2,421

Interest cost on benefit obligation

1,423

1,000

701

Remeasurement losses in other comprehensive income:

Actuarial changes arising from changes in assumptions

(5,989
)
1,776

442

Payments made

(1,547
)
(582
)
(182
)
Defined benefit obligation at December 31,

Ps.
18,153

Ps.
19,289

Ps.
13,438

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~~Table of Contents~~

	2020			2019
Defined benefit obligation at January 1,	Ps.	38,151		Ps.	18,153
Net period cost charged to profit or loss:
Current service cost	8,449			8,214
Interest cost on benefit obligation	2,630			1,872
Remeasurement losses in other comprehensive income:
Actuarial changes arising from changes in assumptions	2,651			10,192
Payments made	(1,254		)	(225		)
Defined benefit obligation at December 31,	Ps.	50,627		Ps.	38,206

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

	2018	2017	2016	2020			2019			2018
Financial:
Discount rate	9.91%	7.72%	7.78%		7.04	%		7.18	%		9.91	%
Expected rate of salary increases	5.65%	5.50%	5.50%		5.50	%		5.50	%		5.65	%
Annual increase in minimum salary	4.15%	4.00%	4.00%		4.00	%		4.00	%		4.15	%

Biometric:
Mortality (1)	EMSSA 09	EMSSA 09	EMSSA 09
Disability (2)	IMSS-97	IMSS-97	IMSS-97

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
Disability (2)	IMSS-97	IMSS-97	IMSS-97

~~(1) Mexican Experience of social security (EMSSA).~~

~~(2) Mexican Experience of~~ ~~Instituto Mexicano del Seguro Social~~ ~~(IMSS).~~

(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 at December 31, ~~2018, 2017~~2020 and ~~2016,~~2019, respectively, are as follows:

2018

2017

2016

Employee profit-sharing (Note 15c)

Ps.
14,984

Ps.
9,063

Ps.
10,695

		2020				2019
Employee profit-sharing (Note 15c)		Ps.	14,417			Ps.	24,097

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

17. 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).

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~~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.

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~~Table of Contents~~b) LTIP

~~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.

(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 2020, 2019 and 2018, ~~and 2017, April and October 2016,~~the extensions to the LTIP were approved by the Company’s shareholder’s and Company’s Board of Directors, respectively. The total cost of the extensions approved were Ps.92,132 (Ps.59,899 net of withheld taxes), Ps.86,772 (Ps.56,407 net of withheld taxes)and Ps.63,961 (Ps.41,590 net of withheld taxes), ~~Ps.15,765 (Ps.10,108 net of withheld taxes), Ps.14,532 (Ps.9,466 net of withheld taxes) and Ps.11,599 (Ps.7,559, 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.

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~~Table of Contents~~

As of December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, 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 ~~December 31, 2015~~ January 1st, 2018	~~617,001~~	820,088	*
Purchased during the year	~~513,002~~	3,208,115
Granted during the year	—	-
Exercised/vested during the year	~~(425,536~~	(353,457	)
Forfeited during the year	~~(86,419~~	(121,451	)
~~Outstanding as of December 31, 2016~~	~~618,048~~	*
~~Purchased during the year~~	~~547,310~~
~~Granted during the year~~	—
~~Exercised/vested during the year~~	~~(345,270~~	)
~~Forfeited during the year~~	—
~~Outstanding as of December 31, 2017~~	~~820,088~~	*
~~Purchased during the year~~	~~3,208,115~~
~~Granted during the year~~	—
~~Exercised/vested during the year~~	~~(353,457~~	)
~~Forfeited during the year~~	~~(121,451~~	)
Outstanding as of December 31, 2018	~~3,553,295~~	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	*

*These shares are presented as treasury shares in the consolidated statement of financial position as of December 31, ~~2018, 2017~~2020, 2019 and ~~2016.~~2018.

The vesting period of the shares granted under the Company’s share purchase plans is as follows:

Number of Series A shares			Vesting period
~~1,284,373~~	2,979,412	~~November 2018 – 2019~~
~~1,207,862~~		~~November 2019 – 2020~~
~~1,061,060~~		November 2020 – 2021
~~3,553,295~~	1,819,440			November 2021 – 2022
	1,006,459			November 2022 – 2023
	5,805,311

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, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the compensation expense recorded in the consolidated statement of operations amounted to ~~Ps.19,980, Ps.13,508~~Ps.75,040, Ps.49,659 and ~~Ps.7,816,~~Ps.19,980, respectively. All shares held in the Administrative Trust are considered outstanding for both basic and diluted (loss) earnings per share purposes, since the shares are entitled to dividend if and when declared by the Company.

During ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, 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;~~shares, the number of forfeited shares as of December 31, 2020, 2019 and 2018, ~~was~~were (327,217), (173,090) and (121,451)., respectively.

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~~Table of Contents~~

·- 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 3 years period. The total amount of the appreciation rights granted under this plan at the grant date was Ps.10,831 at such date.

Under the LTIP extensions, the number of SARs granted to certain key executives of the Company were 0, 3,965,351 and 2,044,604, which amounts to Ps.0, Ps.15,765 and Ps.14,532, for the years ended December 31, 2018, 2017 and 2016, respectively. The SARs vest as long as the employee continues to be employed by the Company at the end of each anniversary, during a three years period.

Fair value of the SARs iswas measured at each reporting date. The carrying amount of the liability relating to the SARs as of December 31, 2019 and 2018 ~~2017~~were Ps.1,901 and ~~2016 were~~ Ps.537, ~~Ps.723 and Ps.15,744,~~ respectively. 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, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the Company recorded a expense (benefit) ~~expense~~ of Ps.(1,901), Ps.2,964 and Ps.(186), ~~Ps.(8,999) and Ps.31,743,~~ respectively, in the consolidated statement of operations.

The fair value of these SARs iswas 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 (vesting schedule in tables below).~~

~~Number of SARs~~		~~Exercisable date~~
~~1,348,777~~		~~November 2019~~
~~757,809~~		~~November 2020~~
~~2,106,586~~	*

* Includes forfeited SARs of 484,656, 145,769 and 0 for the years ended December 31, 2018, 2017 and 2016, respectively.granted.

During the years ended December 31, ~~2018, 2017 and 2016,~~2019, the Company made a cash payment to key employees related to the SARs plan in the amount of ~~Ps.0, Ps.6,021 and Ps.31,261, respectively.~~Ps.2,395.

Such payments were determined based on the increase in the share price of the Company from the grant date to the exercisable date.

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.

F-74

~~Table of Contents~~

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 ~~has to~~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.

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~~	0.00	%
Volatility (%)	~~37.00~~	37.00	%
~~Risk—~~Risk–free interest rate (%)	~~5.96~~	5.96	%
Expected life of share options (years)	~~8.8~~	8.8
Exercise share price (in Mexican pesos Ps.)	~~5.31~~	5.31
Exercise multiple	~~1.1~~	1.1
Fair value of the stock at grant date	~~1.73~~	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 ~~2018, 2017 and 2016,~~2019, the key employees exercised ~~2,003,876, 120,000 and 3,299,999~~2,780,000 Series A shares. As a result, the key employees paid ~~Ps.10,654, Ps.638 and Ps.17,536 for the years ended December 31, 2018, 2017 and 2016, respectively,~~ to the Management Trust Ps.14,773 corresponding to the exercised ~~shares.~~shares for the year ended December 31, 2019. During 2020, there were no exercised shares under the MIP.

Thereafter, the Company 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.

