InterJet

Volaris makes a move to leapfrog other Mexican LCCs with potential IPO

Now that the dust appears to be settling in Mexico’s aviation industry after rapid changes during the last decade, the country’s surviving upstarts are taking the next steps in their evolution through initial public offerings. Interjet opted to postpone its IPO in 2011 to await for more favourable market conditions, which must be improving given that its LCC rival Volaris has filed preliminary prospectuses for listings on both the New York and Mexican stock exchanges.

Volaris’ moves to go public follow a recent declaration by fast-growing Brazilian carrier Azul that it is planning an IPO following its acquisition of fellow regional carrier TRIP in 2012. But the similarities end there as growth in Brazil’s domestic market is slowing in parallel to cooling GDP growth. Brazil is also a much bigger domestic market served by only two LCCs while three LCCs continue to compete in Mexico, which has the second biggest domestic market in Latin America after Brazil. 

Volaris and its Mexican LCC counterparts are still moving to seize on available growth opportunities within the country as a large swath of Mexico’s residents still travel by bus. The calculus is offering fares similar to those charged by bus companies to Mexico’s burgeoning middle class, which has been on a steady growth trajectory since 2000.

Volaris and VivaAerobus continue their rapid climb to grab market share in Mexico

Mexican low-cost carriers Volaris and VivaAerobus are continuing to build up domestic market share during 2013 as Interjet appears to be holding its own on routes within Mexico while it awaits delivery of its first 93-seat Sukhoi Superjet 100 during 2H2013, when it plans to make a push into markets that are too thin for its current fleet of 150-seat Airbus A320 aircraft.

Volaris and VivaAerobus should continue to grow their share of the Mexican domestic market during 2013 as both carriers have stated an intent to exploit opportunities within Mexico, reflected by plans for each airline to make a push from Cancun to target Mexican travellers with increasing discretionary income.

Aeromexico plans more capacity growth in 2013 as delayed 787s are deployed to Europe and New York

Aeromexico saw its profits drop for the second consecutive year in 2012 as it was only able to grow passenger traffic by 3% despite double-digit growth for the overall Mexican market. But Mexico’s only surviving legacy airline group remains in the black and its outlook remains relatively bright given its strong position in the Mexican market and the resurgence of the country’s economy.

Grupo Aeromexico is planning to grow capacity (ASKs) by a further 6% in 2013, matching the 6% capacity increase from 2012. But the group is targeting higher RPK growth and load factors, which it hopes will allow it to regain the share of the domestic market it lost in 2012.

Internationally, Aeromexico is planning to grow capacity by up-gauging routes, including replacing 767-200s with new 787-8s to London and Paris. Aeromexico also plans to deploy its first batch of 787s to New York, which it currently only serves with 737s. Aeromexico now expects it will receive three 787-8s in 4Q2013, representing a delay of about three months due to the current grounding of the global 787 fleet.

Mexico returns to double-digit domestic growth in 2012, boosting outlook for Aeromexico and LCCs

Mexico’s domestic market recorded double-digit growth in 2012 for the first time in five years and only the second time this century. The Mexican aviation industry has reached its healthiest point since deregulation led to the launch of five low-cost carriers seven years ago. The market now features a strong legacy airline group and three LCCs which are seeking to cash in on their relatively strong positions by holding initial public offerings.

Mexican carriers flew 28.1 million domestic and 5.9 million international passengers in 2012, according to newly released statistics from Mexico’s DGAC. Domestically the market grew by 10% while the much smaller international market grew by 23%. Foreign carriers serving Mexico recorded much more modest growth of 3%, but still dominate Mexico’s international market with 21.2 million passengers carried in 2012.

Aeromexico predicts a rise in domestic market share as rivals continue to grow

Mexico’s largest carrier Aeromexico predicts a rebound in its domestic market share during 4Q2012 after watching its rivals grow in the market during the last year as they worked to seize on opportunities created by Mexicana ceasing operations in Aug-2010. Aeromexico’s management during the last three months of 2012 plans to focus more on building load factor instead of yield strength, which company executives believe will shore up its standing in the domestic market after the summer high season that was tilted more heavily towards leisure traffic. The carrier is also planning a trans-Atlantic push as it works towards the launch of new service to London Heathrow and forging a partnership with a Middle Eastern carrier to funnel traffic through its new European destination.

Aeromexico’s focus on improving yields was reflected in the nearly 7% growth the carrier recorded in that metric during 3Q2012, which helped to drive the carrier’s unit revenue growth up 3.6% year-over-year. While the yield strength reflects Aeromexico’s ability to garner favourable pricing, its 6% rise in capacity year-over-year in 3Q2012 outpaced the 2% traffic growth, driving the airline’s load factors down by 3.7ppt in 3Q2012 to 77%.

Mexico's Interjet continues transborder push as its domestic market share shrinks

A subtle shift is occurring in the Mexican domestic market as market leader Interjet is opting to cede some domestic traffic to other airlines, most notably to fellow low-cost carrier Volaris. Interjet has been focusing on building up international traffic while Volaris has concentrated a significant portion of its growth in 2012 domestically, largely through a push from Guadalajara.

Interjet’s international push has centred mainly in US markets and has resulted in Volaris and Aeromexico ceding their international market share as Interjet moves to balance its network. Interjet now has an almost 10% share of Mexico's international market (excluding foreign carriers), compared to only a 1% share a year ago. Interjet now serves six international gateways, all of which have been launched over the last 15 months. A seventh international destination will be added in Oct-2012 when Orange County in California will become the carrier's four destination in the US after Miami, New York and San Antonio.