Gastón Azcárraga: In it “for the long-term” with Mexicana

Mexicana chairman Gastón Azcárraga is still reeling from the Mexican competition authority’s decision to block his hotel chain, Grupo Posadas, from acquiring rival Aeromexico and merging the two carriers’ operations. However, he says he is “in it for the long-term” with Mexicana and will push to return the carrier to profitability and boost its chances of competing in the increasingly-crowded Mexican airline market.

Grupo Posadas marked its first foray into the airline industry in late 2005 with the acquisition of Mexicana from the government. In an interview with Airline Business at one of the group’s hotels in Cancun, Azcárraga admitted that the acquisition of Mexicana had been “a challenging experience”, adding: “The airline industry is very complex and has its own problems – in Mexico more than the rest of the world.”

Nevertheless, he was prepared to go through it all over again with a plan to also take Aeromexico off the government’s hands and merge it with Mexicana to make one large flag carrier. He describes the competition authority’s decision to prevent this plan from becoming a reality as “a big disappointment”.

“We respect this decision but we disagree with it. In Mexico this industry is going to need consolidation – there are 14 carriers in Mexico and entry barriers are low. Consolidating the two legacies would have been good for everyone.” He adds that there is “no time to lose” in making sure that Mexicana is as efficient as possible to compete not only with the low-cost start-ups that have entered its domestic market, but also with newly-privatised rival Aeromexico, which for the first time in years now has access to a pool of capital to invest in improving its operations.

“We dedicated the first 18 months [following the acquisition of Mexicana] to cost reduction and we’re making lots of progress,” says Azcárraga. “The new low-cost carriers had a different cost structure, so we really had to look at everything.” Mexicana is “slightly halfway through” its cost-cutting programme, under which it is “looking for north of $300 million of savings a year”.

Grupo Posadas has invested $60 million in Mexicana since becoming its new owner. The carrier’s low-cost subsidiary, Click Mexicana, will take delivery of eight new Fokker 100s over the next six months, representing roughly a 50% fleet expansion. Mexicana’s mainline fleet renewal programme is currently under consideration: “The most important aspect is making the right decision on our widebody strategy. We will come up with this in the coming weeks and months.” The carrier is in talks with Boeing over the 787 and with Airbus over the A350 XWB.

Losing market share
Mexicana has a battle on its hands domestically as it faces significant competition from several new low-cost carriers which have come on to the scene over the last couple of years. The effect these new entrants have had on Mexicana’s operations can be seen from its loss of market share: “Our domestic market share is 24% now. In the early 1990s, Aeromexico and Mexicana had 95% - this came down to 84% in 2000 but since then both companies have held close to 50% of the market,” explains Azcárraga.

He plans to use Click Mexicana, which he describes as a “positive performer”, as a weapon to compete on domestic services to smaller cities, while Mexicana will continue to operate to Mexico’s major cities. Mexicana will also continue to expand throughout the Americas, but destinations further afield are also on its radar screen. “Mexicana is a north-south airline,” says Azcárraga. “We operate from Canada to Buenos Aires and the idea is to cover as much of the Americas as possible. But we are also evaluating Asia and Europe.”

Mexicana is not profitable now and will end 2007 in the red, but its chairman is optimistic about the future: “Our target is to get back to profitability as soon as possible. Our financial situation is pretty good – we have no net debt so the balance sheet looks pretty good,” he says. “Mexicana’s goal is to be the number one airline in Mexico for size, customer satisfaction and profitability. We are working very hard every day to deliver those goals.”

Source: Airline Business