F-75

~~Table of Contents~~

Movements in share options

The following table illustrates the number of shares options and fixed exercise prices during the year:

	Number of share options		Exercise price in Mexican pesos		Total in thousands of Mexican pesos			Number of share options			Exercise price in Mexican pesos		Total in thousands of Mexican pesos
Outstanding as of December 31, 2015	15,857,856		Ps.	5.31	Ps.	84,269
Outstanding as of December 31, 2018								Ps.	10,433,981		Ps.	5.31	Ps.	55,441
Granted during the year	—		—		—			-			-		-
Forfeited during the year	—		—		—			-			-		-
Exercised during the year	(3,299,999	)	5.31		(17,536		)	(2,780,000		)	5.31		(14,773		)
Outstanding as of December 31, 2016	12,557,857		Ps.	5.31	Ps.	66,733
Outstanding as of December 31, 2019								7,653,981			5.31		40,668
Granted during the year	—		—		—			-			-		-
Forfeited during the year	—		—		—			-			-		-
Exercised during the year	(120,000	)	5.31		(638		)	-			-		-
Outstanding as of December 31, 2017	12,437,857		Ps.	5.31	Ps.	66,095
Granted during the year	—		—		—
Forfeited during the year	—		—		—
Exercised during the year	(2,003,876	)	5.31		(10,654		)
Outstanding as of December 31, 2018	10,433,981		Ps.	5.31	Ps.	55,441
Outstanding as of December 31, 2020								Ps.	7,653,981		Ps.	5.31	Ps.	40,668

At December 31, ~~2018, 2017~~2020 and ~~2016, 10,433,981, 12,437,857~~2019, 7,653,981 and ~~12,557,857~~7,653,981 share options pending to exercise were considered as treasury shares, respectively.

·- 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 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, ~~2018, 2017~~2020 and ~~2016~~2019 was ~~Ps.32,807, Ps.37,858~~Ps.177,770 and ~~Ps.54,357,~~Ps.70,567, respectively. The compensation cost is recognized in the consolidated statement of operations under the caption of salaries and benefits over the service period.

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~~Table of Contents~~

During the years ended December 31, ~~2018, 2017~~2020 and ~~2016,~~2019, the Company recorded a (benefit) expense of ~~Ps.(5,052), Ps.(16,499)~~Ps.107,204 and ~~Ps.54,357,~~Ps.37,760, respectively, in the consolidated statement of operations. No SARs were exercised during ~~2018.~~ 2020.

The vesting schedule is summarized in the table below:

Number of SARs			Vesting date
~~1,695,500~~	3,391,020		February ~~2019~~	2021
~~2,825,840~~	3,391,020	~~February 2020~~ *
~~3,391,020~~		~~February 2021~~
~~7,912,360~~	*

* Includes forfeited SARs of ~~1,563,520,~~0, 0 and 0,1,563,520, for the years ended December 31, 2020, 2019 and 2018, ~~2017 and 2016,~~ respectively.

The expense (benefit) ~~expense~~ recognized for the Company’s retention plans during the year is shown in the following table:

2018

2017

2016

(Benefit) expense arising from cash-settled share-based payments transactions

Ps.
(5,238
)
Ps.
(25,498
)
Ps.
86,100

Expense arising from equity-settled share-based payments transactions

19,980

13,508

7,816

Total expense (benefit) arising from share-based payments transactions

Ps.
14,742

Ps.
(11,990
)
Ps.
93,916

	2020		2019		2018
Expense (benefit) arising from cash-settled share-based payments transactions	Ps.	105,303	Ps.	40,724	Ps.	( 5,238	)
Expense arising from equity-settled share-based payments transactions	75,040		49,659		19,980
Total expense arising from share-based payments transactions	Ps.	180,343	Ps.	90,383	Ps.	14,742

d) Board of Directors Incentive Plan ~~(BODIP)~~(BoDIP)

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 four years period with an exercise price share at Ps.9.74, Ps.16.80 and Ps.16.12 for the years ended 2020, 2019 and 2018, ~~and Ps.26.29 for 2017~~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 Trust Agreement number CIB/3081 was created by Controladora Vuela, Compañia de Aviación S.A.B de C.V as trustee and CIBanco, S.A., Institucion de Banco Multiple as trustor. The number of shares hold as of December 31, ~~2018~~2020 and 2019 available to be exercised is ~~1,103,638.~~5,233,693 and 2,072,344, respectively.

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18. Equity

As of December 31, ~~2018,~~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 Class I		Variable 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 17)		-		(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.

As of December 31, 2019, the total number of the Company’s authorized shares was 1,011,876,677; represented by common registered shares, issued and with no par value, fully subscribed and paid, comprised as follows:

	Shares					Shares
	Fixed Class I	Variable Class II		Total shares		Fixed Class I		Variable Class II			Total shares
Series A shares (1)	10,478	923,814,326		923,824,804			10,478		923,814,326			923,824,804
Series B shares (1)	13,702	88,038,171		88,051,873			13,702		88,038,171			88,051,873
	24,180	1,011,852,497		1,011,876,677			24,180		1,011,852,497			1,011,876,677
Treasury shares (Note 17)	—	(15,212,365	)	(15,212,365	)*		-		(15,136,057	)		(15,136,057)	⁽¹⁾
	24,180	996,640,132		996,664,312			24,180		996,716,440			996,740,620

*⁽¹⁾The number of forfeited shares as of December 31, ~~2018~~2019 were ~~121,451,~~294,541, which are include in treasury shares.

~~(1)~~ On February 16, 2018, one of the Company´s shareholders converted 45,968,598 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.

As of December 31, 2017, the total number of authorized shares was 1,011,876,677; represented by common registered shares, issued and with no par value, fully subscribed and paid, comprised as follows:

Shares

Fixed
Class I

Variable
Class II

Total shares

Series A shares

3,224

877,852,982

877,856,206

Series B shares

20,956

133,999,515

134,020,471

24,180

1,011,852,497

1,011,876,677

Treasury shares (Note 17)

—

(13,257,945
)
(13,257,945
)

24,180

998,594,552

998,618,732

As of December 31, 2016, the total number of authorized shares was 1,011,876,677; represented by common registered shares, issued and with no par value, fully subscribed and paid, comprised as follows:

Shares

Fixed
Class I

Variable
Class II

Total shares

Series A shares

3,224

877,852,982

877,856,206

Series B shares

20,956

133,999,515

134,020, 471

24,180

1,011,852,497

1,011,876,677

Treasury shares (Note 17)

—

(13,175,905
)
(13,175,905
)

24,180

998,676,592

998,700,772

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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 in the event that 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, ~~2018, 2017~~2020 and ~~2016,~~2019, the Company did not declare any dividends.

a)~~(Loss)~~ Earnings (loss) per share

Basic earnings (loss) ~~earnings~~ per share (“~~LPS~~EPS or ~~EPS”~~LPS”) amounts are calculated by dividing the net income (loss) ~~income~~ for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted ~~LPS~~EPS or ~~EPS~~LPS amounts are calculated by dividing the profit (loss) ~~profit~~ 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) ~~earnings~~income per share for the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016.~~2018.

	At December 31,								At December 31,
	2018			2017			2016		2020			2019		2018 (Adjusted)
Net (loss) income for the period	Ps.	(682,500	)	Ps.	(651,788	)	Ps.	3,478,598	Ps.	(4,293,791	)	Ps.	2,639,063	Ps.	(942,882	)
Weighted average number of shares outstanding (in thousands):
Basic	1,011,877			1,011,877			1,011,877			1,021,561			1,011,877		1,011,877
Diluted	1,011,877			1,011,877			1,011,877			1,021,561			1,011,877		1,011,877
LPS -EPS:

EPS - LPS:
Basic	(0.679		)	(0.644		)	3.438			(4.203	)		2.608		(0.932	)
Diluted	(0.679		)	(0.644		)	3.438			(4.203	)		2.608		(0.932	)

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.

