The Commercial Airlplanes Market in Mexico

The Mexican commercial aviation industry encompasses approximately 30,000 employees and serves as many as 28 million passengers annually. The Airlines market in Mexico has been taken over by the emergence of the “Low Cost Airlines” entering the Mexican market eight years ago. And even more recently we find the “Regional Airlines” along with the traditional Aeromexico.

The trend for this year, according to the National Chamber of Aerotransportes (Canaero), is positive. They argue that total passenger traffic for airlines operating in Mexico has a potential for expansion from 10-12% in 2013. This projection is supported by the aggressive expansion of the fleet aircraft and another “if” the Economy in Mexico manages to grow around 4%. The Mexican airline industry has had black numbers ever since the second quarter of 2012. This was due to the sharp increase in passenger traffic and in turn reflects stability in the cost jet fuel.

PERSPECTIVES FROM THE GLOBAL TO THE LOCAL

Although the financial health of the global Airlines is slowly improving, the International Air Transport Association (IATA) increased its expectations for growth in earnings this year. It is anticipated that airlines earn about US$12.7 billion, compared with US$10.6 billion estimated in March.

In its report Financial Expectations for this year, the IATA said the reason for improvements in the forecast is that structural changes have been improving the ability of the industry to generate income despite economic conditions.

The aircraft manufacturer Boeing announced the plans to sell between 377 and 435 planes in Mexico over the next 20 years. According to Van Rex Gallard, Vice President for Sales in Latin America, this represent between 13% and 15% of the expected total demand in Latin America, Africa and the Caribbean,.

The National Chamber of Airlift in Mexico (CANAERO), meanwhile, reported that in March 2013 the domestic market grew 5.9%, while the international market did a healthy 10.9%. Andres Conesa, General Director of Aeromexico, was elected unanimously in February as the new Chairman of the Board of the National Chamber of Aerotransportes (Canaero) and will lead the group until January 29, 2014.

To promote air connectivity in Mexico as well as tourism, the Secretariat of Communications and Transportation via their General Direction of Civil Aviation (DGCA) will drive new regional airlines operating as TAR (Queretaro) and Aerojal (Jalisco). They are nearing completion of the processes required to start flying regularly with established routes and schedules. This was announced by Alexandro Argudín the head of the DGCA.

Also interviewed in recent weeks are representatives of Aerocala fia (BCS) and Danaus (Queretaro). They have charter flights (domestic and international), but work on a demand for service basis, so there isn’t any visible record of their operations.

For the Ministry of Communications and Transport (SCT), Aeromexico needs to fix their finances. This is a warning of imminent risk following the path taken by Mexicana Airlines, an airline that has been in bankruptcy for nearly three years. Aeromexico and their union faced a strike, but have now accepted a 4.7% increase in salary and 1.5% in rewards.

“Aeromexico requires necessarily to improve their economic situation. If no improvement is shown, the labor trajectory is on a very difficult path…the same as it was with Mexicana.” This is what Gerardo Ruiz Esparza, Minister of the SCT is reported to have said.

Although a bankruptcy agreement to rescue Mexicana has already been filed, a serious investor has not yet arrived with the ability to rescue the airline that has been in bankruptcy for over 30 months. This is what Ricardo’s Valle, General Secretary of the Association of Flight Attendants (ASSA), reported.

After the meeting held by union leaders with the Minister of Communications and Transport (SCT), Gerardo Ruiz Esparza, it was again confirmed that they are still without a serious investor who can take care of financial liabilities, taxes and labor.

AIRLINES AT A GLANCE


1. AEROMEXICO

Currently, Aeromexico is the most important Airline in Mexico, controlling the market share of Mexico, domestic and international. This year, the Company ratified Eduardo Tricio Haro as Chairman of the Board of Directors of the company and Valentin Diez Morodo as Vice President.

Aeromexico operates flights with a fleet of 117 aircraft and has already ordered another 75. In their inventory are Boeing-737s for short and medium routes, plus the Boeing 767 and Boeing 777 for long flights. It has pending orders for a number of the new Boeing 787-8. Aeromexico Subsidiaries operate a fleet of Embraer EMB-145, Embraer ERJ-190 and McDonnell Douglas MD-83. Among Aeromexico, Aeromexico and Aeromexico Connect Travel, a total of more than 550 daily flights to 70 destinations on 4 continents are in operation.

The first of 19 Boeing 787 Dreamliner aircrafts for Aeromexico landed in August at Mexico City’s International Airport (AICM). This is the route with which the airline will cover long-haul routes. The inaugural flight will be, for instance, from Mexico to Tokyo. Similarly, the second and third B787 aircrafts will arrive in September and start operations in October between the capital’s airport and Paris, France. There will be daily flights, in addition to some weekly flights to New York.

At the end of the year, with this in mind, Aeromexico will have three Boeing 787 Dreamliner’s in its fleet. This adds up to a total of 19 aircraft that they will receive over the next few years.

2. AEROMEXICO CONNECT

Aeromexico Connect is a subsidiary of Aeromexico with flights to 42 destinations, seven in the U.S. and one in Central America. They feature 350 daily flights making them the airline with the most operations in the domestic market. In total they are transporting 4.2 million passengers a year with 7 Embraer EMB- 190 jets and 37 Embraer ERJ145 jets. 

