Aeromexico slows down expansion of US network

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Aeromexico plans to resume service to Atlanta but has dropped Albuquerque and shelved plans to launch Washington Dulles as it continues to realign its North American network.

The VP of Aeromexico's North America division, Frank Galan, says the SkyTeam carrier will re-enter the Atlanta market in May with one daily flight from its Mexico City hub. Aeromexico, which also briefly served Atlanta from Cancun last year, dropped its Mexico City-Atlanta service in January 2009.

Galan says a year ago Atlanta "wasn't working well for us" but Continental Airlines' move from SkyTeam to Star in late 2009 changed the dynamics of the market. He explains with Continental no longer in the same alliance as Aeromexico, the importance of funnelling passengers through the main hub of SkyTeam member Delta Air Lines has increased.

Delta already serves Mexico City from Atlanta three times daily according to Innovata and the extra Aeromexico frequency will give the two carriers an additional option for funnelling passengers between the two SkyTeam hubs.

Galan says Atlanta is now slated to be the only North American gateway added by Aeromexico this year as the carrier keeps capacity on Mexico-US transborder routes relatively flat. "My recommendation is we stay steady and I think that's what we'll do, but there are always surprises," Galan tells ATI.

Aeromexico last month secured US Department of Transportation (DOT) approval to launch daily service from Mexico City to Washington Dulles, which would be a new gateway for the carrier. Galan acknowledges the carrier has until January 2011 to use or lose these newly awarded traffic rights but says right now there is no plan to launch Dulles.

"At present we don't plan to fly it," he says. "Today it doesn't make sense."

Galan adds Aeromexico at this point also does not plan to add any new routes in 2010 to any of its existing US gateways.

Last year Aeromexico secured authority from the DOT to launch several routes from existing US gateways, including new links from Guadalajara to Seattle, Oakland and San Jose in California. It also secured authority last year to launch service to San Francisco from Hermosillo, Puerto Vallarta and Los Cabos. But Galan confirms that for now none of these six new authorities will be used.

"We continue to look at those opportunities," he says.

Aeromexico currently has scheduled services to 18 North American gateways, down from 20 as Albuquerque and Montreal were both recently dropped. As ATI reported yesterday, Toronto will also be suspended in late February or early March as Aeromexico has decided to pull out of Canada altogether less than a year after launching service to the country.

Albuquerque was also only added last year as part a subsidised programme with the city of Albuquerque and the Mexican state of Chihuahua. Galan says the Chihuahua-Albuquerque service, which was launched in February 2009 with four weekly Embraer ERJ-145 regional jet flights, was dropped last month.

"We did everything we could with the state of New Mexico and Mexican state of Chihuahua but in this economy there just wasn't enough there," Galan says.

Galan acknowledges Aeromexico - which in late 2008 pulled out of Detroit, Salt Lake City and Tucson - has had "mixed" success with North American gateway launches over the last 18 months. But he points out overall market conditions were much tougher than anticipated.

"2009 really closed out a bad year and a bad decade," Galan says.

Galan says the tough market conditions that plagued 2009, caused by the economic downturn and the H1N1 virus, also forced Aeromexico to slash capacity on its existing transborder routes. He says overall Aeromexico flew about 18% less ASKs across its North American network in 2009 compared to 2008.

He says capacity was cut by eliminating frequencies on several denser routes, including cutting one daily flight in the Chicago, Miami and New York markets. Several routes were also down-gauaged by switching from the 737-800 to smaller 737-700.

Aeromexico primarily uses 737s on its North American routes although regional jets are used in a few markets including Houston, San Antonio and New Orleans.

Galan also points out despite the tough market conditions Aeromexico has had success in three of the gateways launched last year - Denver, San Francisco and New Orleans. Denver is served on a seasonal basis from Mexico City while San Francisco is served year round from Mexico City.

New Orleans is served year round from Mexico City although Galan acknowledges the carrier has had to reduce the frequency of this service during certain times of the year. He says the Mexico City-New Orleans route, which was launched last July with six weekly ERJ-145 flights with support from the city of New Orleans, is now offered two to three times per week during periods of low demand.

In addition to having to contend with the tough economy and H1N1, Aeromexico also has faced new competition over the last year on transborder routes from Volaris. The Mexican low-cost carrier now serves Los Angeles and Oakland, two key Aeromexico markets, and plans to add several more US gateways over the next couple of years as it prepares to begin codesharing with Southwest Airlines.

Galan acknowledges Volaris' launch "has been impactful" and says Aeromexico is matching Volaris' low fares for some seats in the California market. But he stresses that Aeromexico will continue to offer free meals, checked baggage, cocktails and in-flight entertainment on all its US flights.

"We'll never change our position," Galan says. "We're considered a full service carrier. We won't nickel and dime you."

Galan says Aeromexico has been able to keep its load factors healthy on transborder routes but acknowledges that yields have dropped. While there are some indications the market is starting to recover he says business traffic on US-Mexico routes is still depressed.

"Eventually there will be enough [demand] for everybody but right now it's a tough market," Galan says. "It's still too many seats. Where it shakes out will be interesting to see."