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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, ~~2018~~2020, 2019 and ~~2017,~~2018, the Company’s legal reserve was Ps.291,178 or 8.5%, 9.8% and 9.8% respectively of our capital stock. ~~As of~~For the years ended December 31, ~~2016 the~~2020, 2019 and 2018, we did not allocate any amount to our legal reserve ~~was Ps.38,250.~~fund.

At an ordinary general shareholders’ meeting held on April 19, 2017 the shareholders approved to increase legal reserve in the amount of Ps.252,928. As of December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018 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.

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 has to be authorized.

19. 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 depreciation calculated on ~~restated~~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 rate for 2018 and thereafter is 30%.~~

(i)

Based on the approved law, corporate income tax rate for 2020 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.

(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.

(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.

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(iv)

Taxable income for purposes of the employee profit sharing is the same used for the Corporate Income Tax except for certain items.

~~(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.~~

(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 ~~2018, 2017~~2020, 2019 and ~~2016~~2018 in Guatemala, ~~and~~ Costa Rica and El Salvador are 25%, 30% and 30%, respectively.

b) For the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the Company reported on a consolidated basis taxable income of ~~Ps.777,513, Ps.171,046~~Ps.302,029, Ps.938,304 and ~~Ps.2,702,355,~~Ps.777,513, 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 ~~restated~~Adjusted based on inflation.

c) An analysis of consolidated income tax expense for the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018 is as follows:

Consolidated statements of operations

	2018			2017			2016			2020			2019			2018
Current year income tax expense	Ps.	(232,824	)	Ps.	(51,313	)	Ps.	(706,244	)	Ps.	(90,609	)	Ps.	(281,491	)	Ps.	(232,824	)
Deferred income tax benefit (expense)	471,060		*	212,488		**	(750,938		)***		1,496,793	⁽¹⁾		(813,340	)⁽²⁾		582,644	⁽³⁾
Total income tax benefit (expense)	Ps.	238,236		Ps.	161,175		Ps.	(1,457,182	)	Ps.	1,406,184		Ps.	(1,094,831	)	Ps.	349,820

*⁽¹⁾ Includes translation effect by ~~Ps.2,683~~Ps.2,035

**⁽²⁾Includes translation effect by ~~Ps.1,008~~Ps.(2,278)

~~***~~⁽³⁾Includes translation effect by ~~Ps.1,242~~Ps.2,680

Consolidated statements of ~~OCI~~comprehensive income

2018

2017

2016

Deferred tax related to items recognized in OCI during the year

Net gain (loss) on cash flow hedges

Ps.
85,107

Ps.
12,017

Ps.
(187,408
)
Remeasurement (loss) gain of employee benefits

(1,797
)
533

132

Deferred tax charged to OCI

Ps.
83,310

Ps.
12,550

Ps.
(187,276
)

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~~Table of Contents~~

	2020		2019			2018
Deferred income tax related to items recognized in OCI during the year
Net gain (loss) cash flow hedges	Ps.	46,835	Ps.	(74,820	)	Ps.	85,107
Remeasurement (loss) gain of employee benefits		794		3,058			(1,797	)
Deferred income tax charged to OCI	Ps.	47,629	Ps.	(71,762	)	Ps.	83,310

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

	2018		2017		2016		2020			2019			2018
Statutory income tax rate	30.00	%	30.00	%	30.00	%		30.00	%		30.00	%		30.00	%
Non-deductible expenses	(3.53	)%	(3.90	)%	0.28	%
Unrecorded deferred taxes on tax losses	(5.56	)%	(14.55	)%	0.09	%
Foreign countries difference with Mexican statutory rate	(0.02	)%	(0.32	)%	0.04	%
Inflation of tax losses	1.79	%	1.50	%	(0.01	)%
Amendment tax return effects and other tax adjustments	(0.08	)%	(0.31	)%	(0.11	)%		0.92	%		(0.51	)%		0.05	%
Inflation on furniture, intangible and equipment	2.91	%	4.91	%	(0.38	)%		0.29	%		(0.48	)%		2.08	%
Inflation of tax losses								0.23	%		(0.21	)%		1.16	%
Foreign countries difference with Mexican statutory rate								(0.06	)%		0.11	%		(0.02	)%
Annual inflation adjustment	0.36	%	4.00	%	(0.63	)%		(0.91	)%		(0.05	)%		0.26	%
Unrecorded deferred taxes on tax losses								(1.29	)%		0.27	%		(3.96	)%
Non-deductible expenses								(4.51	)%		0.19	%		(2.51	)%
	25.87	%	21.33	%	29.28	%		24.67	%		29.32	%		27.06	%

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’~~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 ~~Costa Rica)~~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 year ended December 31, 2020, 2019 and 2018, the Company obtained a net operating ~~income.~~(loss) income of Ps.(1,835), Ps.(1,085) and Ps.8,549, respectively.

According to Costa Rica Corporate Income tax law, ~~under~~ the ~~regime~~tax is based on ~~profits~~the net income earned from ~~business activities,~~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, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the Company generated net operating losses for an amount of ~~Ps.170,731, Ps.300,613~~Ps.55,751, Ps.50,246 and ~~Ps.57,414,~~Ps.170,731, 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 F-82

~~Table~~cannot offset taxable income in prior or future years. For the year ended December 31, 2020 and 2019, the Company obtained a net operating loss of ~~Contents~~Ps.16,619 and Ps.32,494.

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

	2018							2017						2016							2020						2019
	Consolidated statement of financial position			Consolidated statement of operations				Consolidated statement of financial position			Consolidated statement of operations			Consolidated statement of financial position			Consolidated statement of operations				Consolidated statement of financial position			Consolidated statement of operations			Consolidated statement of financial position			Consolidated statement of operations
Deferred income tax assets:
Lease liability																					Ps.	13,239,254		Ps.	1,084,140		Ps.	12,155,114		Ps.	313,137
Unearned transportation revenue																						1,233,661			436,598			797,063			61,708
Extension lease agreement																						773,443			314,100			459,343			(137,639	)
Tax losses available for offsetting against future taxable income																						576,422			272,452			303,970			(5,350	)
Intangible	Ps.	460,590		Ps.		(2,621	)	Ps.	463,211		Ps.	(18,415	)	Ps.	481,626		Ps.	(16,637		)		420,908			(25,941	)		446,849			(13,741	)
Provisions	324,445			(27,544			)	351,989			8,695			343,294			56,727
Tax losses available for offsetting against future taxable income	309,320			(33,762			)	343,082			309,758			33,324			(25,030			)
Extension lease agreement	149,305			6,170				143,135			41,411			101,724			25,405
Unearned transportation revenue	735,355			699,414				35,941			(29,814		)	65,755			7,039
Allowance for doubtful accounts	4,902			(2,422			)	7,324			433			6,891			(2,179			)		61,565			47,476			14,089			9,187
Employee benefits	5,446			1,456				5,786			1,222			4,031			886					15,191			2,934			11,463			2,958
Financial instruments																						7,948			(22	)		(38,865	)		-
Employee profit sharing	4,493			1,777				2,716			(490		)	3,206			158					4,323			(2,904	)		7,227			2,734
Financial instruments	35,955			—				(49,151		)	—			(61,168		)	—
Provisions																						(91,253	)		(442,598	)		351,345			60,655
Non derivative financial instruments																						(473,242	)		(477,471	)		4,229			4,229
	2,029,811			642,468				1,304,033			312,800			978,683			46,369					15,768,220			1,208,764			14,511,827			297,878
Deferred income tax liabilities:
Right of use asset																						10,292,753			55,824			10,236,929			672,311
Supplemental rent	1,595,519			32,156				1,563,363			223,753			1,339,610			363,783					1,878,865			171,916			1,706,949			111,430
Rotable spare parts, furniture and equipment, net	645,024			168,107				476,917			108,890			368,027			103,926					707,092			(177,384	)		884,476			239,452
Prepaid expenses and other assets	170,466			(25,686			)	196,152			(239,586		)	435,738			280,660
Inventories	88,895			726				88,169			15,286			72,883			23,979					83,402			(6,885	)		90,287			1,392
Other prepayments	32,057			(1,212			)	33,269			(7,023		)	40,292			23,717					9,786			(17,942	)		27,728			(4,329	)
Prepaid expenses and other assets																						(132,462	)		(311,523	)		179,061			88,683
	2,531,961			174,091				2,357,870			101,320			2,256,550			796,065					12,839,436			(285,994	)		13,125,430			1,108,939
	Ps.	(502,150	)	Ps.	468,377			Ps.	(1,053,837	)	Ps.	211,480		Ps.	(1,277,867	)	Ps.		(749,696	)	Ps.	2,928,784		Ps.	1,494,758		Ps.	1,386,397		Ps.	(811,061	)

