Avianca Holdings Reports an Operating Profit1 of $118.4 Million for the Fourth Quarter of 2014

BOGOTA, Colombia—(BUSINESS WIRE)—Avianca Holdings S.A., (NYSE: AVH) (BVC: PFAVH), the following results pertain to the 4Q 2014, financial and operational information is provided in millions of US dollars unless stated otherwise. The following information is presented in accordance with International Financial Reporting Standards (IFRS). The reconciliation between IFRS and the financial information which is not in these accounting principles can be seen in the financial tables section of this report. Except when noted, all comparisons refer to fourth quarter 2013 (4Q 2013) numbers. Figures and operating metrics of Avianca Holdings S.A. (“Avianca”, “the Company”, “Issuer Entity” or “Issuer”) are presented on a consolidated basis.

Fourth Quarter 2014 Highlights

Avianca Holdings would have earned an adjusted net income for the quarter ended December 31, 2014 of $47.4 million, excluding special items, posting an adjusted net income margin of 3.8%. For full year 2014 the Company earned an adjusted net income of $129.1 million, while the adjusted net income margin came in at 2.7%.
Operating revenues amounted to $1.24 billion, up 3.1% over 4Q 2013, mainly due to a 46% increase in cargo and other revenues as a result of the optimized use of our cargo capacity as well as the continued growth of our loyalty program. For the 4Q of 2014 our Lifemiles program ended the year with more than 5.9 million members. These results were partially offset by a 4.3% decrease in passenger revenues due to the capacity reallocation strategy that was implemented in early 2014. Operating revenues during 2014 totaled $4.7 billion, up 2.0% when compared to the same period of 2013.
Cost per available seat kilometer (CASK)1 decreased 4.2% to 10.6 cents in 4Q 2014, compared to 11.1 cents in 4Q 2013. As such CASK ex-fuel1 reached 7.6 cents, while cycles rose 18.1% for the quarter. CASK1 for the twelve-month period of 2014 declined 1.5% to 10.7 cents when compared to the same period of 2013. These results were mainly driven by the cost saving initiatives implemented throughout 2014 as well as the drop in fuel prices that the market experienced during the last quarter of this year.
EBITDAR1 for the 4Q 2014 was $258.1 million, while the EBITDAR1 margin reached 20.8%, 39 bps above the EBITDAR margin reported for 4Q 2013. The EBITDAR1 for 2014 totaled $786.7 million, while the EBITDAR1 margin reached 16.7%.
Operating income (EBIT1) totaled $118.4 million, and as a result the operating margin for 4Q 2014 reached 9.54%, in line with the margin recorded for the 4Q 2013. The operating income (EBIT1) for the twelve-month period of 2014 was $293.0 million, while the 12-month operating margin in 2014 was 6.2%.
Capacity, measured in ASKs (available seat kilometers), increased 7.6% during 4Q 2014, mostly due to the continued expansion in our domestic markets, the entry into operation of the Bogota-London route as well as three additional weekly frequencies to Barcelona from Bogota. Furthermore, passenger traffic, measured in RPKs (revenue passenger kilometers), grew 6.1%, reaching a consolidated load factor of 79.6%. During 2014, capacity, measured in ASKs, rose 5.9%, while passenger traffic, measured in RPKs, increased 4.5%, ending the year with an overall load factor of 79.4%.
In accordance with the fleet renovation and modernization plan, between October and December 2014, the Company took delivery of one A321, one A319 (both equipped with sharklets), three ATR72, one A330, one A330F and four B787 Dreamliners, while phasing-out two Fokker 50. Consequently, Avianca Holdings S.A. and its subsidiaries ended the year with a consolidated operating fleet of 181 aircrafts.
1When indicated during for the 4Q of 2014 the total operating costs exclude incremental costs of ~$860,000 in rent payments (Wet Lease) associated to the delay in the delivery of the B787 Dreamliners as well as onetime expenses of ~$3.0 million associated to the head count optimization project. In addition to the latter the full year figures also exclude the ~$4.6 million related to one-time expenses incurred over the 1Q of 2014 associated to the grounding of the F50 fleet.

CEO’s Comment

I am pleased to share with you the results for the year. 2014 was a year of milestones and challenges that the company achieved and overcame. Throughout the year we took steps to strengthen our position in the competitive landscape and better prepare the company for 2015. We expanded our network to new destinations and entered into new commercial agreements, offering further connectivity to our passengers.

As such the company signed a code share agreement with Turkish Airlines extending Avianca’s reach to Asia and the Middle East. In addition our network in Ecuador became part of Star Alliance offering new connectivity to our customers. Furthermore we launched new international routes between Bogota and London, Pereira and Cartagena to New York as well as incremental frequencies to destinations in South America, the Caribbean and Central America. On the domestic front, we opened routes from Lima to Iquitos and Bogota to Villavicencio. As a result during the year capacity in terms of ASKs grew 5.9% when compared to 2013 while our traffic figures in terms of RPKs increased by 4.5%. Therefore our load factor closed at 79.4%, which came in above the upper limit of our guidance for 2014.