3. INTERJET

In the upcoming 10 years Interjet plans on investments to expand and renew its fleet that will exceed US$4.2 billion. The service is ideally placed to serve the domestic and international markets, “although their major focus will remain regional,” said Jose Luis Garza, the firm’s Director.

The recently tested Interjet’s Sukhoi Superjet 100 is representing the Russian airframer’s commercial interests in North America, while the manufacturer works to smooth its production process and broaden its tentative presence in the region. Interjet represents the first customer that the airframer classifies as Western.

In April Interjet received the first of 20 Sukhoi Superjet aircrafts and they must be delivered before the end of next year. Mr. Garza recalled that there is a promise of purchase for 10 more. This investment will be to the tune of US$800 million.

Besides the new aircrafts, the airline’s Director reiterated that Interjet plans to renew its current fleet of 37 Airbus (plus four that will come in the following months). This will be done between 2018 and 2022, and includes the manufacturer’s latest model the 320neo.

Thus, the airline remains committed to the Mexican market where it expects to add as many as 80 pairs of cities in the next three years. By the end of 2013 at least 10 new sites are expected. The Sukhoi Superjet (93 seats) is being required to firm up its boost in regional strategy numbers, although the initial delay was caused by technical issues.

According to Flight Daily News, the airline is looking at setting up second-tier bases- potentially at Monterrey, Tijuana and Guadalajara – from which to conduct services that would otherwise not be profitable owing to their lower traffic demand. Interjet chief financial officer Alejandro Beristain Mercado says there are some 80 routes in which the airline could deploy the 93-seat Superjet – some of which emerged as a result of the collapse of Mexicana.

4. VIVA AEROBUS

Viva Aerobus started to operate in November of 2006. This Airline was created with the combined experience of Group IAMSA and Irelandia. IAMSA Group 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 European low cost airline. The company’s CEO, Juan Carlos Zuazua, said there are currently 18 Boeing 737-300 aircraft in operation, but toward the close of the year there will be 22, he pointed out.

Viva Aerobus expects to serve 4.9 million passengers in 2013. This number represents an increase of 30% when compared to 2012, when it had projected an increase of 21% meaning 3.8 million passengers. The airline expects to open 10 to 12 new routes this year and add four new aircraft to its fleet. This was announced by Juan Carlos Zuazua, the airline’s General Manager.

5. VOLARIS

The Volaris CEO Enrique Beltranena emphasized that seven years after starting its operations, the Mexican Airline Volaris has transported over 27 million passengers and forecasts a figure of 9.6 million users in 2013. Volaris is the country’s lowest cost airline

“We have the youngest fleet in Mexico, with an average age of four years. This consists of Airbus aircrafts A319 and A320”, explained Enrique Beltranena. “Our 43 aircraft,” he added, “are equipped with the latest technology, leather seats and more space between seats for everybody’s convenience. Not only that, but they are operated by an experienced team that is constantly trained to ensure the utmost safety and comfort throughout the entire trip.”

Volaris announced in June that the Company signed a letter of intent for the purchase of 95 engines from the Firms Pratt & Whitney “P & W”. They are a division of United Technologies Corporation “UTC”, and its subsidiary International Aero Engines AG (“ASI”). The contract includes the purchase of engines and their maintenance for a period of 12 years.

Volaris expects to close 2013 with incomes higher than US$1 billion. This means an increase somewhere close to 18% compared to 2012, Enrique Beltranena, the airline’s CEO, reported.

6. AEROMAR

Mexico’s regional carrier Aeromar recently took delivery of the first of two ATR 72-600s that it is leasing from Air Lease Corporation, thus becoming the first 72- 600 operator in Mexico. Aeromar has 18 aircrafts and in order to have wider distribution in the market and offer better service, is implementing a “host” system, taking into account that 67% of travel agencies in Mexico use this Distribution System (GDS). Aeromar’s fleet consists of the following aircraft which also includes the 10 ART 42-500; the 4 ATR 42-320; 2 CRJ200; and there are two orders for the ATR 72.

According to ATR, the 72-600s offer superior passenger capacity compared to the smaller aircraft models, and lower fuel consumption per seat.

On February 1, 2011, Aeromar and Continental Airlines implemented an agreement on all routes of the Aeromar Hub at Mexico City’s International Airport. Aeromar has started flying to more domestic destinations such as Durango, Matamoros, Ixtapa and Piedras Negras.

On June 6, 2013, Aeromar and Iberia announced a codeshare agreement whereby passengers on routes operated by Aeromar can connect at the International Airport in Mexico City with Iberia and also with connecting flights to destinations in Madrid, Spain, parts of Europe, Africa and even the Middle East.

7. MAGNICHARTERS

Founded in 1994 as a shuttle service to tourist sites, Magnicharters has developed into a major Mexican commercial airline. Until now it has been considered as a low cost option and currently operates flights to 13 destinations. But the company is expected to grow further in both destinations and fleet.

The company is engaged primarily in national tourism and beach destinations in Mexico. Presently, the company has nine Boeing 737 aircraft so it can offer its passengers a safe and comfortable trip. Magnicharters is renowned everywhere for its excellent personalized service and performance.

STATISTICS

Exhibit 1 shows that during the first semester of 2013, Interjet and Volaris led the market share of the National Airlines in the Mexican Market in regard to passengers with 3.5 million and 3.1 million passengers out of a total of 2.3 million. This represents 25% and 23%, respectively. But if we take the Aeromexico Group as one (Aeromexico with Aeromexico Connect) together, they enjoyed 35% of the market.