2018

2017

2016

Reflected in the consolidated statement of financial position as follows:

Deferred tax assets

Ps.
593,302

Ps.
562,445

Ps.
559,083

Deferred tax liabilities

(1,095,452
)
(1,616,282
)
(1,836,950
)
Deferred tax liability, net

Ps.
(502,150
)
Ps.
(1,053,837
)
Ps.
(1,277,867
)

Reflected in the consolidated statement of financial position as follows:

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~~Table of Contents~~

	2020			2019
Deferred tax assets	Ps.	3,128,555		Ps.	1,542,536
Deferred tax liabilities		(199,771	)		(156,139	)
Deferred tax assets, net	Ps.	2,928,784		Ps.	1,386,397

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

	2018			2017			2016			2020		2019
Opening balance as of January 1,	Ps.	(1,053,837	)	Ps.	(1,277,867	)	Ps.	(340,895	)	Ps.	1,386,397	Ps.	2,269,220
Deferred income tax benefit (expense) during the current year recorded on profits	468,377			211,480			(749,696		)
Deferred income tax benefit (expense) during the current year recorded in accumulated other comprehensive income (loss)	83,310			12,550			(187,276		)
Deferred income tax (expense) benefit during the current year recorded on profits											1,494,758		(811,061	)
Deferred income tax (expense) benefit during the current year recorded in accumulated other comprehensive income (loss)											47,629		(71,762	)
Closing balance as of December 31,	Ps.	(502,150	)	Ps.	(1,053,837	)	Ps.	(1,277,867	)	Ps.	2,928,784	Ps.	1,386,397

At December 31, ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, the table shown above includes deferred income tax asset recognized by Concesionaria (2020 and ~~Operaciones Volaris (2018)~~2017), Comercializadora ~~(2017)~~(2019 and 2020) and Vuela Aviación (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.

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 ~~this~~these regards, the Company has recognized at December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018 a deferred tax asset for tax losses of Ps.576,422, Ps.303,970 and Ps.309,320 ~~Ps.343,082 and Ps.33,324~~ respectively.

During ~~2017,~~2020, the Company recognized a deferred tax asset for the carry-forward of available tax losses of Concesionaria ~~Comercializadora~~ and ~~Operaciones Volaris,~~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, ~~and Operaciones Volaris, respectively,~~ 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.150,683 (2019: Ps.276,393). 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, ~~2018~~2020 is as follows:

Year
of loss

Historical
Loss

Restated
tax loss

Utilized

Total remaining
amount

Year of
expiration

2016

Ps.
57,414

Ps.
57,414

Ps.
—

Ps.
57,414

2019

2016

52,221

57,215

57,215

—

2026

2017

300,613

300,613

—

300,613

2020

2017

1,068,498

1,150,140

122,359

1,027,781

2027

2018

170,731

170,731

—

170,731

2021

2018

3,191

3,290

—

3,290

2028

Ps.
1,652,668

Ps.
1,739,403

Ps.
179,574

Ps.
1,559,829

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~~Table of Contents~~

Year of loss	Historical loss		Adjusted tax loss		Utilized			Total remaining amount		Year of expiration
2017	Ps.	1,067,836	Ps.	1,206,232	Ps.	217,393	Ps.		988,839		2027
2018		92,604		92,604		78,849			13,755		2021
2019		4,922		5,186		-			5,186		2029
2020		863,847		878,533		-			878,533		2030
2020		55,751		55,751		-			55,751		2023
	Ps.	2,084,960	Ps.	2,238,306	Ps.	296,242		Ps.	1,942,064

A breakdown of available tax loss carry-forward of Controladora and its subsidiaries at December 31, ~~2018~~2020 is as follows:

Historical

Restated

Total

Historical

Adjusted

Total

loss

tax loss

Utilized

remaining amount

loss

tax loss

Utilized

remaining amount

Comercializadora

Ps.

52,221

Ps.

57,215

Ps.

57,215

Ps.

—

Ps.

42,777

Ps.

43,685

Ps.

43,685

Concesionaria

1,067,836

1,149,425

122,359

1,027,066

1,875,180

2,027,302

217,393

1,809,909

Operaciones Volaris

3,853

4,005

—

4,005

18,648

18,965

Vuela Aviación

528,758

—

528,758

148,355

148,354

78,849

69,505

Ps.

1,652,668

Ps.

1,739,403

Ps.

179,574

Ps.

1,559,829

Ps.

2,084,960

Ps.

2,238,306

Ps.

296,242

Ps.

1,942,064

Unrecognized NOLs

(528,758

)

20,657

Ps.

1,031,071

Ps.

1,921,407

Tax rate

Deferred income tax

Ps.

309,320

Ps.

576,422

f) At December 31, ~~2018~~2020 the Company had the following tax balances:

	~~2018~~ 2020
~~Restated~~Adjusted contributed capital account (Cuenta de capital de aportación or “CUCA”)	Ps.	~~3,917,548~~ 4,607,752
CUFIN*	~~3,107,037~~
3,241,275

^{*The calculation comprises all the subsidiaries of the Company.}

20. Other operating income and expenses

An analysis of other operating income is as follows:

	2018				2017			2016				2020			2019			2018
Gain on sale and leaseback (Note 14c)	Ps.		609,168		Ps.	65,886		Ps.		484,827
Gain on sale and leaseback (Note 12)												Ps.	710,522		Ps.	284,759		Ps.	609,168
Loss on sale of rotable spare parts furniture and equipment	(2,356			)	(908		)	(1,262			)		(2,604	)		(8,954	)		(2,356	)
Administrative benefits	—				27,180			9,072
Other income	15,161				4,607			4,105					22,415			51,403			15,161
	Ps.	621,973			Ps.	96,765		Ps.	496,742			Ps.	730,333		Ps.	327,208		Ps.	621,973

F-85

~~Table of Contents~~

An analysis of other operating expenses is as follows:

	2018		2017		2016		2020		2019		2018
Administrative and operational support expenses	Ps.	570,409	Ps.	562,739	Ps.	541,826	Ps.	632,041	Ps.	581,181	Ps.	536,079
Technology and communications	385,841		373,394		266,898			383,648		381,055		385,841
Passenger services	70,337		59,261		45,439			87,850		65,477		70,337
Insurance	60,892		54,569		56,414			53,507		74,661		60,892
Rents of offices, maintenance warehouse and hangar (Note 14c)	36,483		30,544		33,517
Disposal of intangible, rotable spare parts, furniture and equipment	—		11		436
Others	5,949		7,922		7,922			194		10,553		5,949
	Ps.	1,129,911	Ps.	1,088,440	Ps.	952,452	Ps.	1,157,240	Ps.	1,112,927	Ps.	1,059,098