Over the course of the year we continued to address the challenges related to our operation in Venezuela, and quickly adopted a more defensive and conservative approach, which enabled us to readjust our network as well as to recover the profitability levels we reached by the end of 2013. Consequently, we successfully reduced our exposure to a difficult market, while allowing us to strengthen our presence on other profitable routes. As such we increased the frequencies from Bogota to Santiago, Puerto Rico, Guatemala City, La Habana, Cancun and Barcelona; Lima to Cali and Bogota; Guatemala City to San Jose, and finally from San Jose to Panama.

During the year, we continued with our fleet renovation plan, which was marked by the incorporation of 32 brand new aircraft, out of which 16 were incremental to the operation. Among the deliveries, the company received fourteen single aisle aircraft of the A320 family, ten ATR 72-600 for regional flights, two A330 passenger aircraft, two A330 freighter aircraft, and four B787-8 Dreamliners for our long haul operation. The renovation included the phase-out of our Fokker 50 aircraft, selling all 10 during the year, as well as the retirement of the ATR42 regional fleet. Finally, we initiated the phase-out of the first two A330 aircraft in accordance with our business plan.

In order to improve service to our clients and optimize capacity utilization we relocated the service of our high density domestic routes to the new terminal T1 at the El Dorado Airport, from where routes to Barranquilla, Cali, Cartagena, Medellin and Pereira are now served. We added new VIP lounges to key international destinations such as San Salvador and Santiago as well as to domestic key cities in Colombia such as Rionegro, Bucaramaga and Cucuta to better assist our corporate travelers and our Lifemiles elite members.

Cargo transportation reported solid growth numbers in 2014, increasing revenues 11.6% when compared to 2013. Our traffic expressed in RTKs grew 25.5%, outperforming our ATK growth year-over-year, resulting in an improvement of 400 basis points in Load Factor over 2013. As with passenger traffic, we focused on expanding our routes and strengthening our partnerships. We acquired a stake in Aerounion in Mexico and signed a new commercial agreement with Etihad, creating a stronger cargo operation and more connectivity from Los Angeles via Mexico, while also improving cargo connectivity to Europe, from Milan and Amsterdam to Bogota.

In terms of our loyalty program, LifeMiles, we launched a Retail Coalition with local restaurants and retailers to grow the reach of the program and provide members with additional options to earn and redeem miles. Finally the year ended with more than 5.9 million members, which represent a 9.6% increase over the same period in 2013.

Lastly, throughout 2014 we managed to get Avianca back on track to the profitability path we had laid out early in the integration as we reached more than US$4.7 billion in operating revenues. As such we managed to expand the profitability of the business quarter after quarter reaching an adjusted EBIT margin for the fourth quarter of 9.5% and of 6.2% for the full year.

As we enter into 2015, we are confident that Avianca will deliver sustainable and long-term profitable growth. We have taken the necessary steps to strengthen the Company for the future. We understand the challenges and opportunities that lie ahead such as the decline in fuel prices as well as the depreciation of local currencies. However, today we are in a better position to seize growth opportunities. We are therefore raising our EBIT margin guidance for 2015 and increasing the range by 200 basis points as we expect to achieve an operational margin between 8% – 10%. We look forward to continue serving our clients while strengthening our strategic position in our key markets as we intend to deliver stronger results to our stakeholders.

Sincerely,

Fabio Villegas Ramirez

Chief Executive Officer

MANAGEMENT COMMENTS ON 4Q 2014 RESULTS

Avianca Holdings reached an operating income (EBIT1) of $118.4 million for 4Q 2014, while the operating income (EBIT1) margin came in at 9.5%. These results were mainly driven by an efficient redeployment of capacity (ASKs) as well as strong demand observed in the Colombian domestic market and international routes to Europe and South America. As a result, the Company was able to increase its passenger numbers by 9.2%, partially offset by a 9.8% yield decline given the capacity reallocation efforts. Moreover our cargo business performance continued to yield strong results as the Company was able to optimize the use of the available capacity of our new A330 cargo fleet. Thus, cargo and other revenues1 increased by 46% over 4Q 2013.

