Mexican aviation: a turbulent 2008 sets stage for uncertain 2009
Monday, 20 Jan, 2009
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TravelMole Guest Comment by Euromonitor International research analyst Michelle Grant
Fares had been on the decline since 2005 thanks to the launch of numerous low-cost carriers but 2008 proved to be the year of reckoning for the Mexican airline industry.
The historic run-up in fuel prices in 2008 proved to be too much for even low cost carriers as they began to raise fares prices to compensate.
In May 2008, low-cost carrier Volaris added a fuel charge between Pesos40 and Pesos250 depending on the flight length. The fare increases were not enough to cover the increase in the price of oil, which reached $147 per barrel in July 2008.
Airlines turned to other measures, including cancelling routes, cutting frequencies and raising cash, to survive.
But these measures were not enough for airlines such as Avolar and Alma de Mexico, and those, along with Aerocalifornia, Lineas Aereas Azeteca and Magnicharters, exited the market.
Rising prices, along with an increasingly uncertain economic outlook, contributed to decreased demand.
The number of domestic passengers in July 2008 compared to July 2007 contracted by 5.7% – the first such contraction since November 2005. August and September also saw declines of 5.3% and 6.0%, respectively.
Passengers shifted from the more expensive flagship brands of legacy carriers Aeromexico and Mexicana to low cost carriers InterJet, Click Mexicana and Volaris. An Aeromexico brand, Aeroliteral, also increased its passenger figures.
At the end of September 2008, Volaris was the third largest airline brand, closing in on the heels of Mexicana as a result of the passenger shift with Interjet, Aeroliteral and Click were not far behind.
Fuel prices decline, but so does demand
Airlines did see relief from high fuel prices beginning in September 2008 just as the US financial crisis began casting doubt about demand.
The weakness in demand, starting in July, persisted through the end of the year with airports reporting declines in passengers for the month of December.
Airlines reacted by rolling out promotions for the traditionally busy holiday season. The promotions continued for travel in February, traditionally a slow travel month.
It is likely that promotions and fare discounts will continue well into 2009 as airlines get relief from lower fuel prices and attempt to stimulate traffic from hesitant travelers.
Interjet has stated it will be aggressive in offering discounts for high travel times, such as Semana Santa (the holy week ending with Easter Sunday) and the summer, far in advance to stimulate demand. Aviasca has also stated it will continue to discount between 5% to 50% to fill planes throughout 2009.
The race to international destinations
Legacy carriers began to expand their international routes extensively in 2005 to earn money on higher-margin routes where low cost carriers do not compete.
The race to international destinations continued in 2008 with Mexicana making a big push into the US, adding flights from Mexico City to Orlando, Oaxaca to Los Angeles, and Puerto Vallarta to San Francisco. Mexicana also started service from Mexico City to Sao Paulo.
Mexicana will fly from Mexico City to London’s Gatwick airport from this month.
In 2008,low cost carriers finally implemented long-stated plans to connect the US and Mexico.
In the summer of 2008, VivaAerobus began flying to Austin, Texas from Monterrey and Cancun, later adding Puerto Vallarta. While VivaAerobus may have been the first independent LCC to launch international flights to the US, it may be surpassed in success by Volaris.
In November 2008, Volaris signed a codeshare agreement, with an expected start date of 2010, with Southwest, the largest airline by domestic passengers in the US.
Volaris also announced plans to operate its own US service starting in June 2009 in an effort to capitalize on feeds from Southwest’s large network. Its routes fly from Toluca airport near Mexico City to Chicago, Illinois; San José, California; Houston, Texas; and a yet-to-be-announced city in Florida.
This will leave Interjet as the only independent low cost carrier without international routes with Click Mexicana no longer flying to the US. Although it has received permission to fly to the US, the peso devaluation in October has forced Interjet to delay its launch until July 2009. The airline does have permission to fly from Toluca to San Antonio, Texas; Guadalajara to Houston, Texas, and from Monterrey to Houston, Texas.
For the legacy carriers, additional international flights are a good strategy.
The peso devaluation makes Mexico an even more attractive destination for leisure travelers from credit-crunched countries, such as the US, UK and Western Europe.
However, low cost carriers may face an uphill battle. As the construction industry in the US continues to suffer and the government pays closer attention to immigrants, many Mexican workers have returned home to stay.
Additionally, those that remain in the US may cut back on trips home to conserve money.
Low cost carriers will have to make a concerted effort to reach out to American leisure tourists through offline and online marketing as well as developing websites in English to stay successful.
Phil Davies
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