- CAPA Analysis
- Route Maps
- Fast Fact Report
Location of Aeromexico Connect main hub (Monterrey Escobedo International Airport)
168 total articles
9 total articles
Mexico’s two publicly traded airlines Aeromexico and Volaris have reasonably positive outlooks for 2016 after the country’s economy remained stable in 2015, compared with some of the more volatile regions in Latin America. Currency pressure remains a challenge for all of Mexico’s airlines, as the MXP fell 20.7% against the USD during 4Q2015. But lower fuel costs helped Aeromexico and Volaris grow their top line profits for the full year 2015.
Although much will depend on how the overall global economic environment fares, Mexico’s GDP is forecast to grow 2.8% in 2016, which should bode well for the country’s airlines. Both Aeromexico and Volaris stress that their planned capacity growth for 2016 is reasonable in the circumstances. Volaris is aiming to expand at levels similar to 2015, while Aeromexico plans a reduction in its capacity growth as it matures several new international markets introduced in 2015.
Aeromexico believes that the lower capacity growth should help the airline improve its yields, which fell year-on-year in 2015. Its rival Volaris shored up its yields in 2015, and, for now, has concluded that the overall Mexican domestic and US transborder environment remains stable.
Grupo Aeromexico is embarking on 2015 with several initiatives under way to strengthen its network to ensure it maintains its stature as Mexico’s leading airline. The company is rebanking its strategic hub at Mexico City while resuming limited operations at nearby Toluca to alleviate some operating constraints at Mexico City Juarez.
Aeromexico is also in the midst of building up its hub at Monterrey and touting a new shuttle product from Mexico City to the country’s busiest business markets. At the same time, the airline is expanding its international footprint with new destinations in Latin America as well as new North American markets.
The network optimisation occurs as Mexico’s economic performance measured by GDP growth looks to improve year-on-year in 2015. Some of the challenges Aeromexico faced in 2014 are lingering into 2015, including pricing traction in Mexico’s domestic market. But Aeromexico seems to be taking the necessary steps to blunt the weakness that still may be present in Mexico’s domestic aviation market through efforts to maximise the vast connectivity it can offer compared with its rivals.
Aeromexico recorded a sharp drop in profits in 2Q2014 as market conditions in Mexico became unfavourable. An economic slowdown has coincided with rapid capacity expansion by Aeromexico and the overall Mexican market, putting pressure on yields.
Aeromexico’s capacity was up by 17% in 2Q2014, driven by a 27% spike in international ASKs. The group has adjusted domestic capacity, which was up by less than 3% in 2Q2014, but competitors continued to pursue aggressive domestic expansion.
Despite the relatively disappointing results Aeromexico has been consistently profitable over the past four years and boasts the highest margins in the Mexican airline industry. Challenging market conditions are likely to persist over the short term but the group’s medium to long term outlook is relatively bright. Following its recent market share gains Aeromexico should be in prime position to benefit as the Mexico economy improves and competition becomes more rational.
Aeromexico is pursuing rapid growth for its long-haul operation as it renews and expands its widebody fleet. The transition from 767s to larger 787-8s, which began in 3Q2013 and will be completed in mid-2015, is enabling Aeromexico to add long-haul capacity and improve yields.
The carrier will end this decade with 20 787s, compared to only 11 widebodies one year ago, enabling the launch of new destinations and higher frequencies on existing routes. The 787 and the growing long-haul network is a critical differentiator as Aeromexico is Mexico’s only widebody operator while it faces intensifying competition and overcapacity in the domestic and transborder markets.
As Aeromexico expands its long-haul operation it aims to increase transit traffic at its Mexico City hub by leveraging its enhanced network within Latin America. It is also working to boost yields, which have sagged over the past year, through product improvements and an increased focus on sales in higher yielding origin markets such as the UK.
Mexican low-cost carrier VivaAerobus began 2014 on a down note – cancelling a planned public offering valued at roughly USD226 million as it concluded market conditions were too dour and unpredictable to achieve an IPO successfully.
The cancellation occurred as VivaAerobus prepared for the first delivery of an Airbus A320. Its acceptance of the new jet marks a pivotal transition from older Boeing 737-300 narrowbodies to similar aircraft operated by its fellow low-cost rivals Interjet and Volaris.
VivaAerobus’ decision to shutter accessing the public markets does leave some questions as to how it will finance the 52 Airbus jets it has on order as six of the aircraft are scheduled for delivery in 2014. On a broader scale, VivaAerobus remains the smallest carrier among the four largest Mexican airlines, three of which (including VivaAoerbus) define themselves as low-cost carriers. If the projected rebound in Mexico’s economy fails to materialise during 2014, VivaAerobus’ greater exposure to the domestic market could create challenges for the carrier’s yet-to-be defined strategy for the future.
Having recently celebrated the significant milestone of competing an initial public offering, Mexican low-cost carrier Volaris remains bullish over the opportunities inherent in the Mexican aviation market as its domestic share continues to grow and its position in the international transborder space remains steady.
Key to Volaris’ belief in the robust opportunities present in Mexico is the growing appetite for air travel among the country’s increasing middle class. In the short term that thesis may prove tough to execute as the Mexican economy has been slowing and domestic passenger growth has not been as rapid during 2013 as recent years when Mexico’s carriers were scurrying to fill the void left by the collapse of Mexicana in late 2010.
As Volaris works to capture more of Mexico’s middle class, its competitors are devising their own strategies to compete in the dynamic Mexican market place. Aeromexico recently launched a new low-fare product scheme, "Contigo" while Interjet is planning a small market push as the first of its 20 93-seat Sukhoi Superjet 100s comes online. All of those dynamics should make for an interesting market place during the next couple of years as those carriers, along with VivaAerobus work to stake out their respective claims among the growing passenger base. Volaris is basing its future on a fleet comprised only of Airbus A320s while some of its competitors are utilising smaller jets to exploit thinner Mexican and transborder routes.