After years in the doldrums, Mexican aviation is on the verge of significant change with the sale of Aeromexico and Mexicana and the emergence of low-fare players.

The break-up of Cintra has gained a momentum of its own, just in time for major changes in the Mexican industry and market. Holding company Cintra will disclose shortly the names of investors who had expressed an interest in its airlines, Aeromexico and Mexicana, and it will seek antitrust clearance of all bidders to ensure the two airline groups will have separate owners. It is on track to complete a private placement of their shares near year-end as well.

The long-awaited and oft-delayed split has its detractors. Some unions and a few sympathetic legislators question whether Mexico’s largest airlines should be reprivatised, but the sale appears to have solid support. Andres Conesa, Cintra’s chief executive, says government ownership of Aeromexico and Mexicana “deprived” them of investment because the government is in no position to inject capital. Private ownership and management, and the new competitive atmosphere, will invigorate both airlines, Conesa insists.

Eleven potential bidders have expressed an interest in Mexicana and 10 in Aeromexico. Until Cintra reveals their identities, there is no way to know how much the two lists overlap. According to local sources, some potential bidders are foreign. Under Cintra’s terms of sale, foreigners may not exceed Mexico’s 25% cap on foreign ownership, and Aeromexico and Mexicana must end up in separate hands.

Conesa sees Mexico as an “emerging market” – a view that others seem to share. Chief among them are two big investors who have decided to back Vuela, a low-cost start-up that expects to launch early next year. Significantly, one investor, Mexican billionaire Carlos Slim, had earlier refused to invest in the airline sector, but now his Sinca Inbursa will buy a 25% stake. Grupo Televisa, Mexico’s media conglomerate and the empire of another major millionaire, will take another 25% stake.

Vuela is part of a new generation of Mexican low-cost carriers. Mexicana’s Click was first with its July launch, but more start-ups are likely in a market that is ripe for low-fare travel because of its large population, distances, and the large number of price-sensitive passengers who now travel by bus. Foreign airlines share this view, as shown by Grupo TACA’s plan to provide management and operational aid to Vuela, and by Brazilian airline GOL’s plan to launch its own low-cost carrier with local investors. Besides GOL and Vuela, another low-cost newcomer named Interjet plans to launch a year later. Interjet has ordered 10 new Airbus A320s.

Preparing for an air traffic surge, Mexico’s government has begun terminal, runway, and ground transport upgrades at Mexico City’s international airport. In view of its constrained capacity, however, the government is pressing airlines to introduce new services at an alternate Mexico City airport at Toluca. Except for Click, the new low-cost players plan to use Toluca.


Source: Airline Business