After a couple of years of severe earnings pressure, Mexican budget airline Volaris (NYSE: VLRS) began to turn things around about a year ago. While the carrier posted a big loss during the first nine months of 2018 -- and its operating margin deteriorated by more than 6 percentage points year over year -- its operating margin reached 4.5% in the fourth quarter, up from 0.3% in the prior-year period.
The turnaround has accelerated this year. Volaris' operating margin improved by more than 10 percentage points in the first half of 2019, reaching 4.4%. Furthermore, all signs point toward continued margin expansion in the back half of the year, with more room for improvement in 2020 and beyond.
During Volaris' second-quarter earnings call, management projected that margin expansion would continue in the third quarter, despite somewhat tougher year-over-year comparisons. Strong demand and rising ancillary revenue are driving unit revenue growth, even though fares remain low in many markets.