Jose Luis Garza: Leading Mexico

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Interjet may be one of Mexico's four remaining low-cost carriers but chief executive Jose Luis Garza doesn't like to use the term low-cost.

Interjet, Garza points out, offers a complete range of frills, has more legroom than any other Mexican carrier and now serves the country's biggest and most important airport for business traffic. "I'm not a low cost company. We're inspired by the efficiency of low-cost companies. We prefer to be called a high efficiency airline rather than a low-cost carrier," he says.

Garza says Interjet needs to offer a good product because it focuses on corporate traffic. Mexico's other low cost carriers, namely Volaris, Click and VivaAerobus now that ALMA and Avolar have ceased operations, are more focused on the leisure market.

While some of these carriers match Interjet in offering food, beverage and in-flight entertainment, Garza says the key differentiator is legroom. While Interjet only has one class, it configures its 13 Airbus A320s with only 150 seats, compared to the 180 typical for low-cost carriers. That translates into a generous 34in pitch. "We sacrificed 30 seats in the aircraft to have a good quality product," Garza says.

Interjet's biggest selling point these days, however, is its new network at Mexico City's slot controlled downtown airport. The carrier launched services at Mexico City International in August after acquiring 50 slots from grounded carrier Aerocalifornia.

Interjet has long eyed access to Mexico City International as it is a key destination for its business passengers.

Garza says while costs are higher at Mexico City International compared to the Toluca, Mexico City's alternative airport where Interjet is based, yields are on average 15% to 20% higher. "The most important thing is revenues. The revenues are far better in Mexico City," he says.

Gaining access to Mexico City was so critical to Interjet Garza says if it couldn't get slots there it would have been forced to "drastically reduce its fleet and fixed costs in order to recover profitability for the rest of the year." In fact Interjet was preparing to slash capacity by 40% and return six A320s until the opportunity to buy slots from Aerocalifornia suddenly became available.

"Fortunately that plan was never put into effect and we were able to get Aerocalifornia's slots and fast entry into Mexico City," Garza says. "Now it's just the other way around and we're anticipating accelerating our expansion."

Garza is now looking for more A320s and more slots. Garza in particular is eyeing the slots held by Aviacsa, a struggling legacy carrier which Interjet almost acquired early this year. Garza says he walked away from the potential deal with Aviacsa because "the carrier was in the red and had high debt and the price was outrageous". But he believes Aviacsa remains weak and could become Mexico's next airline casualty.

Securing any slots which become available may not be easy as Interjet is already fighting a legal challenge lodged by other carriers seeking to undo its slot transaction with Aerocalifornia. But Garza is confident Interjet will prevail in the legal challenge, which claims Aerocalifornia's slots should be returned to a pool, and now that Interjet is operating at Mexico City it will gradually be able to expand its operation there.

"The slots at Mexico City are like a poker game. You need to get a seat at the table to understand how to play," he says. "We're now in position to play the game, despite them [legacy carriers] not liking us there."

Interjet, which launched in late 2005 and expects to carry three million passengers this year, needs more slots at Mexico City to support domestic expansion as well as planned flights to the US. The carrier earlier this year secured US regulatory approval to launch services to Ontario, Houston and San Antonio from Toluca but Garza says there is better potential business for these new planned services if there are switched to Mexico City. He explains "it's easier for TSA security reasons" to operate to the US from Mexico City "and it's much easier for marketing reasons" as US passengers are not familiar with Toluca.

While Interjet aims to eventually serve a few points in the US, Garza says its transborder operation will be a small side business. "Interjet is essentially a domestic carrier. Our international expansion will be limited except to routes where we have a competitive advantage, where we have a niche," he says.

The carrier currently only operates domestic services, although for a few months it operated a service from Toluca to Guatemala City which proved to be unsustainable. Interjet's network now consists of 18 Mexican destinations, including Mexico City and Toluca. Of the 16 destinations outside the capital, eight are served from both Mexico City and Toluca while five are served only from Mexico City and two only from Toluca.

Although business passengers prefer Mexico City International because it is much closer to the downtown business district than Toluca and has longer operating hours, Garza says Interjet plans to restore some of the capacity it has taken out of Toluca to make room for the Mexico City operation. "We don't want to abandon Toluca. We want to expand there. That's why we need additional capacity," Garza says. "If we leave some vacuum probably Volaris will take it."

While 2008 has been a difficult year for all Mexican carriers, Garza says the new Mexico City operation should help Interjet break back into the black in 2009. He says Interjet needed a $40 million capital injection back in April and its owners remain supportive with the expectation an initial public offering will eventually be pursued.

"It's always been in our business plan to go public in the future," Garza says, adding there is no rush and when the IPO is done will depend on market conditions.