Mexico City ponders a second airport, again


Mexico City International Airport’s Director General Hector Velazquez, speaking at an event last week in Mexico organised by IATA and Latin American airline association ALTA, stated that in his opinion it is necessary to construct a second airport in Mexico City as current operations at the existing one are "saturated". The original proposal dates back to the late 1990s but ran into political difficulties.

The scale of Mexican aviation is considerable. It has the second largest share of available airline seat capacity in Latin America, after Brazil. But the Mexican industry has not growing nearly as fast as Brazil or other major emerging markets. In fact the Mexican market has shrunk in size in recent years.

Domestic passenger traffic in Mexico has decreased by 8% over the last four years from 27.6 million passengers in 2008 to 25.5 million passengers in 2011 while international traffic has dropped during this period by 1% from 25.7 million passengers in 2008 to 25.3 million passengers in 2011. As the most popular airport in Mexico, Mexico City International was still able to grow its traffic between 2008 and 2011 but only by a paltry 0.6% from 26.2 million passengers in 2008 to 26.4 million passengers in 2011.

Mexico City International Airport annual passenger traffic, 2007 to 2011

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The Mexican market has been impacted in recent years by a string of airline casualties, with Grupo Mexicana and four smaller Mexican carriers ceasing operations since 2008. Mexicana and two of these smaller carriers, Aviacsa and Aerocalifornia, held a large number of slots at Mexico City International.

Mexican LCCs take over Mexicana slots at Mexico City

The Mexico City slots held by these three carriers have now been taken over by other carriers, primarily low-cost carriers InterjetVolaris and VivaAerobus. Interjet was able to launch services at Mexico City in 2008, after acquiring Aerocalifornia's slots, while Volaris and VivaAerobus initially gained access to airport in early 2010 following a change in policy which opened up Mexico City to new entrants. But the demise of Mexicana later in 2010 led to the biggest changes, as InterJet, Volaris and VivaAerobus have all since been allowed to significantly expand their Mexico City operations (although some of the slots allocated to the LCCs are temporary and in theory would have to be returned in the unlikely event Mexicana resumes operations).

Most of the LCC expansion at Mexico CIty took place last year, driving 41% growth in total domestic passenger traffic for Mexico's trio of LCC compared to 2010 levels. Interjet recorded the fastest growth in 2011 with 58% domestic growth. Nearly all of this growth was in Mexico City, where Interjet now has about two-thirds of its capacity.

See related article: Mexican LCCs Interjet, Volaris and VivaAerobus plan more rapid growth for 2012

Interjet now accounts for 21% of capacity (seats) at Mexico City International, according to Innovata data. Aeromexico has a market leading 43% capacity share at Mexico City. Volaris accounts for 9% and VivaAerobus 4% while independent Mexican regional Aeromar accounts for another 4%. The remaining 19% is held by foreign carriers.

Mexico City International seat capacity share by carrier: 30-Jan-2012 to 5-Feb-2012

The fact that Interjet, Volaris and VivaAerobus have been able to quickly fill the void left in Mexico City by Mexicana shows demand for services from Mexico City continues to exceed supply. If it weren't for the current slot restrictions, these carriers would have launched services to Mexico City earlier and would now have larger operations at the airport.

Mexico City International continues to be the preferred airport, particularly for business travellers. In 2011, Mexico City accounted for 52% of all passenger traffic in Mexico. In 2008 Mexico City accounted for 49% of total traffic in Mexico, indicating that traffic at other airports has been more impacted by the overall drop in traffic as the Mexican market has gone through a period of major consolidation.

Mexico City International is now twice the size of the country's second biggest airport, Cancun. It is nearly four times the size of the Guadalajara Airport and nearly five times the size of the Monterey Airport. Guadalajara and Monterrey are Mexico's second and third largest cities and the most popular business destinations in Mexico after Mexico City.

Traffic (millions of passengers) for Mexico's leading airports: 2011

Mexico City International is also over 16 times bigger than Toluca, Mexico's City alternative airport which has seen traffic drop significantly as Interjet and Volaris have shifted a majority of their Toluca flights to Mexico City. This shows when given a choice, most passengers flying in and out of Mexico City continue to prefer the convenience of Mexico City International as it located near the city centre. A new airport would only be used to catch spill-over traffic, as is now the case with Toluca, unless Mexico City International was closed altogether.

