CAPA Live: Volaris' Beltranena - Mexico’s domestic air market strong
Volaris CEO Enrique Beltranena, speaking at CAPA Live, 14-Oct-2020 argued the need to focus on converting the huge number of Mexico's bus passengers to air travel, with good results: many more first-time flyers right now. Bus market is around three billion, compared to 105 million air passengers at the moment.
Capacity was ramped up from Jun-2020 following elasticity tests on VFR and leisure markets. Also to take advantage of Aeromexico filing Chapter 11 and Interjet losing around 65 aircraft.
The airline is one of the lowest unit cost operators in the world, which puts it in a very good position to react to crises like the pandemic.
- Volaris is focusing on converting Mexico's bus passengers to air travel, as the bus market is significantly larger than the air travel market.
- The airline has implemented a targeted marketing campaign to attract bus passengers, emphasizing the safety measures taken by air travel compared to buses during the COVID-19 pandemic.
- Volaris has seen an increase in first-time flyers as a result of its efforts to shift passengers from buses to airplanes.
- The airline ramped up capacity in June 2020, taking advantage of the financial difficulties faced by competitors Aeromexico and Interjet.
- Volaris is one of the lowest unit cost operators in the world, which has allowed it to better navigate the challenges posed by the pandemic.
- The Mexican government's decision not to provide financial assistance to airlines has created market dislocation, benefiting airlines with stronger financial resources like Volaris.
Volaris CEO Enrique Beltranena, speaking at CAPA Live 14-Oct-2020, commented on Volaris' strategy to shift passengers from buses to airplanes, stating: "The bus market is a three billion passenger market vs 105 million passengers via air. The difference is humongous".
He stated that the airline had started a targeted marketing campaign to get bus passengers into planes, "blaming the buses, that they were not taking the biosecurity measures that they had to take" against the COVID-19 pandemic, and "telling the people that we are the safest system" to travel.
Volaris CEO Enrique Beltranena, speaking at CAPA Live 14-Oct-2020
Mr Beltrenana reported that around 22% to 24% of Volaris passengers quoted bus fares first, then airlines. Mr Beltranena added: "Proportionally, we are seeing much more first time flyers getting into the system right now".
Commenting on the drivers which led Volaris to start ramping up capacity in Jun-2020, Mr Beltranena stated: "I think it is the combination of two things. We have been working doing elasticity tests on different markets, on different segments, because nothing is reacting the same".
He added that sometimes VFR reacts better in some markets, sometimes leisure reacts better in other markets, and different moments will also impact the result. He added: "The second thing is…on 01-Jul-2020, Aeromexico filed for Chapter 11 and as of 30-Jun-2020 Interjet had lost around 65 aircraft".
Mr Beltranena stated that Volaris had studied the data from the H1N1 recovery from 2009, "so we knew exactly that our VFR market was the one that was going to recover faster".
Mr Beltranena commented on the two main differentiating factors which put Volaris in an advantageous position in the Mexican market, stating: "The first thing is our position in terms of CASM". He added: "Volaris is among the top three lowest unit cost operators in the world… it positions us in a much better way in order to attack a situation [such as the COVID-19 pandemic]". Mr Beltranena proceeded: "The second thing is the people". He explained that he treats Volaris' personnel as a family.
Commenting on the Mexican Government's decision not to provide financial assistance to airlines, Mr Beltranena stated: "The crisis and the fact that the government is supporting us in a minimum way has ended up being a process of dislocation of the market which is really important".
He explained: "What has happened in reality in Mexico is that we did have a lot of static in the market because we did have players that didn't have the right resources to support their operations over the past years".
Mr Beltranena explained that Volaris' plan to raise around USD160 million, approved by authorities and shareholders, was at the start of the COVID-19 crisis, when there was little foresight into the future of the pandemic, and that raising capital or debt was a lengthy process in Mexico.
He stated that the request had an approach of "we don't know what we need, and we don't know exactly where we are". However, he highlighted that: "The company's ramp up [in operations] has been far better than what we expected" and if there aren't huge market changes, "the management thinks…that we can survive without making a transaction in the close future".
Mr Beltranena added that the management does not want to "create a dilution for our shareholders… but whatever we end up doing it's going to create a dilution… whatever we end up doing has to be a minimal dilution".
Mr Beltranena commented on the COVID-19 pandemic, stating: "Yes, it has been a very challenging time, but challenging times are always here for airlines".
He added that the airline ended Sep-2020 with 84% of Sep-2019's ASM. The carrier will end Oct-2020 with around 88% or 89% of Oct-2019 levels.
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