Mexicana may still be trying to re-launch but its share of the business has already been taken over by other carriers
Mexico's remaining carriers have quickly filled the void left by Mexicana in the domestic market and are planning major expansion for 2011 in domestic and transborder markets.
Data from Mexico's DGAC for September and October, the first two months after Grupo Mexicana's shutdown, shows nearly all of Mexicana's domestic traffic has already been picked up by other carriers. In October 2010, the total size of Mexico's domestic market decreased by less than 1% compared to October 2009 to 1.96 million passengers despite the exit of Grupo Mexicana, which accounted for 30% of the market a year ago (see chart).
As the country's only remaining legacy carrier, Aeromexico has been the largest beneficiary of Mexicana's demise. But three low-cost carriers - Interjet, Volaris and VivaAerobus - have also significantly benefited as they have all quickly expanded their domestic operations at Mexico City.
Aeromexico chief executive Andres Conesa says the latest data "shows there was excess capacity in the market" and "now the industry is corrected to where it should be". Volaris chief commercial officer Holger Blankenstein agrees, saying "there was a massive amount of overcapacity. Now the business is more sustainable."
While Mexico's remaining carriers were quickly able to increase capacity by about 10% in the aftermath of Mexicana's suspension, the gap created by Mexicana's exit has mostly been filled by increasing load factors. Conesa and Blankenstein say the average domestic load factor in Mexico, which was only in the 60s before Mexicana's exit, has now jumped to about 80%.
While Aeromexico has seen a dramatic improvement in its load factor Conesa says the carrier also quickly added the equivalent of seven Boeing 737s by its increasing average utilisation.
Aeromexico added further domestic capacity in December by leasing three additional 737s for six months. But Conesa warns "we need to be careful at expanding" and avoid re-creating the excess capacity problem which has plagued the Mexican market in recent years. The airline refused to commit to permanently growing its fleet until it forged a new contract with its pilots, a deal on which was struck in the middle of December. "We've explained to them in order to grow we need competitive conditions with other airlines," Conesea said prior to the deal. The agreement unblocks plans to put 25 additional aircraft into service over the next months.
LOW-COST EXPANSION
Mexico's three low-cost carriers, which have significantly lower labour costs than Aeromexico, have all quickly committed to permanent fleet expansion. Volaris brought in three additional A319s in December and will add seven A320s in the first half of 2011 to take its fleet to 33 A320s. Volaris is also looking at leasing several additional A320s in the second half of 2011.
Interjet added five A320s in the fourth quarter of 2010 - all aircraft which were not in its original fleet plan - giving it 21 aircraft. The carrier is also looking at significantly accelerating its fleet expansion for 2011 with an announcement expected in January.
VivaAerobus did not add any aircraft in the second half of 2010 but has committed to leasing 10 additional Boeing 737-300s in 2011 giving it a fleet of 21 737-300s. VivaAerobus commercial director Roberto Valdez says most of the extra aircraft will be used to set up a new base at Mexico City.
VivaAerobus and Volaris only began serving Mexico City in early 2010. At the time both said Mexico City would just be a destination and they would continue to focus their growth at their existing bases. But Valdez says VivaAerobus' initial success in Mexico City has prompted it to expand its operation there in 2011 and make Mexico City its third base. This plan was accelerated after Mexicana suspended operations - VivaAerobus launched six new routes from Mexico City in October by improving utilisation on its existing fleet.
But Valdez stresses VivaAerobus is "not losing our focus on Guadalajara and Monterrey". Valdez says the carrier's Guadalajara base, which has quickly expanded since opening in 2009, will be expanded next year from 11 to 19 routes. VivaAerobus' original Monterrey base, where it serves 25 destinations, will be "stable".
Blankenstein says Volaris, which added seven new routes at Mexico City in September, expects to expand in Mexico City next year to 25 daily flights. But he says Tijuana and Guadalajara will remain its "cores" and it will expand around 20% and 30% respectively.
Interjet, in the aftermath of Mexicana's shutdown, also quickly added new routes and bolstered frequencies on existing routes at Mexico City. Interjet now has 22 routes from Mexico City.
Mexicana's large void on US routes, where it was the market leader, has so far been filled by expanding US carriers due to category 2 safety rating restrictions. But in early December the FAA reinstated Mexico's category 1 safety rating, making it possible again for Mexican carriers to add capacity to the US. Aeromexico and Volaris almost immediately responded by adding frequencies on existing US routes.
Volaris also quickly opened its fourth US gateway, Chicago, in mid-December and says it plans up to five US gateways in 2011. VivaAerobus, which plans to increase capacity to its two US gateways early next year, is also now evaluating new transborder routes.
Overall, foreign carriers saw their Mexico traffic jump 27% in October to 1.3 million passengers. Aeromexico and Volaris should eventually absorb most of the over 500,000 monthly international passengers carried by Mexicana, most of which were carried on US and Canadian routes. Despite numerous sceptics a new ownership group is also still looking at re-launching Mexicana with a business plan focusing on transborder routes with up to 30 A320s.
Source: Airline Business