Mexico City excluded from original airport privatisation process in late 1990s

The concept of a second airport for Mexico City dates back to the airport privatisation-by-concession period in Mexico in the late 1990s, when three groups of airports had 15% stakes sold (later these groups were listed on Mexican and other stock exchanges). But Mexico City International Airport operator Aeropuertos Y Servicios Auxiliares (ASA) was eventually excluded from the privatisation programme.

ASA is the independent government agency airport operator, created in 1965 with its own equity capital and legal identity to oversee management, operations and development of Mexico's airports, and which retained responsibility for Mexico City Airport and 17 of the country's small airports. Toluca, which is located about 40km from the city, was also excluded from the privatisation programme and is managed by the Mexico City Metropolitan Airport Group.

Mexico's other major airports - Cancun, Guadalajara, Monterrey - were privatised as part of contracts with three major consortiums, Cancun-based ASUR, Guadalajara-based OMA and Monterrey-based GAP. In addition to their flagship airports, these three groups now own and operate 31 small and medium-size airports throughout Mexico.

While the sale of airports in southern, northern and western Mexico went ahead to ASA, OMA and GAP respectively, the sale of shares in the fourth ‘Mexico City’ group was put on hold pending a decision on extending the capital city’s airport or building a new one. A preferred site for the proposed new airport was selected at Texcoco, a dried up river bed. A draft project plan was submitted by Aeroports de Paris although many other investor-developers were interested, especially from Britain, which at the time was not represented in Mexico’s airport privatisation. Texcoco is 34 km east of Mexico City and 12 km from the existing international airport.

The bidding process fir Texoco got under way in 2002.The estimated cost of the first stage was USD5 billion, in a project lasting four to five years. There was immediate resistance from farmers protesting against this use of land on which they worked and which even developed into a hostage-taking scenario in Jul-2002, which was before the current drug gang problems took hold of the country.

Shortly afterwards the project was abandoned. Other options were studied at Tizayuca and Nezahualcoyotl but the heart of the fading government of President Vicente Fox was not in it. He left office in Nov-2006. The only tangible benefits to arise from the Texcoco proposal came in the form of several universities, hospitals, urban zones and multimodal transport links that were planned and actually built in the vicinity as a result.

Toluca emerges as alternative option

At the same time several proposals for green field airports elsewhere in the country, for example in Queratero, stole the limelight, together with a proposal to expand the Toluca Airport in Estado de Mexico (State of Mexico) to the southwest of Mexico City. As several low-cost carriers entered the Mexican market in middle portion of the last decade, Toluca emerged as the main alternate airport for Mexico City, being situated only 40 km away (30 minutes by road when traffic is light) from the downtown Santa Fe financial district. Moreover it has the longest runway of any airport in Mexico at 4200 m x 45 m. Thus it could handle intercontinental flights though presently it is limited to domestic and transborder services.

In addition to Volaris and Interjet, the airport is served by United and Spirit Airlines. United is the only full-service carrier now serving Toluca, offering one daily flight to Houston with 50-seat Embraer ERJ-145 regional jets. Spirit, which last year became the first foreign LCC to serve Toluca, currently only operates two weekly Airbus A319 flights from its Fort Lauderdale base. Defunct leisure carrier Air Madrid is the only carrier to have operated a transatlantic route at Toluca in recent years.

Toluca Airport seat capacity share by carrier type, 30-Jan-2012 to 5-Feb-2012

Toluca traffic grew rapidly from less than 150,000 passengers in 2002 to 3.2 million passengers in 2007 and to 4.3 million passengers in 2008. But over the last four years traffic at Toluca dropped 63%, reaching only 1.6 million passengers in 2011, as slots opened up in Mexico City.

Interjet and Volaris still operate from Toluca and have their headquarters in the area but most of their Mexico City area expansion continues to focus on Mexico City International. As a result, Mexico City's traffic has returned to pre-Mexicana levels while Toluca's traffic has suffered significantly, leaving plenty of space for potential growth. Further expansion at Toluca should remain an option if Mexico again decides against developing a totally new airport for the capital.

Further expansion not an option for Mexico City International

When the Mexican Government cancelled in 2002 the plan to build a second airport at Texcoco, it announced a USD270 million expansion plan for the existing Mexico City International airport, which was built in 1928. Later the budget rose to rose to USD600 million and was funded by the Government (USD400 million) and syndicated credit from four banks. The project included a new runway and construction of Terminal 2, which increased the capacity of the airport up to 30 million ppa, a figure it is now again starting to approach.