21. Finance income and cost

An analysis of finance income is as follows:

	2018		2017		2016		2020		2019		2018
Interest on cash and equivalents	Ps.	152,437	Ps.	105,151	Ps.	78,793	Ps.	93,122	Ps.	201,191	Ps.	152,437
Interest on asset backed trust notes								6,342		6,525		-
Interest on recovery of guarantee deposits	166		644		23,792			2,047		83		166
Others	—		—		6
	Ps.	152,603	Ps.	105,795	Ps.	102,591	Ps.	101,511	Ps.	207,799	Ps.	152,603

An analysis of finance cost is as follows:

	2018		2017			2016		2020		2019		2018
Interest expense on lease liabilities and aircraft and engine lease return obligation								Ps.	2,350,250	Ps.	2,128,162	Ps.	1,755,978
Financial instruments loss									448,559		-		-
Interest on asset backed trust notes									116,240		80,314		-
Cost of letter credit notes	Ps.	57,277	Ps.		42,294	Ps.	28,067		73,141		49,856		57,277
Bank fees and others									3,707		3,607		6,141
Interest on debts and borrowings*	56,916		37,565			1,245			16,368		1,660		56,916
Bank fees and others	6,141		5,279			5,804
Other finance costs	—		1,219			—			10,219		6,230		-
	Ps.	120,334	Ps.	86,357		Ps.	35,116	Ps.	3,018,484	Ps.	2,269,829	Ps.	1,876,312

* 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~~short-term working capital facility from Citibanamex.

2018

2017

2016

Interest on debts and borrowings

Ps.
414,836

Ps.
230,954

Ps.
96,690

Capitalized interest (Note 12)

(357,920
)
(193,389
)
(95,445
)
Net interest on debts and borrowing in the consolidated statements of operations

Ps.
56,916

Ps.
37,565

Ps.
1,245

	2020			2019			2018
Interest on debts and borrowings	Ps.	400,406		Ps.	457,973		Ps.	414,836
Capitalized interest (Note 12)		(384,038	)		(456,313	)		(357,920	)
Net interest on debts and borrowing in the consolidated statements of operations	Ps.	16,368		Ps.	1,660		Ps.	56,916

F-86

~~Table of Contents~~

22. Components of other comprehensive (loss) income ~~(loss)~~

An analysis of the other comprehensive (loss) income for the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018 is as follows:

	2018				2017				2016				2020			2019			2018
Derivative financial instruments:
Reclassification of call options and forwards during the year to profit or loss (Note 4)	Ps.		(455,009	)	Ps.		52,097		Ps.		353,943
Reclassification of call options and forwards during the year to profit or loss													Ps.	-		Ps.	-		Ps.	(455,009)
Extrinsic value of changes on jet fuel Asian call options	227,509				(81,182			)	277,899					(11,993	)		11,148			227,509
Extrinsic value of changes on jet fuel Zero cost collars	(122,948			)	—				—					(143,224	)		256,515			(122,948	)
Gain (loss) of the matured foreign currency forward contracts	66,757				(13,380			)	—
Gain (loss) of the not-yet matured interest rate swap contracts	—				317				(7,148			)
(Loss) gain of the matured foreign currency forward contracts														-			(14,241	)		66,757
Loss of the interest rate Cap														(900	)		(4,023	)		-
Non derivative financial instruments														(1,591,569	)		14,096			-
Total	Ps.	(283,691		)	Ps.	(42,148		)	Ps.	624,694			Ps.	(1,747,686)		Ps.	263,495		Ps.	(283,691)

23. 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
expenditures in U.S.
dollars

Commitment
expenditures
equivalent in
Mexican pesos(1)

2019

US$
76,559

Ps.
1,506,903

2020

136,936

2,695,298

2021

164,856

3,244,844

2022 and thereafter

691,836

13,617,339

US$
1,070,187

Ps.
21,064,384

	Commitment expenditures in U.S. dollars		Commitment expenditures equivalent in Mexican pesos ⁽¹⁾
2021	US$	40,213	Ps.	802,197
2022		138,919		2,771,253
2023		265,836		5,303,083
2024		705,331		14,070,437
2025 and thereafter		3,221,596		64,266,652
	US$	4,371,895	Ps.	87,213,622

(1) Using the exchange rate as of December 31, ~~2018~~2020 of ~~Ps.19.6829~~.Ps.19.9487.

All aircraft acquired by the Company through the Airbus purchase agreement through December 31, ~~2018~~2020 have been executed through sale and leaseback transactions.

F-87In addition, we have commitments to execute sale and leaseback over the next two years. The estimated proceeds from these commitments are as follows:

~~Table~~

		Aircraft sale prices estimated
		in U.S. dollars	in Mexican pesos ⁽¹⁾
2021	US$	209,500	Ps.	4,179,253
2022		547,328		10,918,482
	US$	756,828	Ps.	15,097,735

(1) Using the exchange rate as of ~~Contents~~December 31, 2020 of Ps.19.9487.

~~Litigation~~The future lease payments for these non-cancellable sale and leaseback contracts are as follows:

	Aircraft leases
	in U.S. dollars		in Mexican pesos ⁽¹⁾
2021	US$	9,720	Ps.	193,901
2022		47,972		956,979
2023		63,222		1,261,197
2024		63,222		1,261,197
2025 and thereafter		574,529		11,461,107
	US$	758,665	Ps.	15,134,381

(1) Using the exchange rate as of December 31, 2020 of Ps.19.9487.

a) Litigation

The Company is a party to legal proceedings and claims that arise during the ordinary course of business. The Company believes the ultimate outcome of these matters will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

b) On January 18, 2018, the Mexican antitrust authority, Comisión Federal de Competencia Económica (“COFECE”), served Volaris with a preliminary ruling of potential responsibility (Dictamen de Probable Responsabilidad or “DPR”) in which the investigating body of COFECE asserts certain allegations regarding antitrust activities in Mexico´s domestic commercial air passenger transportation market during the period from April 2008 up to February 2010 by different Mexican carriers, including Volaris.

24. Operating segments

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

	2018		2017		2016		2020			2019			2018
Operating revenues:
Domestic (Mexico)	Ps.	18,493,476	Ps.	17,272,946	Ps.	15,694,044	Ps.	16,572,198		Ps.	24,594,797		Ps.	18,493,476
International:
United States of America and Central America*	8,811,674		7,515,240		7,777,516			5,998,615			10,230,824			8,811,674
Non-derivative financial instruments								(411,222	)		(72,949	)		-
Total operating revenues	Ps.	27,305,150	Ps.	24,788,186	Ps.	23,471,560	Ps.	22,159,591		Ps.	34,752,672		Ps.	27,305,150

*United States of America represents approximately ~~32%~~27%, ~~30%~~29% and ~~32%~~31% of total revenues from external customers in ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, respectively.

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.

F-88

~~Table of Contents~~

25. Subsequent events

Subsequent to December 31, ~~2018~~2020 and through April ~~25, 2019:~~29, 2021:

1. ~~On April 9,~~During the first quarter of 2021, the Company ~~presented its new brand named “YaVas”, operated through its subsidiary “Viajes Vuela”. YaVas is~~demonstrated flexibility focusing on capacity management in the face of a ~~on line travel agency (www.yavas.com), which offers~~volatile demand environment. The Company finished the ~~opportunity to find~~quarter operating 88.3% of the Available Seat Miles flown in ~~one single webpage: airline tickets, hotels, transfers and other supplemental travel services.~~the first quarter of the prior year.

