It looks like Interjet and Volaris are about to emerge as the two big winners in Mexico's overcrowded low-cost sector
Mexican low-cost carriers Interjet and Volaris are plotting aggressive expansion as they try to exploit opportunities created by consolidation in Mexico's dynamic domestic market.
The overcrowded and intensely competitive market has already seen one casualty in Aerocalifornia, which was forced to cease operations in July after the government grounded it for unpaid air traffic control bills. Interjet pounced on Aerocalifornia's demise, quickly buying all 50 of the carrier's slots at Mexico City International Airport in a controversial transaction that is now being challenged by other carriers. Aerocalifornia was Mexico's fourth largest carrier until five low-cost operators busted into the domestic market over the last three years and quickly surpassed it.
Meanwhile Avolar, the smallest and weakest of Mexico's five low-cost carriers, has been forced to slash capacity and park half its fleet following a similar government grounding order citing air traffic control debts.
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Tijuana-based Avolar, which has gone through three chief executives in recent months, has so far fought off the grounding order but is battling to stay in business with rival Volaris having added capacity on some of its routes. "I think Avolar will disappear," says Volaris chief executive Enrique Beltranena.
Accelerated Growth
Volaris, which has also been quickly adding capacity at Aerocalifornia's base in La Paz, is accelerating its fleet expansion plan to take advantage of the changes in the marketplace. Beltranena says Volaris will add seven Airbus A319s next year instead of an original plan for one. It now operates 18 A319s with one more A319 and two A320s due for delivery this year.
Volaris has already become Mexico's largest low-cost carrier and Beltranena claims by year-end it will also surpass Aeromexico and Mexicana as the country's largest domestic player. Both Aeromexico and Mexicana have been slashing domestic capacity this year, with the latter transferring seven unprofitable routes to its low-cost unit Click.
Aviacsa, Mexico's third network carrier, has been cutting capacity even more dramatically since a deal to sell to Interjet fell through early this year. "We cancelled the transaction," says Interjet chief executive Jose Luis Garza. "The carrier was in the red and had high debt. The price was outrageous. We decided to wait."
For the last year Interjet has been looking for a way to gain access at Mexico City International, where Aviacsa is based, but Garza says buying slots from Aerocalifornia's owners turned out to be a much better opportunity. He also says "the slot transaction is purely legal" and is confident Interjet will prevail in the legal challenge launched by other carriers, which are seeking for the slots to be re-competed.
Interjet has already launched nine daily flights at Mexico City to seven destinations using 18 of the 50 newly acquired slots. Garza says it hopes to soon start using all 50 of the slots to support more domestic flights as well as new flights to the US which Interjet plans to launch late this year.
Garza also hopes to get his hands on more slots as other Mexican carriers downsize or shut down entirely: "In the next six months the number of operators will reduce dramatically. I see only four survivors."
Mexico City slots are so critical to Interjet that Garza says the availability of the Aerocalifornia slots allowed the carrier to drop a drastic restructuring plan which called for capacity cuts and the return of six of its 13 A320s. "Fortunately that plan was never put into effect and we were able to get Aerocalifornia's slots and fast entry into Mexico City," Garza says. "Now it's just the other way around and we're anticipating accelerating our expansion."
He explains that yields at Mexico City are 15-20% higher than at the capital's alternative airport, Toluca, and Interjet needed to fly to Mexico City to succeed in its strategy of catering to business travellers.
Interjet, which will add two A320s in November, is now seeking five additional A320s for next year. The additional aircraft will allow Interjet to continue expanding at Mexico City and resume its expansion at Toluca, where Interjet is based and has cut 25% of its flights to free up capacity for the Mexico City operation. "We don't want to abandon it," Garza says of Toluca. "We want to expand there. If we leave some vacuum probably Volaris will take it."
Indeed Volaris, which is also based at Toluca, is now by far the largest carrier at airport. Beltranena says Volaris will continue to focus exclusively on Toluca even if slots become available at Mexico City. He claims the costs are too high and turnaround times are too long at Mexico City to support low-cost operations.
"Our airline is not about corporate traffic. We're not in that niche. We should stay here," Beltranena says. "Toluca is a key point of our strategy. Why would we derail from that? We think our strategy is working. The last three months Volaris has been profitable. I'm probably the only profitable airline in the country."
Garza acknowledges that Interjet has been unprofitable so far this year but says the new Mexico City operation will help it break back into the black in the fourth quarter and "definitely next year will be positive financially for us". Despite their rivalry, it is starting to look like Beltranena and Garza, with their two vastly different strategies, will be the two big winners in Mexico's high stakes low-cost carrier war.
For more on the revolution that has taken place in the Mexican market, go to: flightglobal.com/mexico
Source: Airline Business
