Enrique Beltranena: Creating Mexico's largest domestic carrier in less than three years

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Volaris chef executive Enrique Beltranena is a confident man these days. While many of Mexico's carriers are struggling in a difficult market environment, Volaris is profitable and on a path towards becoming the country's largest domestic operator.

Beltranena predicts Volaris, which only launched operations in March 2006, will be Mexico's largest domestic carrier by the end of the year based on origin and destination traffic. This is made possible by Volaris' rapid expansion throughout the country while larger legacy carriers Mexicana and Aeromexico have cut back on domestic routes.

Beltranena says Volaris is now the largest carrier in several major Mexican airports including Cancun, Guadalajara, Puebla, Tijuana and Toluca. "We're already the dominant carrier in the west side of the country," he says.

 

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Volaris, which is on pace to carry more than 3.5 million passengers this year, became particularly dominant in the west following the groundings of Aerocalifornia in July and Avolar late last month. Volaris has quickly moved to add capacity in Baja California, where both carriers were based although Beltranena says Volaris is careful only to take over those routes which are profitable.

It is also becoming dominant at Mexico City's alternative airport Toluca, where it is based. Beltranena says Volaris will continue to focus its expansion at Toluca as rival Interjet expands at Mexico City's congested downtown airport.

"Toluca is a key part of our strategy. You can't have low cost in Mexico City. You can't turn around aircraft there in 20 minutes," Beltranena says. "In terms of strategy we're building up Toluca. Our model is working. I don't see why we should change gears."

Volaris now serves 23 cities throughout Mexico, 16 of which are linked with Toluca. Volaris is now strictly a point-to-point carrier although Beltranena says 2% of its passengers self-connect. It has targeted the low end of the market, trying to attract Mexicans which would normally take the bus. Unlike Interjet, Volaris is not trying to attract corporate traffic.

"The real traffic is coming from bus traffic," Beltranena says. "People who are now flying for the first time."

He adds that 38% of Volaris passengers are first time fliers and there is tremendous potential to further stimulate the market because there are 220 million bus passengers per year in Mexico. Instead of competing against the bus, Volaris is working with the bus companies. Volaris flights can be purchased at bus terminals throughout the country and combination bus-air tickets are available. "We want to make flying easy," Beltranena says.

On board there are lots of frills but Beltranena is quick to point out Volaris is not paying a cent for any of them. For example passengers are offered doughnuts, napkins, beer and even tequila, all of which are provided by vendors to Volaris on a free of charge promotional basis. Beltranena says Volaris has even been able to turn its in-flight television programming into a profit centre.

It also has teamed up with advertising partners to offer clever publicity-attracting gimmicks such as live in-flight rock concerts. At the same time Volaris has been able to grow its ancillary revenues by 80% through several charges, including for a second checked bag and tickets purchased offline.

While Volaris plans to continue expanding domestically, with plans to serve 26 Mexican destinations by the end of 2009, it also has its sights on international services. Beltranena says it plans to launch international operations in 2009 with services to the US as well as Central America and the Caribbean. While it is purely a point-to-point operator domestically, Beltranena has decided to go for a slightly different model internationally, with a codeshare with Southwest Airlines on US flights and with TACA on Central American flights.

Volaris earlier this month forged a memorandum of understanding with Southwest that envisions Southwest carrying Volaris' code on transborder flights starting in the fourth quarter of 2009. Volaris will also put its code on Southwest-operated domestic flights. Beltranena predicts 22% of the passengers flying on its new US flights will transfer onto Southwest-operates domestic flights while the remaining 78% will be origin and destination passengers.

He says Volaris' memorandum of understanding with Southwest prohibits Volaris from identifying any specific US airports it is targeting, but he says they will be "the most dense airports Southwest is utilising". Airports with large Southwest operations include Phoenix, Las Vegas, Baltimore, Orlando and Fort Lauderdale.

"We're targeting in the next three to five years at least 10 to 12 markets," Beltranena adds.

He says Volaris' new international operation will begin small and consist of only one or two Airbus A320s in 2010. But it will rapidly grow as it takes delivery of additional Airbus A320 family aircraft. Volaris now operates 19 A319s and two A320s with another three A319s for delivery next year.

In addition to launching US flights, Beltranena says Volaris is now looking at launching a single flight to a Central American or Caribbean destination in February. While he wouldn't reveal the destination he says this flight will help it prepare for the large international operation it envisions for the future. "It gives us international experience," he says. "It gives us something to build on."

Volaris is also planning to eventually codeshare with minority shareholder TACA on flights between Mexico and Central America. But Beltranena says this most likely will occur after the Southwest codeshare is implemented and "it's not our focus in the following year".

"The southern markets we'll attack with TACA. It will happen in the next year or two. We're not rushing."

While nearly every Mexican carrier is in the red and four have ceased operations so far this year, Volaris claims it could be the only profitable airline in Mexico in 2008. "I don't think it will be a big profit but it will be at least break even," Beltranena says. "We'll be much better than our competitors."

He acknowledges Volaris' four owners injected a total of $48 million into the company earlier this year but says the capital is being used exclusively to fund expansion of the current fleet and was not needed to fund ongoing operations.

Beltranena says his job ultimately is to take Volaris public as it was established with an IPO in mind. But he says there is no rush to do this: "We need to go to an IPO at a certain phase of the process. But with the way the stock market is going, to do that now would be silly. Down the road we'll do it, perhaps in a year or a year and a half."