Mexican airlines will lose at least 10% of profit due to downgrade

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As a consequence of the recent demotion of the Federal Aviation Administration (FAA) to the Mexican aeronautical authority, US airlines will gain between 3% and 10% of additional participation in the bilateral market of both countries.

According to the behavior of demand, foreign operators will take advantage of increasing frequencies in the coming months, said René Armas Maes, commercial vice president, and partner at MIDAS Aviation.

According to specialists and statistical data from both airlines and the Ministry of Communications and Transport (SCT), the air market between the two countries had rebounded in a forceful way from the covid-19 crisis and the airlines of both countries had recovered. its passenger flow at levels close to those of 2019, however, the degradation will have a strong impact on Mexican lines

As of April, Aeroméxico was at 87% in the number of passengers transported between the two countries, compared to its pre-pandemic levels, while Volaris was at 90%, according to data provided by the airlines and the SCT. Both Aeromar and Viva Aerobus have registered a growth of more than 270% compared to 2019.

For their part, US airlines (a total of 13, according to SCT) are only 4.3% below the passenger levels of 2019.

The drop to Category 2 will freeze the recovery of Mexican airlines for as long as it takes the federal government to regain its previous rating from the FAA. This, in turn, will generate a series of consequences that are not yet quantifiable.

“The downgrade to category 2 implies that Mexican airlines will not be able to add additional flights to the United States beyond today’s frequencies, nor will they be able to add new routes, which is of great concern, especially when seeking to optimize revenue and opportunities for growth in international markets after the readjustment of demand caused by the pandemic, ”said Armas Maes.

Currently, American Airlines is the main company operating in the market between the two countries, concentrating 20.04% of all capacity, followed by United with 16.68%, and Volaris with 14.18%, according to data from the consulting firm OAG.

Mexican airlines will lose an important opportunity to penetrate a growth and lucrative market that is divided into three main segments: those of pleasure, which seek rest cities such as Cancun and Los Cabos; those who visit family and friends; and those of medical tourism.

To date, two million Mexicans have traveled (necessarily by air, since land borders are closed) to the United States to apply vaccines against covid-19 in recent months, according to Hugo López-Gatell, Undersecretary of Prevention and Health Promotion.

The commercial vice president of MIDAS Aviation added that, in a conservative scenario, Mexico could remain in Category 2 for between seven and nine months, and up to a year in a more pessimistic forecast. In 2010, when the Mexican authority was also demoted, it took the government four months to regain the Category. Therefore, it is expected that in the next two to six weeks there will be an initial correction and redistribution in the supply of seats by North American airlines.

“In the case of the US airlines, they could take an advantage over the Mexican ones in this scenario. They will seek to increase frequencies and destinations or fly larger aircraft, reducing their operating costs per chair kilometer. With this, they will be able to optimize their passenger income and return on investment as well as achieve a much faster recovery in profitability that will end up benefiting their positioning, brand, and market capitalization ”, he indicated.

Impact on profitability

The covid-19 pandemic has significantly impacted the profitability of Mexican airlines in North America, according to calculations by Acus Consulting.

The most affected has been Grupo Aeroméxico, which had a 43.8% drop in profitability in 2020; Volaris fell 4.8%. On the other hand, some US airlines such as Delta Air Lines and American Airlines recorded falls of 13.1% and 16.8%, respectively.

Source: nitu.mx

Mexico Daily Post