Operating revenues amounted to approximately $1.24 billion during 4Q 2014. This represents an increase of 3.1% over the same quarter in 2013, due to the optimized use of our cargo capacity as well as the continued growth of our loyalty program. The latter was partially offset by a 4.3% decrease in passenger revenues as result of the capacity reallocation strategy implemented in early 2014. Cargo and other revenues reached $256.8 million during 4Q 2014, representing 20.7% of total revenues, mainly driven by a 21% rise in RTKs. As a consequence, the cargo Load Factor for the quarter increased 600 basis points, reaching an all-time high of 70%. Operating revenues for the twelve months ending December 31, 2014 totaled $4.7 billion. This represents an increase of 2.0% over the same period in 2013.

Over the 4Q 2014, the Company added to its Bogota Hub twelve weekly incremental frequencies on international routes to La Havana, San Juan and Guatemala as well as one incremental frequency to Caracas (solely sold in USD) leaving the company with two daily flights from this hub. Furthermore, the Company started to operate a daily service from Bogota to Barcelona. Consequently, in 4Q 2014, passenger capacity, expressed in ASKs, increased 7.6% over the same period in 2013, resulting in a 5.9% capacity (ASKs) increase for FY 2014.

Operating expenses1 for the 4Q 2014 increased 3.0%, amounting to $1.12 billion. These results were mainly driven by an increase in maintenance and repair costs, which reached $74.6 million, related to the greater size of the fleet and aircraft return conditions as we continued with our fleet renewal program. Moreover, aircraft rentals rose by $12.4 million due to an increase in the size of the fleet, which passed from 154 aircrafts in 4Q 2013 to 181 aircrafts at the end of 4Q 2014. Ground operations in the quarter rose 18.6% when compared to the same period of 2013, mainly due to an 18.1% increase in cycles as the company added incremental frequencies and new routes. The latter was partially offset by a decrease in the cost associated to insurance premiums, which are accounted under flight operations as well as a 5.9% decrease in fuel costs related to the recent drop in fuel prices.

Total operating expenses1 for 2014 rose 4.4% to $4.4 billion, and were mainly due to the aforementioned increase in maintenance and repairs, which reached $265.9 million for the year and $ 25.7 million increase in depreciation and amortization associated to the changes in the useful life of the A320 aircraft family, passing from 30 to 25 years. All in all, the rise in operating expenses1 was the result of an increase of 11.2% in cycles, a 6.5% increase in passenger numbers and a 7.2% growth in total block hours.

As part of the Company’s on-going fuel hedging strategy, by the end of the 4Q 2014, 174 million gallons were hedged. This represents approximately 35% of the total expected volume to be consumed over the next fifteen months. The average price of such hedges was negotiated at $ 2.57/Gallon. As of December 31, 2014, the total hedged amount was covered through jet fuel derivatives. It is worthwhile mentioning that the hedging strategy from a cash risk perspective outweighs options over swaps as oil price volatility remains high.

In accordance with the fleet renovation and modernization plan, between October and December 2014, the company took delivery of one A321, one A319 (both equipped with sharklets), three ATR72, one A330, one A330F and four B787 Dreamliners while phasing-out two Fokker 50. Consequently, Avianca Holdings and its subsidiaries ended the quarter with a consolidated operating fleet of 181 aircrafts.

The company recorded other non-operating income (expense) of $14.0 million for 4Q 2014, compared to a non-operating expense of $37.9 million for the same quarter of 2013. Non-operating expenses include interest expenses related to incremental aircraft debt and additional debt service related to the bond placement carried in the second quarter of 2014. In addition the Company registered a net profit related to the foreign exchange non-cash translation adjustments of $52.0 million compared to $0.72 million expense for the same period of 2013. This effect is primarily due to a gain in foreign exchange translation adjustments, consisting of the net non-cash gain (or loss from) of our monetary assets and liabilities denominated in Colombian Pesos as well as our Venezuelan Bolivar denominated monetary assets subject to the USD exchange rate. During the first twelve months of 2014, the Company recorded other non-operating expenses of $119.0 million, compared to negative $89.7 million for the same period of 2013.

The Company’s cash and cash equivalents and available-for-sale securities, ended the quarter at $640.8 million. Including short-term certificates and bank deposits, adjusted cash and cash equivalents and available-for-sale securities (other current assets) came in at $673.2 million, equivalent to about 14.3 % of revenues for the last twelve months. Of this cash, we have managed to reduce our balance sheet exposure in Bolivars from ~$325.9 million in cash by the end of 2013 to $281.0 million in bank deposits as of Dec 31st 2014.

As of December 31, 2014, the Company’s leverage position (Net Adjusted debt to EBITDAR2) ended at 5.9×. Furthermore, the Company’s total long term debt amounted to $2.7 billion, while total liabilities came in at $4.9 billion dollars.

2015 – OUTLOOK

Avianca Holdings S.A., through its affiliated airlines, will continue to execute cost saving initiatives as well as revenue enhancing projects that are expected to be implemented over the next two years. Moreover, the Company anticipates a robust development of the network as the redeployed capacity matures in 2015.