The catastrophic devaluation of the peso against the US dollar at the end of December has made matters worse for the Mexican airline industry. The economically precarious Aeromexico-Mexicana consortium, now being run by its creditor banks, is especially at risk.
The good news being trumpeted for Mexican carriers is that the cheap peso, which fell close to 40 per cent against the dollar in less than two weeks, has invigorated the Mexican-bound US travel market. The bad news is that there will be a delay before the traffic and revenue filters through.
Meanwhile the domestic air transport market, already top heavy with the competition between Aeromexico, Mexicana, Taesa and a bevy of smaller airlines, has been hit as discretionary travel slows. 'The devaluation has hit hard on the local economy, so prospects for growth in this year are now shattered,' says David Pizzimenti of Nomura Research Institute.
But even worse is that the three big Mexican airlines have significant amounts of both on and off balance sheet costs tied to the dollar. 'These carriers have a good portion of their fleets on operating leases based on dollars, their fuel is pegged to the dollar, and some of their debt is in dollars,' he says. 'If they can get more tourism flowing, it won't offset the new costs.'
The devaluation comes at a bad time for Aeromexico and Mexicana. The airlines' creditors are conducting viability studies for Mexicana, which has consistently lost money for years, and sources speculate that they may shut it down. Estimates for losses last year stand at $175 million.
Source: Airline Business
