Benjamin Mejia Ortiz
Deputy Director General
Expert Contributor

Too Many Changes for the Mexican Aviation Industry after COVID-19

By Benjamín Mejía | Tue, 10/13/2020 - 13:30

The entire world has changed due to the pandemic. The idea of aviation globalization has gone down a different path, companies have to rethink how they manage their business based on a digital framework while the traditional structures no longer apply. But some companies have found an opportunity to get stronger.

We believe that the Mexican aviation recovery is beginning to happen but in a diverse manner as it was in 2019. Some operators are achieving numbers from 50 to 80 percent of normal operation. 

COVID 19 changed the players and rankings in the Mexican market.

During COVID-19, all the operators significantly reduced operations due to restrictions and passengers' fear of contracting the virus. But after the third month of the pandemic, a slow recovery began and with this, new market opportunities emerged. How the airlines faced the start of the pandemic was very important. Those who were prepared, with enough cash to survive for months, took advantage even amid the cost reductions that every airline immediately applied. The same scenario happened in Europe where low-cost airlines like Ryanair, Wizz Air and EasyJet had between eight and 16 months cash available while the global airlines had under six months.

In Mexico, the low-cost operators had already restructured their operating costs before the pandemic so they were able to negotiate with the leasing companies and implement several cost reductions. They were able to recover their operations to the point that today they are seeing 60 to 80 percent of operations with a load factor of more than 70%.

During the pandemic, Volaris became the No. 1 operator regarding domestic passengers, while Aeromexico Group and Vivaerobus are fighting for the second and third spots. Other competitors significantly reduced their fleet and operations. Grupo Aeromexico the national flag carrier is in the process of a positive restructure where the outcome will be a renovated and profitable legacy airline.

Domestic Passengers
Domestic Passengers
International Passengers (August 2020)
International Passengers (August 2020)

For the international markets, the low-cost carriers increased their operations and routes, both nationally and internationally, while the others reduced them due financial issues. The strategy is very clear: Low-cost operators are overtaking the national and international markets. Why is this happening? Their structures and business plans are totally different and their operating costs are among the lowest in the world. They also manage a third-party service for maintenance and ground handling while the legacy operators maintain a vertical structure, using the traditional union model where the costs are higher.

Another strong point for the low-cost airlines is that they operate just one family fleet, which has been flying for 32 years. The Airbus A320 family has proven reliable over the years, which helps control maintenance costs, adding value to the business. Volaris and Vivaaerobus managed an aircraft configuration of around 220 and 240 passengers for their A321s and 186 passengers for the A320. The new engine for the NEO A320 and A321 provides 15% more fuel economy.

As a result, regarding future passenger statistics, low-cost operators will have better opportunities due their business and infrastructure models.

What about the cargo market during COVID-19?

Domestic Cargo Operators (August 2020)
Domestic Cargo Operators (August 2020)
Mexican All Cargo Operators (July 2020)
Mexican All Cargo Operators (July 2020)

The national cargo market was not as affected as the passenger market but it changed because new opportunities were uncovered by some airlines that managed passengers and cargo. During the last few years, the national cargo market had been static, although we should mention that the infrastructure at Mexican airports was not designed for cargo operations. Even the latest US-Mexico bilateral agreement provides almost open skies for foreign airlines, which may affect the cargo industry, but the government interest was mainly focused on the passenger business. The new airport in Santa Lucia AIFA is being planned based on the needs of a growing cargo industry. Among domestic (passengers also) cargo airlines, Grupo Aeromexico holds first place, Volaris is second and a new player has arrived in third: Vivaaerobus. 

Vivaaerobus designed an innovative cargo business model that is based on cargo best practices. The model is quite aggressive, with excellent infrastructure, IT, customer service and prices due the joint efforts with Aerocharter, a one-stop service provider. Both companies base their strategy in overtaking the markets that have been vacated recently with the objective of changing the traditional cargo model.

Those big changes applied to the dedicated cargo airlines on the domestic side in the country. While this activity was neglected for many years, recently some operators like TSM and MCS have achieved excellent rates of growth, and they both handle excellent business models and relationships with huge clients. They’re growing up in Saltillo and Toluca while creating efficient distribution networks in the country. We might say that they both are managed as an ultra-low-cost model.

International Cargo Market (August 2020)
Mexican All Cargo Operators (August 2020)

Some of the good news for our international cargo industry is that Mas Air has decided to expand its operations by increasing its fleet and adding routes, a strategy that surely will be successful due the company maintaining high standards of efficiency throughout the years. Aerounion, which has been the No. 1 Mexican cargo airline for many years, is also reinforcing its market strategy with new destinations. The cargo business is being developed at last as COVID-19 led to enormous growth for e-commerce and this growth will only continue.

Our aviation industry will still face more changes in the near future. Those companies that understand that the traditional ways are over will survive, this includes understanding the importance of the digital world for all businesses, the use of new methods of communication and the effective management of home-office, the application of business statistics for better decision-making and, of course, being aggressive in a moment when opportunities are emerging.

Photo by:   Benjamin Mejia Ortiz