The Commercial Airlines Market in Mexico

The Mexican commercial aviation industry encompasses approximately 30,000 employees and serves as many as 28 million passengers annually. The airlines of Mexico story had, at some point in 1997, 16 airlines co-existing in the Mexican Market. More recently, however, some companies have disappeared altogether from the scene. Their market has been taken over by the emergence of the “Low Cost Airlines” that entered the Mexican market seven years ago.

This was back in 1995. At present the market includes seven different airline companies. Aeromexico now represents the major airline in Mexico with sustained growth and Mexicana, the former large competition, is in a process of bankruptcy, in risk of being grounded for good, unless it finds an investor soon.
But the most important news of the year comes from Aeromexico. Recently the Group announced an order for 100 aircraft from manufacturer Boeing for a total of US$11 billion. This will be for the incorporation of new equipment, renewing the firm’s current fleet and reducing costs.

According to Andres Conesa, Aeromexico’s General Manager, when carried out, this operation will represent the largest investment by national airline in the history of the aviation industry in Mexico. It is the largest airline in Mexico in domestic passenger traffic. A detailed order of aircraft includes 90 Boeing 737-8 MAX narrows, with CFM International LEAP-1B, and 10 wide body Boeing 787-9 Dreamliner teams with General Electric GEnx-1B engines.

This investment demonstrates the commitment of the shareholders of Grupo Aeromexico with the country and the confidence exhibited in the economic environment and a rosy future, commented Jose Luis Barraza, chairman of the Board of Directors of the firm.

The Deputy Director of Interjet, another large competitor in the market, José Luis Ramírez Magnani, explains it this way: “Being a Low Cost Airline is our model and we do it with the entire infrastructure that is behind Interjet investment in new equipment, and qualified personnel. Believe it or not, all of that investment keeps our costs down and that allows profits and profitability, even without a high price.”

Interjet expects to soon have 28 new airplanes of which 17 will be Russian Sokhoi Superjets operating across Mexico. They are getting ready to take other international markets in the United States and in particular Central America.

Volaris is a low cost airline that has been competing well in the domestic market. Volaris has also been consolidating an important presence in the U.S. market with diverse routes.
Enrique Beltranena, CEO of Volaris, said: “Volaris is a low-cost airline with strong growth. We focus on properly controlling our investments in order to offer the best market rates for our customers.”

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.
The company’s CEO, Juan Carlos Zuazua, said that currently there are 18 Boeing 737-300 aircraft in operation, but towards the close of the year there will be 19 or 20.

The present status of Mexicana is uncertain. Different analysts have said that there is no economically sound basis available to operate the company again. Its operations came to rest in August 2010. Since then there has been a lot of speculation around concerning the company.

Mexicana Airlines suspended operations on August 28, 2010 and, two years later, there is no certainty that it may recover its airspace routes and airport slots, its market and its leadership as the oldest airline in Mexico. In the 700 days that countless meetings have been carried out, there has been more than a dozen potential investors that have set over and over again-off dates to reach a final deal. There’s a lot of paperwork but no capital for restructuring the debt riddled and grounded airline.

The National Tourism Confederation revealed that during the two years of market since the grounding of Mexicana Airlines, along with Link and Click there was a loss of 52,846 flights, but with a gain of 1´796,669 passengers. In August 2010 there was a steady drop operations, which bottomed out a year later, with a cumulative loss of 71,761 flights, a trend that was reversed in September of that year until April 2012. However, the behavior of the passengers was different, as most cumulative drop was reached in March 2011 with 195,835 passengers, a trend that was reversed from April of that year and became gain from September 2011 to reach a favorable balance of 1´796.669 passengers in April of this year.

The commercial aviation market has grown in the past 12 months.
For instance, Exhibit 1 illustrates a comparison of total passengers by the Commercial Airlines in Mexico between June 2010 and the same month in 2011. It is important to say that only Aeromexico and Aeromar have shown lower totals, but overall the market improved by 13.23 % with a total of 2.3 million passengers.

Exhibit 2 shows that Interjet and Volaris led the market share of the National Airlines in the Mexican Market in Passengers with 22% and 21% respectively.
But if we take the Aeromexico Group as one (Aeromexico with Aeromexico Connect) they enjoyed 28% of the market.

Total Passengers in the National Market from January 1 to June 30, 2012, compared to the same time span in 2011 indicates an improvement of 10.92%. This is remarkable as shown in Exhibit 3.

Mexican Airlines have also improved in the international flight market.
In this field Aeromexico is by far the nationalleader. The total number of flights improved 21.6% compared to the same time in 2011. Please seeExhibit 4.

International Airlines have an important presence in Mexico. Comparing the years 2012 and 2011 an important fact emerges between Continental and United. The total number of flights remains almost equal in 2012 as compared with the previous year (2011).
This can be seen in Exhibit 5.

Together the National and International Airlines transported 11.3 million passengers from Mexico to international destinies from January 1 through June 30. This represents a 3.7 higher record than the same period the previous year (2011) as shown in Exhibit 6.

The biggest risk facing the airline industry in Mexico is a possible world economic recession, in particular in the U.S. This is a market that accounts for 80% of total passenger movement to and from abroad. Industry entrepreneurs warn: “The biggest risk is that a slowdown and especially a possible economic recession will hit the Mexican market harder, although the domestic market looks good.” This observation was made by Abraham Torres Zamora, President of the National Airborne Association (Canaero).