Mexico's Interjet has restored capacity and reports demand has just about recovered to pre H1N1 levels, but the carrier's management believes more consolidation will be needed for the Mexican industry to return to profitability.

Interjet chief executive Luis Garza says the low-cost carrier's sales immediately dived by about 70% after the swine flu outbreak was first reported at the end of April by Mexican authorities. Sales remained at 70% below normal levels for about a week and for the month of May sales were down about 50%.

"May was disastrous," Garza tells ATI.

He says Interjet operated 30% fewer flights from the end of April until the beginning of June. But even with the sharp reduction in capacity, Interjet ended May with an average load factor of only 52%, 22 percentage points below budget.

Garza says demand started to pick up again on about 7 May and while the recovery was slow at first in recent weeks there have been "very positive signs of recovery". He says sales are now at or close to normal for this time of year. As a result Interjet, which exclusively operates domestic services with a fleet of 15 Airbus A320s, decided to resume its full schedule last week.

"Originally we were sceptical that the recovery wouldn't be until the fourth quarter. Now we think it will be back to normal this summer," Garza says.

He adds for June there is only "minor impact on some routes". July and August, the peak months in Mexico for summer holidays, look promising.

Garza says he is "more concerned about what happens in September," which is considered an off peak month in Mexico. He warns there is still too much capacity in Mexico's domestic market and more consolidation is required for the industry to return to profitability.

While three smaller carriers ceased operations last year, there are still three low-cost carriers and three mainline legacy carriers in the domestic Mexican market. Interjet carried 779,000 passengers in the first quarter of this year, which gave it a 12.5% share of the total domestic market.

"Something will have to change very rapidly in Mexico," he says. "There's no relief. There's no aid. Something will have to come out of this [crisis]."

The Mexican government on 10 May announced it was working with the country's carriers to develop a stimulus package to help them cope with the sudden drop in revenues. But Garza says the government so far has only reduced air traffic control fees by 50% for three months, a concession worth only about $100,000 to Interjet.

The government also has said it plans to offer airlines loans through state investment bank Bancomext. But Garza says airlines will have to qualify for the loans and there will be no discount on the interest rate.

"It's a commercial loan. Eligibility will be very difficult. You're going to need a very strong balance sheet," Garza says. "It's not aid."

With the financially weaker carriers unable to raise cash, Garza predicts "insolvency will arrive. It's inevitable."

He adds: "Who will be insolvent first I don't know. But it's inevitable it will come."

Source: Air Transport Intelligence news