Mexican scramble begins

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Aeromexico, Volaris, Interjet and VivaAerobus strive to fill the large void left by Mexicana

Several Mexican carriers have started to pursue expansion as they look to exploit Mexicana's exit from the dynamic market.

Two dozen new domestic routes were announced by five remaining players within two weeks after Mexicana, including its Click and Link units, ceased operations on 28 August. Mexicana, which was already operating a significantly reduced scheduled since initially seeking bankruptcy protection from US and Mexican courts in early August, was the country's largest carrier by passengers carried. Grupo Mexicana had a 28.3% share of the domestic market, with its mainline unit accounting for 9.4%, its lower-cost Click unit 15.7% and its regional unit Link 3.2%

Of the former Grupo Mexicana domestic routes quickly picked up by the country's other carriers, 18 are from Mexico City. This includes three destinations - Chetumal, Minatitlan and Puerto Escondido - which were exclusively served by Mexicana. The other 15 routes already had competition but Mexicana's exit resulted in significant capacity reductions.

 mexicana
 Grupo Mexicana had a 28% share of the Mexican domestic market prior to its collapse
Even with the new routes launched and the capacity which has been added on several other domestic routes, remaining carriers have only been able to assume a small fraction of Mexicana's sharet. This is especially true in Mexico City, a once congested slot controlled airport which has seen movements suddenly drop by roughly one third.

Two low-cost carriers, VivaAerobus and Volaris, are keen to fill some of the void left by Mexicana in the lucrative Mexico City market. But so far they have only been able to secure 21 slot pairs despite a few hundred currently not being used.

VivaAerobus and Volaris initially gained access to Mexico City early this year following a government policy shift which opened the airport to new entrants. But they lodged complaints after only being provided three slot pairs between them at inconvenient hours. After Mexicana ceased operations VivaAerobus and Volaris' slot pair allocation increased to 11 and 10, respectively. These came from the relatively small unassigned pool rather than the slots still held by Mexicana, Aviacsa and Azteca.

Aviacsa ceased operations last year and Azteca shut down in 2007. The government-owned airport operator AICM has not yet reallocated any of these slots or those held by Mexicana. The Mexican government has said slot reallocation is sensitive, partly for legal reasons as bankruptcy proceedings in Mexico often takes several years to complete. But VivaAerobus and Volaris believe the government cannot afford to wait to reallocate these slots if the country's market is to recover.

"The situation for those slots needs to be solved if the AICM wants to regain the volume of operations handled in previous months. That is why only a few extra flights are being added by most Mexican airlines," says VivaAerobus commercial director Roberto Valdez.

Volaris chief commercial officer Holger Blankenstein adds: "I agree that the Aviacsa/ Azteca/Mexicana slot situation needs to be resolved. The issue is specifically in the daytime slots - 6am-10pm."

A third low-cost carrier, Interjet, would also stand to benefit from any slot reallocation. The carrier initially gained access to Mexico City in 2008 by acquiring 50 slot pairs from grounded carrier AeroCalifornia. But Interjet, which added three new Mexico City routes following Mexicana's suspension, is now fully using its allocation.

VivaAerobus is now looking to add six to nine aircraft early next year to its fleet of 11 Boeing 737-300s. For now Valdez says the carrier "is using spare capacity and increasing our utilization to do the [new] Mexico City flying. If the results of those routes are positive, then we can decide on continue growing in Mexico City or in another city."

 volaris a319
Volaris has picked up 11 slot pairs at Mexico City but is calling for slots from former operators at the airport to be re-allocated
Volaris, which expanded its Airbus A320 family fleet to 23 aircraft in August, and Interjet, which expanded its A320 fleet to 17 aircraft in July, have also increased utilisation. Aeromar president Ami Lindenberg says the regional carrier has been able to launch three new routes by redirecting capacity that had been wet-leased to Mexicana. Lindenberg says Aeromar is also now looking to add four Bombardier CRJ200s and perhaps two more ATR 42s next year. He says the 12% to 15% slice of Aeromar's revenue pie which had been generated through its wet-lease and codeshare partnership with Mexicana has already been recovered through increased sales through its own channels.

Aeromexico also responded to Mexicana's exit by increasing utilisation of its mainline and regional fleets and is now looking to add aircraft. But Aeromexico says possible expansion of its 737, 767 and 777 fleets is contingent on forging a new deal with its unions.

In declaring bankruptcy Mexicana's previous owners cited high costs from labour contracts with the same unions. These unions and the government are now trying to secure new investors in hopes of re-launching operations prior to the start of the winter peak season in December.

If Mexicana re-launches it will be a small fraction of its previous size and likely focus on US routes. Mexican carriers are currently not able to pick up any of Mexicana's US routes because the US FAA in July downgraded Mexico to a Category 2 safety rating. This provides any potential new investor in Mexicana a unique opportunity to operate in a drastically underserved market.

US carriers also stand to benefit but don't have the extra capacity to completely fill the void left by Mexicana, which accounted for roughly 20% of all capacity on transborder routes. Mexicana was Mexico's largest international carrier but only accounted for 18% of all international traffic. Foreign carriers accounted for an overwhelming 71% share, including a 53% share for US carriers, and these shares will likely increase even further until Category 1 status is regained and Aeromexico expands its fleet.

See our recent comment on what Mexicana's failure means for the market and the industry