One of the fundamental industries for the universal development of the modern era is the connectivity, growth and development provided by the airlines worldwide. World air travel is expected to continue to grow at over 5% per year for the next 20 years, as it has for the last. This is good news for the world's 8,100 operating airlines.
Going from natural disasters, global economic crisis, health issues, wars, oil price fluctuations and local problems, the commercial airline market can be seen as a natural thermometer for the economic functionality of a country. The airlines of Mexico story has had two major stars in their cast--Aeromexico and Mexicana.
The story has taken two different roads for each company. At this time Aeromexico represents the major airline of Mexico with sustained growth and Mexicana is about to declare bankruptcy, unless it finds an investor soon. At some point in 1997 there were 16 airlines coexisting in the Mexican Market. In recent times, however, some companies have disappeared altogether from Mexico.
Their market has been taken with the emergence of the "Low Cost Airlines" that entered the Mexican market seven years ago. This was back in 1995. At the present time the market includes seven different airline companies.
Mexico's total market for the commercial airlines in 2010 reached over 77 million passengers. About 35% of this traffic was international travel, handled by domestic airlines and other international carriers. The first "low cost airline" in Mexico was Interjet. Recently, Interjet has evolved from being cataloged as a "low cost" into a "High Efficiency Airline".
The revolution in the Mexican Market provoked the rearrangement of the traditional airlines into sub-categories that economically benefited travelers in Mexico. This is how Interjet was born, when Miguel Aleman (the owner) started promoting better prices than the competition. In this way, as Mr. Aleman explained at that time, "...back in 1995 Mexico's domestic flights had prices that reached US$600 while foreign airlines had promotions to Europe with prices around US$350." But now, Interjet has become a high efficiency airline and the airline has been recognized for reaching lower costs but without any drop in quality. By 2012, Interjet expects to have 15 Russian airplanes Sokhoi Superjet operating in across Mexico, being ready to take other international markets such as the United States and in particular Central America.
Volaris is a low cost airline that has been competing well in the domestic market. The Company started in August, 2005. Major shareholders were Televisa (the largest Spanish media conglomerate), Inbursa (owned by Carlos Slim), TACA and Discovery Americas Fund. Five years later Televisa and Inbursa sold their equity in Volaris. Together with Interjet, both companies took several slots left by Mexicana and its subsidiaries Mexicana Click and Mexicana Link.
Volaris has also been consolidating an important presence in the U.S. Market with diverse routes. At this time, Volaris covers 50 national destinations as well as 7 in the United States. An important characteristic of Volaris is its consolidation as a socially responsible company by warrantying a less quantity of Carbon Dioxide (CO2) and a soundless system than their competitors.
Another airline, Viva Aerobus started to operate in November of 2006. This Airline was created with the combined experience of Grupo IAMSA and Irelandia.
Grupo IAMSA is the largest company in Mexico in terms of transportation services by bus. They have an important presence in 24 Mexican states. Irelandia is the investment tool of the Ryan Family which owns Ryanair, the largest low cost European airline. Viva Aerobus has 13 Boeing 737-300 aircraft that offer connectivity inside and outside Mexico with the cheapest market rates to 55 national destinations, 2 to Houston and one flight to Las Vegas.
The present status of Mexicana is uncertain. Different analysts have said that there are not economically sound basis available to operate the company again. Its operations stopped last August 2010. Since then many speculations have evolved concerning Mexicana. The truth is that the sector lacks an investment group that would be able to restructure the airline.
The liabilities of the Company have now passed the US$915 million mark. Among the groups presenting proposals are the TG Group, Avanza Capital and PC Capital. But as of this writing, there is no official taker yet. The other face of the story is Aeromexico.
The Airline has recently expanded their fleet to increase its presence in the domestic and certainly in the international market with overseas flights. The Group recently announced a US$1,300 million investment plan. Among the line items are the purchases of 10 Embraer 190 airplanes and 10 Boeing 737's.
Jose Luis Barraza is President of the Aeromexico Board. During his recent participation in the Forum sponsored by the Mexican Institute of Public Accountants, he pointed out that the rest of the plan will be to invest their own capital in the company, as opposed to trying to acquire Mexicana for instance. Very recently, Aeromexico started to offer their capital in the Mexican Stock Market and there was excellent acceptance by the investors.