2.On ~~March 28, 2019, COFECE served~~April 16, 2021, the Company received the ~~final ruling dated March 19, 2019 issued~~Famous Brand Declaration from the Mexican Institute of Industrial Property (“IMPI”) for the “Volaris” brand, which is the first trademark within the Mexican aviation industry declared as a Famous Brand by ~~the Board of Commissioners in its meeting held March 14, 2019 that resolved that no liability is to be imposed against the Company.~~

F-89IMPI.

A.	Operating Results	62 68
B.	Liquidity and Capital Resources	86 98
C.	Research and Development, Patents and Licenses, Etc.	88 100
D.	Trend Information	89 100
E.	Off-Balance Sheet Arrangements	89 100
F.	Tabular Disclosure of Contractual Obligations	89 100
G.	Safe Harbor	89 101

ITEM 16A	Audit Committee Financial Expert	~~140~~ 153
ITEM 16B	Code of Ethics	~~140~~ 153
ITEM 16C	Principal Accountant Fees and Services	~~141~~ 154
ITEM 16D	Exemptions from the Listing Standards for Audit Committees	~~141~~ 154
ITEM 16E	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	~~141~~ 154
ITEM 16F	Change in Registrant’s Certifying Accountant	~~141~~ 154
ITEM 16G	Corporate Governance	~~141~~ 154
ITEM 16H	MINE SAFETY DISCLOSURE	~~145~~ 158

Fleet additions (Returns)	2019E	2020E		2021E		2022E
A319	—	(2	)	(3	)	—
A320(1)	3	7		7		(3	)
A321(1)	2	—		6		8
Total fleet	82	87		97		102

			% Equity interest
Name	Principal Activities	Country	2018		2017
Deutsche Bank México, S.A., Trust 1710	Pre-delivery payments financing	Mexico	100.00	%	100.00	%
Deutsche Bank México, S.A., Trust 1711	Pre-delivery payments financing	Mexico	100.00	%	100.00	%

	(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 ~~2011,~~2017, we signed an amendment to our purchase agreement with Airbus ~~for an additional order of 44 A320 family~~to purchase 80 aircraft ~~for delivery between 2014 and 2020.~~ which we are committed to receive from 2022 to 2026.
	*	*Disclosure of contractual obligations does not include obligations relating to our post-employment benefits which totaled ~~Ps.18.2~~Ps. 50.6 million at December 31, ~~2018.~~ Committed expenditures for these aircraft, spare engines, spare parts and related flight equipment, including estimated amounts for contractual price escalations of pre-delivery payments, will be approximately Ps.21.1 billion from 2019 to 2022 and thereafter. ~~In 2019, we expect our capital expenditures, excluding pre-delivery payments, to be Ps.1.6~~2020.

	For the Years ended December 31,
Employees	2016	2017	2018
Pilots	892	968	940
Flight attendants	1,415	1,536	1,604
Ramp operations personnel	88	102	67
Airport and customer service personnel	1,044	954	948
Maintenance personnel	272	317	575
Management and administrative personnel	839	875	466
Total	4,550	4,752	4,600
Average of employees per aircraft	66	67	60

Name	Title	Number of shares
Harry F. Krensky	Director		6,012,590	*
Brian H. Franke	Chairman of the ~~date of this annual report, our directors~~Board		2,610,000	*
John A. Slowik	Independent Director		62,500	*
William Dean Donovan	Independent Director		4,133,280	*
Alfonso González Migoya	Independent Director		107,791
Marco Baldocchi	Director		1,870,500	*
Enrique Beltranena	Director, President and ~~officers owned shares as follows:~~ Chief Executive Officer		10,333,209
Holger Blankenstein	Executive Vice President Airline Commercial and Operations		3,755,193	*
Jaime E. Pous	Senior Vice President and Chief Financial Officer		759,578
José Luis Suárez	Senior Vice President and Chief Operating Officer		92,910
Carolyn Prowse⁽¹⁾	Vice President and Chief Commercial Officer		223,331	*
Alejandro Alba	Corporate Controller and Compliance Director		136,248
Jimmy Zadigue	Internal Audit Director		38,846

	Common Stock
	Number		Percentage
Shareholders	Series A	Series B	Series A		Series B
5% Shareholders:
Blue Sky Investments, S.à. r.l.(1)	70,201,880	44,857,124	7.6	%	50.9	%
Funds managed by Indigo(2)	139,380,920	43,194,749	15.1	%	49.1	%
Harris Associates L.P.(3)	71,959,500	—	7.1	%	—	%
Named Executive Officers and Directors:
William A. Franke(2)	139,380,920	43,194,749	15.1	%	49.1	%
All Executive officers and directors as a group (two persons) HSBC trust F/307750(4)	10,433,981	—	1.03	%	—	%

	(1)	Consists of 44,857,124 Series B shares and ~~70,201,880~~95,201,880 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: 17, rue Robert Stümper, L-2557 Luxembourg.
	(2)	Consists of ~~42,194,100 Series B shares and 135,974,070~~165,974,070 Series A shares (deposited in the CPO trust) held by Indigo LatAm LP., 1,000,649 Series B shares and 3,228,630 Series A shares (deposited in the CPO trust) held by Long Bar LatAm, LLC, ~~, and~~ 178,220 Series A shares (deposited in the CPO trust) held by Long Bar LatAm II ~~LP.~~LP 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 and Long Bar LatAm II LP, 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. Each entity listed herein whose shares are beneficially owned by Indigo has a principal business address at: c/o Indigo Mexico Coöperatief U.A.; ~~Schiphol Boulevard 231, 1118 Bh~~Herikerbergweg 88, 1101 CM Amsterdam, Netherlands.
	(3) ~~Harris Associates L.P.~~	Teewinot Capital Advisers, LLC has a principal business address at: ~~111 South Wacker Drive, Suite 4600 Chicago, Illinois 60606.~~ 101 Park Avenue, 48th Floor, New York, New York 10178.
	(4)	Certain executive officers benefit from a share incentive plan pursuant to which they have the right to receive an aggregate of ~~10,433,981~~7,653,981 Series A shares, representing ~~1.03%~~0.71% of our ~~outstanding capital stock.~~Series A shares. Such shares are fully paid and held in trust for the benefit of certain of our executive officers. The shares will accrue any dividends paid by us during the time that they are deposited in the trust and prior to their release by the trustee to us. Item 6: “Directors, Senior Management and Employees—Compensation.”

	~~issuer.~~	~~information.~~

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~~ §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.

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.

	As previously reported as of December 31, 2017		Adjustment			Adjusted As of December 31, 2017
Short-term liabilities
Unearned transportation revenue	Ps.	2,161,636	Ps.	131,673		Ps.	2,293,309

Equity
Retained earnings	Ps.	5,080,049	Ps.	(131,673	)	Ps.	4,948,376

	As previously reported as of December 31, 2016		Adjustment			Adjusted As of December 31, 2016
Short-term liabilities
Unearned transportation revenue	Ps.	2,153,567	Ps.	74,484		Ps.	2,228,051

Equity
Retained earnings	Ps.	5,927,576	Ps.	(74,484	)	Ps.	5,853,092

	As previously reported as of December 31, 2017			As Adjusted
Loss per share	Ps.	(0.588	)	Ps.	(0.644	)

	As previously reported as of December 31, 2016		As Adjusted
Earnings per share	Ps.	3.478	Ps.	3.438

	As of January 1, 2017			As of December 31, 2017		As of December 31, 2018
Assets
Property, plant and equipment (Right-of-use-assets)	Ps.	23,709,968		Ps.	25,075,501	Ps.	31,985,598
Deferred income tax		2,699,552		2,231,702		2,271,031
Prepaid expenses		(266,959	)	—		—

