Antipodes' Phillip Namara

Phillip Namara of Antipodes pitches Volaris (VLRS), a Mexican low-cost Airbus NEO carrier, as a mispriced merger option: 55% of its capacity is Mexican domestic, with most of the rest U.S. transborder. He puts the standalone business at about $10 a share and a completed merger with Viva Aerobus at $20–25, so the implied probability of closing is “actually reasonably low.” On his numbers, at $12 the stock trades around 3.5x standalone next-twelve-months earnings, one standard deviation cheap to its history; if the deal fails and merger money flushes out, he thinks it could trade back to around $7–8.

Mexico is “one of the best structural stories” in airlines: a fare war took the industry from 13 players to four by 2019 while demand grew from 25M to 70M passengers, and the real competitor is buses — 3 billion annual bus passengers taking multi-hour trips for $50–100. Turkey, at similar GDP, flies 1.3 trips per capita versus Mexico’s 0.5; the merger presentation argues the market could be 130% bigger if riders convert. Volaris has reportedly stationed salespeople at bus terminals offering free first flights.

The December Volaris–Viva merger of equals would take a three-player market to two, and the precedent is Interjet’s 2019 collapse, when base fares stepped up about $8 per passenger even as oil fell — “true pricing power.” A similar lift plus typical airline synergies of 3–6% of revenue gets about $2.50 of pro forma EPS; global low-cost-carrier share winners trade at 8–10 times, hence $20–25.

Regulatory approval is the swing factor, and Phil is disarmingly candid: “on every metric, if this were to be judged by the DOJ, it would fail.” The pitch to Mexico is global consolidation precedent, 40% of Volaris routes competing only with buses, U.S. Big Four carriers moving more Mexico–U.S. passengers than all Mexican airlines combined (“sovereignty of the skies”), and the combined entity shifting capacity to AMLO’s low-capacity, military-run AIFA airport so the government can tout the project as a win. Phil estimated state-owned Mexicana’s EBITDA margin at maybe negative 60% after 18 months.

The Pratt & Whitney powdered-metal groundings have masked two years of under-earning: the issue has grounded roughly one-third of the relevant global A320-family fleet since mid-2023; Andrew cited 37 of about 157 Volaris planes as grounded, while Phil described roughly one-third of Volaris’s fleet as grounded. Volaris pays about $350k/month per aircraft in leases against only about $200k of non-cash P&W maintenance credits, plus hoarded labor. Yet EBITDA per flying plane still runs about $700k/month — roughly matching full-fleet 2023 levels — and full restoration by end-2027 could take the fleet from about 110 to 150 aircraft, with Airbus deliveries extended out through 2030.

Why doesn’t rational Mexican pricing invite entrants? Relative market share: a startup leasing 10 planes would see Volaris and Viva match its schedule at $30 tickets — “within six months you and I are bankrupt.” Aeroméxico, which Phil believes is partially owned by Delta, is not like-for-like competition: only about 20% of its capacity is domestic, with roughly 10-cent unit costs versus Volaris’s 4.5 cents. The discount to U.S. comps is partly liquidity: Andrew cited about $5M/day of turnover, but Phil says some investors who want the stock still cannot own it because it is not liquid enough.

The U.S. ULCC graveyard is not the template for Mexico: legacies’ basic economy — reserving 15–20% of seats at rock-bottom ~$100 fares — created about 14 points of dirt-cheap capacity across carriers controlling about 70% of the market, versus Frontier’s ~3% share. That “pretty brutal competitive strategy” is “what’s killed Spirit and is killing Frontier today”; Europe instead offers Ryanair cheap secondary airports and less sophisticated full-service rivals.

🔗 Original source & video: Flying through the Volaris thesis with Antipodes’ Phillip Namara