Mexican Aviation Sector is the Best Prepared: HR RatingsBy Sofía Hanna | Mon, 06/27/2022 - 16:28
The Mexican aviation industry suffered a powerful blow due to COVID-19 quarantines. In total, passenger traffic had a total drop of 95 percent year over year (YoY). However, the sector saw a strong recovery in 2021. That year, Volaris and Viva Aerobus reported a passenger volume of 11.1 percent and 27 percent higher than in 2019, respectively. Although there will be new challenges in 2022, Mexican airlines are considered to be the best-positioned ones to face them.
According to the HR Ratings’ Mexican Airline Analysis, the industry’s performance at a global level was the one that was most impacted, with a drop in passengers of 60 percent YoY. While the sector recovered in 2021, it is estimated that the number of passengers in that year was only 50 percent of the 4.3 billion the sector saw in 2019. In 2021, passenger traffic in Mexico was 80.3 million, representing a recovery of 65.9 percent against 2020 but it was 21.6 percent lower than the 102.3 million in 2019.
Despite the 52.7 percent drop in 2020 versus 2019, the Mexican market has grown at a compound annual growth rate (CAGR) of 3.5 percent from 2000 to 2021, reports HR Ratings. By the end of 2021, Mexican airlines showed a recovery in profitability that exceeded the levels of 2019. Aeroméxico reported an EBITDAR of 26.3 percent, Volaris of 36.7 percent and Viva Aerobus of 38.1 percent.
During the rest of 2022, HR Ratings expects that prices will increase, given the current global inflation. The cost of jet fuel is also increasing. It grew by 62 percent in 2021 and by 107 percent in 1Q22. “Secondly, we could experience additional problems from COVID-19. Finally, there is an unfavorable macroeconomic scenario, with moderate growth, high inflation and high-interest rates,” said HR Ratings.
Mexico is also in the US Federal Aviation Administration’s (FAA) Category 2 and “as long as it does not return to Category 1, the development of new routes, the increase in frequencies or the benefit of the use of shared codes between the country and the US will be constrained, which will generally limit growth,” said HR Ratings. However, more efficient fleets and higher operational productivity could offset high prices and keep passenger occupancy growing.
In 2022, airlines in Mexico will face the challenges of the airspace reconfiguration, the risk of saturation of the Mexico City International Airport (AICM) and the limitations imposed by the Category 2 rank. However, operational and financial improvements implemented over the past two years put local airlines in a better position to face short-term challenges.