The General Directorate of Civil Aviation of Mexico has presented interesting data describing the Mexican airlines market. The report dates to the month of April, 2011. This time period always represents an important holiday break for Mexico because of spring and Easter vacation.Exhibit 1
illustrates the passengers' growth rate for the main airlines in Mexico compared with the same month in 2010. The effects of the economic recovery are clear from these data.
Even though almost every airline registers an increase in Exhibit 1, an important fact that is rather obvious is the absence of Mexicana. Exhibit 2
illustrates the domestic market share during June 2011.
With the previously mentioned fact of the Mexicana suspension the international flights market suffered the absence of Mexicana. The passengers of international flights went down from 621,000 registered in March of 2010 to 318,000 for the same month in 2011.
In 2010 Mexicana had 66.4% of the international market share and Aeromexico only 27.9%. This year (2011), Mexicana has 0.0% and Aeromexico 79.8% of the International market share for the Mexican airlines. The presence of the foreign airlines has increased 10.5% compared with 2010.
American Airlines is the most important airline for passenger air traffic between Mexico and the U.S. and represents 70% of international traffic. This is followed by United - Continental, Delta Airlines, US Airways and Alaska Airlines.
The United Continental fusion has giving strength and dynamism to this company by increasing their competitiveness. Carlos Enrique Hernandez is the Director of the Company in Mexico. He stated: "we will continue consolidating our actual routes in Mexico and we will keep developing our strategy of exploration of new markets. We recently inaugurated the past month of June the routes Guadalajara – Los Angeles and Guadalajara – San Francisco." There are several foreign companies operating in Mexico. Europe is also an important market for the international traffic with Mexico. The presence of Air France, Iberia, KLM, Lufthansa and British Airways along with Aeromexico has been stronger lately. Also to Asia Mexico has been an important market with Aeromexico with daily flights to Shanghai and Tokyo operating Boeing 777s.
Germany's Lufthansa started to operate in Mexico back in 1966. Wolfgang Will, General Director of the Company for Mexico and Central America made this comment: "We are looking for the short term to increase our flights going out from Mexico, going from one to two daily flights because we have an increase in the demand of the Mexican market as well as tourists going into Mexico." Delta, KLM and Air France have made an alliance with global presence potential.
Alberto Porragas is the director of the joint venture in Mexico. "We are the founders of the sky team alliance. This is the main transatlantic alliance with over 13,000 daily flights worldwide through hubs like Amsterdam, Atlanta, NY, and Paris, Tokyo as well as many others." Another important alliance has been made by American Airlines, British Airways and Iberia, with presence in Mexico. Marvin Diaz is the General Director of American Airlines for Mexico. He expressed that this alliance between these three large players of the aviation sector, has solidified their international presence.
"In Mexico, we fly 5,000 passengers daily and we keep increasing our demand. At this time we cover the North American, European and Asian markets." "LAN is the port of entry to Central and South America" said Ivan Zika, Director of LAN for Mexico and Central America; this company operates 14 flights to Mexico weekly, covering a market near of 3,000 passengers a week. Copa Airlines is also an airline that operates direct flights from South America to Mexico, having a Cancun – Bogota route, that in words of their President Roberto Juanguito Pombo, they will increase to a second route in the short term, based on the success of the only airline that operates from Colombia to Mexico.
What is expected in the near future? For the international market it's obvious that the foreign companies operating in Mexico are taking advantage over the Mexican ones. At the month of February of 2011, 86.6% of the total travelers on this segment did it by a foreign airline, almost 12% higher than the data recorded one year before at the same month. It is obvious that Aeromexico and Volaris haven't been able to take Mexicana's market share on this segment.
For the domestic market, the conclusion is that the competition has been positive for the active companies. Mexicana seems to be lost because of the lack of capital to restructure the company's debt. Aeromexico will remain as the leader of this segment with its two subsidiaries of Aeromexico and Aeromexico Connect and Interjet along with Volaris are looking to enter into the Mexican Stock Exchange to find more capital to invest in the improvement of their fleet and remain operating with low costs but with more routes and better services. The "low cost" airlines segment will keep growing with the two previously mentioned airlines along with Viva Aerobus, Aeromar and Magnicharters, the only other players in the market.