Aeroméxico, Volaris Poised for Category 1 Windfall: Moody’s

The reinstatement of Category 1 safety status by the US Federal Aviation Administration (FAA) will yield significant benefits for Mexican airlines, Moody’s has reported.

According to Moody’s Investors Service, this development will have a discernible impact on the credit profiles of Mexican airlines, especially those with robust international operations, such as Aeroméxico and Volaris.

Moody's underscored that the prolonged Category 2 status presented significant hurdles for Aeroméxico’s business plans, given its substantial backlog of new aircraft orders. Meanwhile, Volaris is actively preparing to reallocate about 5% of its overall domestic market capacity to the US-Mexico transborder market in the fourth quarter of 2023 — an initiative that the reclassification will facilitate.

"We anticipate that US airlines will reactivate their partnerships with Mexican airlines, enhancing the international presence of the latter. Delta Air Lines has a partnership with Aeroméxico and Frontier Airlines collaborates with Volaris," says Moody's.

However, the credit ratings provider noted that the reinstatement of Mexico's aviation safety rating to Category 1 is not expected to lead to a significant increase in passenger traffic volumes.

The aviation sector in Mexico has enjoyed robust travel demand, supported by both local and international airlines. This resurgence has contributed to a substantial recovery in airports across Mexico, with one notable exception — the Mexico City International Airport (AICM).

In the case of AICM, Moody’s reports that its traffic has rebounded 97% of pre-pandemic levels in 2019. Nevertheless, the airport grapples with substantial congestion and lacks a capital investment plan to address this issue, which restricts its capacity to accommodate long-term organic passenger growth.

On Sep. 14, the FAA reinstated Mexico's highest safety rating, Category 1, following a downgrade to Category 2 in May 2021. This decision paves the way for Mexico to introduce new services and routes to the US. Additionally, US airlines can now resume selling tickets and offering code-sharing services with Mexican flights, as previously reported in MBN.