T2 opened in 2007, expanding operational capacity by 15%. T1 was earlier expanded, with phases completed in 1998, 2000 and 2004. The two terminals are now connected by a 3km shuttle train line.

Even with the upgrade, the airport is still beset by difficulties that constrain its optimum usage. Situated just 5km east of the central downtown area it is surrounded by built-up areas to the north, west, south and east. The standard landing approach is usually directly over Mexico City itself. In this it has similarities with Lisbon’s Portela Airport, a city that has also been waiting a long time for a new airport.

Obviously there are restrictions on expansion at Mexico City International because of its location in a very densely-populated area. Another serious limitation is that its two runways are already used at over 97% of their maximum capacity – a problem it shares with, for example, London Heathrow - leaving little scope for new operations. Even with the inauguration of the new Terminal 2 in 2007, and despite the fact that T1 is one of the largest terminals in the Americas, the airport ideally is optimised to serve only around 18 million passengers per year, according to international standards for runway and terminal usage. Furthermore the airport is ‘hot and high’ at an elevation of 7316 ft (2230 m) and the two narrow runways cannot be used simultaneously.

Mexico City International currently hosts over 30 airlines, with 69% of capacity (seats) currently allocated to the domestic market. Apart from North America there are non-stop services to Central America and the Caribbean, South America, Europe and Asia. Presently the only airline flying directly to Asia is Aeromexico (Tokyo, Shanghai). There has, as yet, been no reciprocation by Asian airlines but as Latin America’s economy improves, driven by Brazil, and in view of the natural resources that are to be found throughout the continent, it seems inevitable that Mexico will attract additional services from Asia and the Middle East. To date, the Middle East's big three, Emirates, Etihad Airways and Qatar Airways, are notable by their absence.

Mexico City needs to do something

Given Mexico City is again operating at capacity and the potential for growth in the international market, there are solid reasons for considering Mr Velasquez’s pleas for a second airport. But the question remains where would it be built and what role would it play? The intention was that the Texcoco airport would commence construction in 2003, operations would commence in 2007, and the final formal opening would be in 2014, allowing Mexico City International to close. There are similarities between this 11-year time frame and that for the construction and opening of Berlin’s Brandenburg International Airport, which was built around and alongside the existing Schoenefeld Airport. Unfortunately, there was no prospect of that happening in Mexico City because of physical land limitations.

If the Texcoco plan had gone through it would still have meant only one formal airport for Mexico City. What has happened instead is the emergence of an interloper – Toluca Airport – predominately handling the budget airline sector, as has happened in so many other big urban metropolises around the world. If Mexico City International is not replaced, Toluca stands to again benefit as traffic in Mexico recovers and again space becomes tight in Mexico City. Toluca could also potentially end up being the replacement for Mexico City International if investing in an expanded Toluca becomes the preferred option. 

Texcoco would have been big – handling up to 90 million passengers a year – but politically it is too hot a potato to return to. With Mexico City being unexpandable owing to space, cost and environmental opposition and Mexico's now more stable aviation market expected to enter a new period of growth, and with no obvious other location for a new airport, the further expansion of Toluca appears to be a realistic proposition.

At one stage there was an alternative site for a second airport, apart from Texcoco, at Hidalgo. But this was seen as being too far away from Mexico City to gain sufficient investment, and it was thought that it would interfere with flights from a nearby military base. In addition to this, Hidalgo was estimated to have a fiscal cost of almost ten times that of Texcoco.

Toluca Airport, which is located in Mexico's federal district, remains government owned. There is no evidence of any other realistic site in the sprawling conurbation of 18 million souls. The expansion of Toluca would almost certainly require enhanced surface access/egress, perhaps to include a rail link.

Another option might be to encourage the use of Toluca until a bigger and better replacement site option for Mexico City International was found. That just leaves the question of who would fund such a green field site. The government might well blanch at the soaring costs. One possibility might be a fully or partly privatised ASA, a decision that was suspended in 1998 and awaits resurrection. Another option would be the existing ASA (state) entity in conjunction with private capital in a PPP, a scenario ASA has experience of, in reverse so to speak, when it joined in the Indian airports bidding in 2005/6 (where it was unsuccessful). Better still, perhaps, might be to subjugate ASA’s role to that of looking after the regional airports that remain in the public sector and letting one of Mexico’s three private and listed airport operating companies, ASUR, GAP or OMA, do the job, ultimately retiring Mexico City as previously planned.

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