Aeromexico chief executive Andrés Conesa is relieved to have broken free from the shackles of government control, which for years impeded him from injecting much needed capital into the flag carrier and making it more competitive. Following its recent privatisation, Conesa is now raring to go and is looking forward to using his new-found freedom to turn Aeromexico into a much stronger international and domestic competitor.

Aeromexico’s new owners – a consortium led by Banamex, which acquired the Mexican government’s 62% stake in the carrier for $249 million in October – has agreed to invest a further $250 million in the airline. “For us it makes a big difference to run a firm with a sound capital base,” says Conesa. “[Mexican state-owned bank] IPAB by law was forbidden from putting money into the firm.

Andres Conesa“Competing with our hands tied was very difficult, but we did very well over the past couple of years under these conditions. When you don’t have capital to invest you have to postpone investments, but with this fresh capital there are many things we can do to improve the structure of the firm.”

He adds that both Aeromexico and its new owners are working on a plan “to start preparing for the next year and the next five years”. The plan is expected to be finalised in the first quarter of 2008, but Conesa says it will likely include a continuation of the carrier’s strategy to further expand internationally.

“We are repositioning more strongly outside Mexico and we are covering the domestic market with [regional subsidiary] Aeromexico Connect.” The carrier will add Rome and Shanghai to its international network in March, and has been placing Aeromexico Connect on certain mainline-operated domestic routes. “We’ve scaled back on the number of domestic seats, but it is more profitable using Aeromexico Connect domestically than Aeromexico,” says Conesa. “Since changing to more frequencies our load factors have been much better.”

However, mainline operations will continue on some of the thicker domestic routes: “In larger markets such as Guadalajara, Monterrey and Cancun, Aeromexico will always be there.” Aeromexico Connect will also operate transborder services to certain US destinations, such as Austin and San Antonio in Texas.

Conesa says the fleet modernisation strategy undertaken by Aeromexico prior to its privatisation will facilitate its plans going forward. “We have been very proactive in modernising the fleet. Had we not acted proactively, the first position for the [Boeing] 787 would not have been until 2017. Today we have the flexibility we need to prepare a plan.”

Extra revenue
Aeromexico is on the lookout for additional revenue streams, and will target both third party maintenance and charter operations as ways of boosting sales. The carrier is building a new maintenance, repair and overhaul facility in Guadalajara, and is seeking a partner to help grow its third party maintenance business. “We are actively looking for a partner and we are in talks with at least three potential partners,” says Conesa.

He describes charter services as being “key to providing additional sources of revenue” because they “provide a guaranteed margin”. The charter side of Aeromexico’s business brought in around $70 million in revenues in 2007, up from annual revenues of $25 million a few years ago.

Aeromexico faces strong competition in its home market from a number of low-cost start-up carriers which have launched operations in the last couple of years. “The number of airlines in Mexico doubled in one year – nowhere else in the world has this happened,” says Conesa, adding that there is “definitely space for a low-cost carrier in Mexico, but not for seven”. But Aeromexico has no plans to launch its own competing low-cost carrier because Conesa believes Aeromexico Connect is “a better product than any low-cost carrier”.

The consortium in control of Aeromexico is comprised of 16 “important investors”, including Grupo Modelo – the company that produces Corona beer – and the owner of Jose Cuervo Tequila, says Conesa: “The backing is as good as it gets and it’s combined with the muscle of Banamex.” He adds that the new owner aims to make Aeromexico profitable within 12 to 18 months. The carrier incurred a full-year net loss of Ps512 million ($47.4 million) in 2006. It posted an operating loss of Ps698 million on revenues of Ps21.1 billion.

Conesa is confident about Aeromexico’s future, and boldly says: “We aim to be Latin America’s global airline. We want to be the leaders in the region.”   


Source: Airline Business