Spanish low cost airline The volley announced its financial estimates for the first nine months of 2023 this week. With the company still private, it gave a glimpse of the company’s expectations for the year – but also, with some conclusions, in its improving numbers.
According to Expansión, a Spanish business newspaper, The airline expects to generate EBITDA of between EUR 93 million and EUR 103 million in the first nine months of the year, with sales of between 545 and 555 million euros. That would mean an EBITDA margin of around 17%. This figure compares to a negative EBITDA of 44 million euros in the same period of 2022.
EBITDA – the abbreviation for “Earnings before Interest, Taxes, Depreciation and Amortization” – is a popular indicator in the aviation industry because it reflects the purely operational performance of the airline. There are no financial burdens on the airline.
This statistic omits some important numbers. For example, Volotea’s fleet of 41 aircraft is fully leased. Leasing is generally accounted for as amortization as the payment is a liability of the airline.
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Volotea also has to meet its financial obligations incurred during the pandemic. The principal of the largest loan, granted by Spanish state company SEPI, will not be paid out until it matures in 2029, but interest will still have to be paid.
The improvement must therefore be placed in context. According to Expansión, for example, despite the negative EBITDA of 44 million euros in 2022, the net result was negative 138 million euros.
Still, Volotea’s prospects are undeniably better than in previous years. The COVID-19 pandemic was existential for the airline. Still, it allowed the company to streamline and increase its fleet.
Volotea started 2020 with 13 Boeing 717 (with 125 seats) and 19 Airbus A318 (with 156 seats) in its fleet. By 2021, the 717 aircraft were retired and the Airbus A320 was introduced instead, carrying 180 passengers. The company currently operates 21 A320s and 20 A319s, a net growth of nine aircraft compared to pre-COVID levels.
Equally important, the larger aircraft – provided lease prices are low enough – allow Volotea to lower their costs through a higher number of seats. (Fleet data obtained from Planespotters.net).
Volotea’s business model is to stay away from the competition. There are few occasions when it deals directly with other airlines and tends to stay away from main routes. Therefore, it must stimulate demand through low prices, and for this equation to work, costs must also be low.
Expansión reports that Volotea aims to carry 10 million passengers this year. Because according to Cirium’s Diio Mi application, it flies over 10.5 million times throughout the year, which would equate to a load factor of just over 95%. (Note that these numbers are raw estimates).
If we assume that number stays the same for the first three quarters of the year and 8.7 million seats are flown, that translates to 8.272 million customers.
Assuming that all of Volotea’s revenue comes from passengers and assuming that the airline meets its estimates of €550 million in revenue for the coming year, Volotea’s average revenue per passenger is €66.49.
We cannot compare these estimates for comparable companies without delving even further into the speculative realm as they do not provide guidance for the same period. But as a comparison: Vueling’s revenue per passenger in the first half of 2023 was EUR 83.39 with a leg length of 1040 km and that of Ryanair was EUR 64.37 with a leg length of 1248 km. The fact that there is no third quarter is very relevant since it’s the one with the most demand and the best returns.
The key to demonstrating these improved results must be the fleet. Volotea hasn’t added any aircraft to its portfolio since last summer and overall the company will see just 1.7% more departures in 2023 than in 2022, according to Cirium – with a 2.2% increase in seats and 11 in ASKs .4%.
Still, revenue is estimated to increase by 25% in the first nine months of the year compared to the same period in 2022 – and overall passenger numbers will increase by 7% year-on-year throughout 2023.
Thus, revenue per passenger grew faster than the number of passengers. Better results were achieved with the same number of assets as last year.
This improvement is important to the airline’s future plans. In an interview by founder and CEO Carlos Muñoz with El País business magazine Cinco Días last December, making a profit in 2023 (“our fundamental goal”) was one of the keys to an IPO.
“The other condition, and no less important, is that the capital market recovers and opens up for IPOs,” the chief executive said at the time, adding, “We aim to proceed with the IPO in two to three years.”
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