Airlines Take Hit, Increase Their Debt

Due to low air traffic, airlines like Aeromar and Interjet have increased their debt with Navigation Services in Mexican Air Space (SENEAM) to around MX$397.3 million (US$18.7 million). According to Milenio, airline debt has risen by 58 percent compared to last year to operate cargo, private and commercial flights. The situation has been aggravated as low demand for commercial flights and limitations in cargo shipments due to supply chain disruptions and border closings has rendered companies unable to make their payments.

Both Aeromar and Interjet are in "reporting debt" status, so the matter has still not reached the Ministry of Communications and Transport. They are still in time to reach a payment agreement and based on the quantity owed, the most likely outcome will be a monthly payment, reports Milenio.

According to the Latin American Economic Comission (CEPAL), the most likely scenario for these companies and any airline that is having financial difficulties will be to cease operations or to generate an alliance with another airline. The outcome could be that negative competition will diminish thus increasing airline concentration. According to T21, some airlines that could take advantage of this situation are Aeroméxico, LATAM, Azul, Avianca and Gol as they used to operate 48.7 percent of the flights between 2015 and 2020. Still, in the last few months, their numbers have also gone down.

Airlines have also appealed to their respective governments requesting financial support and while some have received it, this is not enough leading players like Aeroméxico and LATAM to file for Chapter 11 bankruptcy protection. There have been some strategies to try and keep costs as low as possible, including staff cuts and ceases of entire operations in some countries, according to CEPAL. In terms of losses, 5 million jobs have been lost in the aviation sector, along with US$256 million in lost revenue.