Liabilities
Lease liabilities	Ps.	32,639,927		Ps.	32,436,015	Ps.	39,463,811

Equity
Retained Earnings	Ps.	6,497,366

	For the year ended December 31, 2017			For the year ended December 31, 2018
Depreciation expense	Ps.	3,522,738		Ps.	4,123,513
Operating lease expense	(5,038,920		)	(5,718,657		)
Operating income	(1,516,182		)	(1,595,144		)
Financial costs	1,381,027			1,682,420
Foreign exchange (gain) loss	(1,434,290		)	30,423
Income tax expense (benefit)	467,850			(39,328		)
Net (income) loss	Ps.	(1,101,595	)	Ps.	78,371

	Position as of December 31, 2017
	Jet fuel Asian call option contracts maturities
	1 Half 2018			2 Half 2018			2018 Total
Jet fuel risk
Notional volume in gallons (thousands)*	69,518			61,863			131,381
Strike price agreed rate per gallon (U.S. dollars)**	US$	1.6861		US$	1.8106		US$	1.7447
Approximate percentage of hedge (of expected consumption value)	60		%	50		%	55		%

	Position as of December 31, 2016
	Jet fuel Asian call option contracts maturities
	1 Half 2017			2 Half 2017			2017 Total			1 Half 2018			3Q 2018			2018 Total
Jet fuel risk
Notional volume in gallons (thousands)*	55,436			63,362			118,798			62,492			7,746			70,238
Strike price agreed rate per gallon (U.S. dollars)**	US$	1.6245		US$	1.4182		US$	1.5145		US$	1.6508		US$	1.5450		US$	1.6392
Approximate percentage of hedge (of expected consumption value)	51		%	53		%	52		%	45		%	10		%	24		%

		Sensitivity of position as of December 31, 2018
		effect on equity (thousands of U.S. dollars)
US Gulf Coast Jet Fuel 54 spot level
+5%		1.67
-5%		-1.51

	December 31, 2017
	Within one year		One to five years		Total
Interest-bearing borrowings:
Pre-delivery payments facilities (Note 5)	Ps.	1,449,236	Ps.	1,079,152	Ps.	2,528,388
Short-term working capital facilities (Note 5)	948,354		—		948,354
Total	Ps.	2,397,590	Ps.	1,079,152	Ps.	3,476,742

Instrument	Financial statements line	2018			2017			2016
Jet fuel Asian call options Contracts	OCI	Ps.	(174,984	)	Ps.	(54,202	)	Ps.	583,065
Jet fuel Zero cost collars	OCI	(122,948		)	—			—
Interest rate swap contracts	OCI	—			14,144			41,629
Foreign currency forward	OCI	14,241			(2,090		)	—
Total (Note 22)		Ps.	(283,691	)	Ps.	(42,148	)	Ps.	624,694

	January 1, 2016		Net cash Flows			Accrued Interest			Foreign exchange movement		Current vs non- current reclassification and other			December, 31, 2016
Current interest-bearing loans and borrowings	Ps.	1,371,202	Ps.	(753,897	)	Ps.	(1,239	)	Ps.	121,269	Ps.	313,902		Ps.	1,051,237
Non-current interest - bearing loans and borrowings	219,817		938,681			—			98,450		(313,902		)	943,046
Total liabilities from financing activities	Ps.	1,591,019	Ps.	184,784		Ps.	(1,239	)	Ps.	219,719	Ps.	—		Ps.	1,994,283

	Flight equipment			Constructions and improvements			Computer equipment			Office furniture and equipment			Electric power equipment			Workshop Tools			Motorized transport equipment platform			Communications equipment			Workshop machinery and equipment			Service carts on board			Allowance for obsolescence			Pre-delivery payments			Construction and improvements in process			Leasehold improvements to flight equipment			Total
Net book amount as of December 31, 2018	Ps.	664,322		Ps.	15,235		Ps.	16,547		Ps.	38,306		Ps.	5,122		Ps.	3,369		Ps.	446		Ps.	4,911		Ps.	4,481		Ps.	126		Ps.	-		Ps.	3,672,090		Ps.	142,738		Ps.	1,214,589		Ps.	5,782,282
Additions		692,186			5,596			1,730			1,461			2,487			3,137			-			355			4,278			2,273			(3,000	)		1,412,790			525,556			661,954			3,310,803
Disposals and transfers		(538,370	)		-			(131	)		(10	)		-			-			-			(2	)		(35	)		-			-			(704,852	)		(3,957	)		-			(1,247,357	)
Borrowing costs, net*		-			-			-			-			-			-			-			-			-			-			-			127,742			-			-			127,742
Other movements		-			34,840			1,999			2,757			2,487			284			9,529			1,446			2,529			-			-			-			(190,097	)		133,939			(287	)
Depreciation		(84,888	)		(14,721	)		(7,074	)		(5,854	)		(1,084	)		(1,938	)		(341	)		(933	)		(1,044	)		(278	)		-			-			-			(469,694	)		(587,849	)
As of December 31, 2019		733,250			40,950			13,071			36,660			9,012			4,852			9,634			5,777			10,209			2,121			(3,000	)		4,507,770			474,240			1,540,788			7,385,334
Cost		1,287,102			172,460			47,566			70,709			20,412			26,875			15,026			14,099			16,301			7,675			(3,000	)		4,507,770			474,240			4,220,672			10,877,907
Accumulated depreciation		(553,852	)		(131,510	)		(34,495	)		(34,049	)		(11,400	)		(22,023	)		(5,392	)		(8,322	)		(6,092	)		(5,554	)		-			-			-			(2,679,884	)		(3,492,573	)
Net book amount as of December 31, 2019		733,250			40,950			13,071			36,660			9,012			4,852			9,634			5,777			10,209			2,121			(3,000	)		4,507,770			474,240			1,540,788			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 book amount as of December 31, 2020	Ps.	465,913		Ps.	27,016		Ps.	7,819		Ps.	31,726		Ps.	7,675		Ps.	3,329		Ps.	7,323		Ps.	5,765		Ps.	12,933		Ps.	3,104		Ps.	(3,000)		Ps.	4,920,126		Ps.	53,545		Ps.	1,737,883		Ps.	7,281,157

