José Garza
CEO
Interjet
/
View from the Top

Airline Goes Against the Flow, Wins Customers

Thu, 12/01/2016 - 11:16

Q: As a relatively young airline, what strategy did Interjet employ to become one of the largest in Mexico?

A: For many businesses, including ours, going against the flow of the sector is actually a good market strategy. Interjet’s goal was take the opposite path from other airlines and transform the aviation industry. This led to the creation of Interjet’s hybrid model, which has been part of our DNA since the beginning. Many airlines are sacrificing customer service for profit. We maintain high-quality standards alongside affordable prices. This strategy allows frequent travelers to compare our services against those of other airlines and, more often than not, they return to Interjet.

We also implemented changes to improve overall passenger experience. For instance, we decided to remove first class and replace it with benefits for every single passenger on board in terms of comfort, space and luggage. These changes have been well received by passengers, from executives to families. Interjet’s goal is to provide the most pleasant experience possible, adapting to changes in air travel. This is evident in our renovation of areas such as commercialization and product presentation. We wanted to create a product that suited the vast majority of potential customers across every socioeconomic sector. This has led us to generate a broad range of services that exclude superfluous luxuries.

Interjet enjoys the added advantage of a solid brand name, which was chosen to give the company a neutral, international image. It is helping us to open the international market. As part of the Global Reservation Systems (GBS) network, we have allied with Iberia, American Airlines, LATAM Airlines and British Airways, among others.

Q: To what extent do low-cost airlines represent disquieting competition for Interjet?

A: All airlines have to cover basic costs to operate. The minimum price per passenger is calculated by the number of seats multiplied by the expected occupancy. The average fare a low-cost airline receives from a passenger is usually much higher than the price they advertise. There are many misconceptions regarding the true fares that low-cost airlines offer because the advertised prices are often not final. Hidden charges for luggage, meals and many other services are added afterward. This model is only beneficial for those who do not require any additional services. The high price of extras compensates for passengers who do not pay for them. On occasion low-cost airlines even cut maintenance costs to generate revenue, putting the consumer at risk.

Mexico does not have a strong flight culture because its citizens do not travel often and as a result many travelers are unaware of the final price having factored in all those services. Often, travelers are dissatisfied with the services and fares they pay to low-cost airlines and we are certain these customers will return to us.

Q: What main changes have you perceived in the Mexican aviation sector?

A: When Interjet started, the local aviation market was immature, a trend that continues to this day because aviation companies have not fully penetrated the Mexican market. In 2005, Mexican airlines transported well over 20 million passengers. That same year, 2.5-3 percent of the population traveled by air but we are now much closer to 20 percent. This is the result of higher purchasing power and lower ticket fares. Mexico is far from reaching its full potential and we expect this percentage to continue rising. In comparison, Brazil, Argentina, Chile, Colombia and Peru have a much higher rate of flights per capita.

Q: What are the major trends in the aviation market and how is Interjet adapting its strategy to address those?

A: Mexico has interesting demographics, which result in unusual market trends. The country has a very young population, with more than half its citizens under 25 years old. This population segment’s behavior is drastically different to that of other generations. For instance, millennials do not get married and join incomes as early and they are more likely to wait to have a family, they have more spending money that can be used for travel. The country also has a growing number of people over 65 who are retired and keen to travel. These individuals enjoy advantageous fares because they can travel outside of peak summer and winter periods. A common problem during vacation periods is that airplanes travel to tourist locations at full capacity only to return empty. To address this, we offer better prices to returning passengers and retirees often have no problem taking advantage of these less popular dates.

Technology also is making a significant amount of information available to everyone, facilitating informed decisions. This is completely changing the face of travel. From the beginning, Interjet bet on digital platforms even though the sector at the time was dominated by travel agencies.

Q: What can Mexican airlines do to strengthen their position in the international market after the implementation of BASA?

A: The Mexican aviation market is perceived to be at a disadvantage because it is smaller than the US market. However, foreign airlines have operated in Mexico for decades and they have yet to overtake the market. BASA is a great opportunity for Mexico’s airlines to reaffirm their market penetration because it opens up extensive opportunities.

Competing in the US market will be a long-term process for all Mexican airlines. At this point, both Mexican and US citizens prefer US airlines because they believe them to be safer. But US airlines suffer from several disadvantages, including having older fleets. We believe that once passengers try our airlines they will prefer the newer fleet. The authorities and airlines must create awareness that our airlines are as good or even better than foreign brands. In the meantime, local airlines can generate code-sharing agreements with American counterparts, using their own fleet to shuttle passengers under a US airline’s full endorsement. We have been implementing this strategy for flights connecting the two North American countries with great results, particularly for the route linking Los Angeles with Cancun.

Q: What are Interjet’s growth projections for the short and midterm?

A: Interjet is experiencing double-digit growth. In 2015, we grew 12 percent and we expect similar numbers for this year. However, such a high growth rate cannot be sustained forever so our long-term expectation is around 6 percent. This would still allow us to double our numbers in 10 years. We believe the market is king and that market forces will push the best company to the top. Because some airlines penny-pinch on passenger comfort, travelers who have used Interjet will become loyal to our brand. In the aviation business as with any other, customer loyalty is essential for long-term sustainable growth.