Guadalajara Miguel Hidal Airport

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.

VivaAerobus and VivaColombia focus on domestic expansion as Irelandia ponders third Viva franchise

VivaAerobus and VivaColombia are planning further expansion in the Mexican and Colombian domestic markets in 2013 while they remain separate entities without any network or operating synergies. But the two low-cost carriers could start exploring a closer partnership in 2014 as VivaAerobus looks to potentially join VivaColombia as an A320 operator and launch services to other Latin American countries.

Meanwhile, Irish investment firm Irelandia Aviation, which owns stakes in VivaAerobus and VivaColombia, continues to study establishing a third Viva affiliate in a new Latin American market. With the Viva brand already established in Colombia and Mexico, and as the Brazilian market is currently over-saturated, smaller Latin American markets that lack any local LCCs are being studied. The Viva group could ultimately consist of several LCCs, with most of the carriers being small in size but enjoying economies of scale by being part of a pan-Latin American group.

Mexico’s LCC Volaris plans more rapid domestic expansion in 2013

Mexico’s Volaris is planning another year of rapid expansion as the low-cost carrier sees further opportunities in the Mexican domestic market. The airline also expects to further expand during 2013 in the US, where it now has a network of 10 destinations, but for the second consecutive year faster capacity growth will be pursued domestically.

Volaris, which serves 27 destinations in Mexico, is now the third largest carrier in Mexico’s domestic market on a seat capacity basis but the largest on an ASK basis. Volaris expanded its fleet by seven aircraft in 2012, ending the year with 41 A320 family aircraft.

The airline expects to end 2013 with at least 44 aircraft but could end up with up to 48 aircraft if it decides to postpone the phase out of A319s.

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%.

Aeromexico faces formidable challenges in making new London Heathrow flights viable

Aeromexico’s planned inauguration of flights from Mexico City to London Heathrow in mid Dec-2012 marks the third destination in Europe served by the carrier. The choice is somewhat curious given that Heathrow is dominated by British Airways and the oneworld alliance, with Aeromexico’s SkyTeam partners offering connectivity to only a few global markets from the airport. The Mexico-UK market is also not a high origin and destination market as traffic to the UK represents about 1% of the international passenger traffic from Mexico.

The new service being offered by Aeromexico with Boeing 767-300ERs, scheduled to begin on 14-Dec-2012, will provide the airline’s passengers direct flights to London rather than connections through Madrid to London Gatwick (45km from the city versus 24km for Heathrow) operated by Aeromexico’s SkyTeam partner Air Europa and service from Paris to London Heathrow operated by SkyTeam anchor carrier Air France. Aeromexico’s flights to London Heathrow are complementing the carrier’s existing long-haul European service to Paris and Madrid, which is the main base for SkyTeam partner Air Europa. Air Europa is bolstering its service from Madrid as the weak Spanish economy is triggering other airlines to pare down their offerings from Barajas Airport.

Aeromexico sees domestic slowdown as it places landmark aircraft order

Aeromexico has concluded the dynamism of the Mexican domestic market has slowed, and plans to focus the remainder of its growth in 2H2012 primarily on international expansion in the hopes that soft domestic yields will improve.

But even as the Mexican domestic market appears to be leveling off, Aeromexico believes the country’s economic growth overall remains promising, and is taking steps to create crucial fleet flexibility to ensure it can weather swinging economic fortunes through a pledge to purchase up to 100 Boeing 737 Max and 787-9 jets that allows the carrier to size its fleet upwards or downwards to accommodate market conditions.