	Aircraft parts and rotable spare parts			Aircraft spare Engines			Constructions and improvements			Standardization			Computer equipment			Office furniture and equipment			Electric power equipment			Workshop Tools			Motorized transport equipment platform			Communications equipment			Workshop machinery and equipment			Service carts on board			Pre-delivery payments			Construction and improvements in process			Leasehold improvements to flight equipment			Total
Net book amount as of December 31, 2015	Ps.	179,947		Ps.	—		Ps.	18,202		Ps.	83,886		Ps.	4,195		Ps.	12,932		Ps.	9,033		Ps.	4,815		Ps.	1,326		Ps.	3,764		Ps.	4,179		Ps.	1,453		Ps.	1,583,835		Ps.	140,926		Ps.	501,157		Ps.	2,549,650
Additions	110,592			323,025			2,218			21,953			740			517			1,467			4,217			505			129			131			36			1,345,081			161,560			226,526			2,198,697
Disposals and transfers	(1,299		)	—			—			—			—			(110		)	(1,626		)	—			(49		)	—			—			—			(1,733,093		)	(2,132		)	—			(1,738,309		)
Borrowing costs, net*	—			—			—			—			—			—			—			—			—			—			—			—			10,507			—			—			10,507
Other movements	—			—			32,441			—			4,814			7,877			—			25			46			493			—			—			—			(44,980		)	—			716
Depreciation	(33,430		)	(1,337		)	(17,848		)	(23,728		)	(2,549		)	(3,559		)	(1,946		)	(4,472		)	(471		)	(831		)	(692		)	(731		)	—			—			(404,659		)	(496,253		)
As of December 31, 2016	255,810			321,688			35,013			82,111			7,200			17,657			6,928			4,585			1,357			3,555			3,618			758			1,206,330			255,374			323,024			2,525,008
Cost	393,522			323,025			120,886			176,975			24,172			36,310			14,818			20,500			5,703			9,261			7,240			5,403			1,206,330			255,374			1,709,868			4,309,387
Accumulated depreciation	(137,712		)	(1,337		)	(85,873		)	(94,864		)	(16,972		)	(18,653		)	(7,890		)	(15,915		)	(4,346		)	(5,706		)	(3,622		)	(4,645		)	—			—			(1,386,844		)	(1,784,379		)
Net book amount as of December 31, 2016	Ps.	255,810		Ps.	321,688		Ps.	35,013		Ps.	82,111		Ps.	7,200		Ps.	17,657		Ps.	6,928		Ps.	4,585		Ps.	1,357		Ps.	3,555		Ps.	3,618		Ps.	758		Ps.	1,206,330		Ps.	255,374		Ps.	323,024		Ps.	2,525,008
Additions	115,173			385			—			15,833			1,845			6,805			—			—			—			—			123			—			1,707,805			206,932			529,331			2,584,232
Disposals and transfers	(930		)	—			—			—			—			(15		)	—			—			—			—			—			—			(213,947		)	(3,555		)	(101,224		)	(319,671		)
Borrowing costs, net*	—			—			—			—			—			—			—			—			—			—			—			—			83,115			—			—			83,115
Other movements	—			—			10,371			—			4,087			1,649			620			—			—			1,968			1,041			—			—			(265,144		)	244,712			(696		)
Depreciation	(44,409		)	(16,795		)	(20,216		)	(18,543		)	(3,809		)	(3,801		)	(1,294		)	(2,314		)	(471		)	(796		)	(722		)	(376		)	—			—			(382,745		)	(496,291		)
As of December 31, 2017	325,644			305,278			25,168			79,401			9,323			22,295			6,254			2,271			886			4,727			4,060			382			2,783,303			193,607			613,098			4,375,697
Cost	506,735			323,410			131,503			192,808			30,113			44,749			15,439			20,500			5,587			11,229			8,405			5,403			2,783,303			193,607			2,382,687			6,655,478
Accumulated depreciation	(181,091		)	(18,132		)	(106,335		)	(113,407		)	(20,790		)	(22,454		)	(9,185		)	(18,229		)	(4,701		)	(6,502		)	(4,345		)	(5,021		)	—			—			(1,769,589		)	(2,279,781		)
Net book amount as of December 31, 2017	Ps.	325,644		Ps.	305,278		Ps.	25,168		Ps.	79,401		Ps.	9,323		Ps.	22,295		Ps.	6,254		Ps.	2,271		Ps.	886		Ps.	4,727		Ps.	4,060		Ps.	382		Ps.	2,783,303		Ps.	193,607		Ps.	613,098		Ps.	4,375,697
Additions	106,240			260,131			689			10,803			5,316			652			—			2,673			—			1,050			1,040			—			1,485,643			142,703			676,457			2,693,397
Disposals and transfers	(1,735		)	(260,131		)	—			—			—			—			—			—			—			—			(2		)	—			(712,098		)	(89		)	—			(974,055		)
Borrowing costs, net*	—			—			—			—			—			—			—			—			—			—			—			—			115,242			—			—			115,242
Other movements	—			—			67			—			9,123			21,568			—			281			42			26			110			—			—			(193,483		)	162,023			(243		)
Depreciation	(54,320		)	(16,785		)	(10,689		)	(13,729		)	(7,215		)	(6,209		)	(1,132		)	(1,856		)	(482		)	(892		)	(727		)	(256		)	—			—			(313,464		)	(427,756		)
As of December 31, 2018	375,829			288,493			15,235			76,475			16,547			38,306			5,122			3,369			446			4,911			4,481			126			3,672,090			142,738			1,138,114			5,782,282
Cost	609,232			323,410			132,446			203,611			44,563			66,546			15,438			23,454			5,496			12,305			9,530			5,403			3,672,090			142,738			3,221,167			8,487,429
Accumulated depreciation	(233,403		)	(34,917		)	(117,211		)	(127,136		)	(28,016		)	(28,240		)	(10,316		)	(20,085		)	(5,050		)	(7,394		)	(5,049		)	(5,277		)	—			—			(2,083,053		)	(2,705,147		)
Net book amount as of December 31, 2018	Ps.	375,829		Ps.	288,493		Ps.	15,235		Ps.	76,475		Ps.	16,547		Ps.	38,306		Ps.	5,122		Ps.	3,369		Ps.	446		Ps.	4,911		Ps.	4,481		Ps.	126		Ps.	3,672,090		Ps.	142,738		Ps.	1,138,114		Ps.	5,782,282

Aircraft Type	Model	At December 31, 2018	At December 31, 2017	At December 31, 2016
A319	132	4	6	6
A319	133	4	6	9
A320	233	39	39	39
A320	232	4	4	4
A320NEO	271N	12	6	1
A321	231	10	10	10
A321NEO	271N	4	—	—
		77	71	69

Engine Type	Model	At December 31, 2018	At December 31, 2017	At December 31, 2016
V2500	V2527M-A5	3	3	3
V2500	V2527E-A5	3	3	4
V2500	V2527-A5	2	2	4
PW1100	PW1127G-JM	2	—	—
		10	8	11

	Operating leases denominated in U.S. dollars		Equivalent in Mexican pesos*		Operating leases denominated in Mexican pesos
2019	US$	9,754	Ps.	191,989	Ps.	131,166
2020	6,017		118,428		88,237
2021	3,111		61,243		16,114
2022	1,763		34,691		13,302
2023	721		14,201		10,108
2024 and thereafter	3,534		69,553		33,459
Total	US$	24,900	Ps.	490,105	Ps.	292,386

	Balance as of January 1, 2017		Increase for the year		Payments		Balance as of December 31, 2017
Aircraft lease return obligation	Ps.	410,060	Ps.	937,982	Ps.	859,659	Ps.	488,383
Employee profit sharing (Note 16)	10,695		8,342		9,974		9,063
	Ps.	420,755	Ps.	946,324	Ps.	869,633	Ps.	497,446

Short-term maturities							Ps.	280,744
Long-term							Ps.	216,702

	Balance as of January 1, 2016		Increase for the year		Payments		Balance as of December 31, 2016
Aircraft lease return obligation	Ps.	149,326	Ps.	1,025,757	Ps.	765,023	Ps.	410,060
Employee profit sharing (Note 16)	10,173		9,967		9,445		10,695
	Ps.	159,499	Ps.	1,035,724	Ps.	774,468	Ps.	420,755

Short-term maturities							Ps.	284,200
Long-term							Ps.	136,555

Year of loss	Historical Loss			Restated tax loss			Utilized			Total remaining amount		Year of expiration
2016	Ps.	57,414		Ps.	57,414		Ps.	—		Ps.	57,414	2019
2016	52,221			57,215			57,215			—		2026
2017	300,613			300,613			—			300,613		2020
2017	1,068,498			1,150,140			122,359			1,027,781		2027
2018	170,731			170,731			—			170,731		2021
2018	3,191			3,290			—			3,290		2028
	Ps.		1,652,668	Ps.		1,739,403	Ps.		179,574	Ps.	1,559,829

Number of Series A shares

Vesting period

November 2020-2021

November 2021-2022

November 2022-2023