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 News Around the Republic of Mexico | July 2005 
Discount Airlines In Mexico
 Brendan M. Case - The Dallas Morning News
| | Compañía Mexicana de Aviación launched a low-cost carrier, Click Mexicana, on Friday. Others are in the works. (Photo: Luis J. Jimenez) |
Mexico City – Low-cost carriers inspired by Dallas-based Southwest Airlines Co. have transformed air travel everywhere from the United States to Europe to Brazil.
Now they're appearing in Mexico, where proponents say discounters will bring unprecedented competition to an aviation industry that has long been dominated by two big airlines controlled by a single holding company.
In a country where millions scorn pricey air travel for affordable bus service, low-cost carriers emulating Southwest, Ireland's Ryanair and Great Britain's easyJet vow to put hordes of new customers in the air.
A potential new era began Friday when Compañía Mexicana de Aviación SA, one of Mexico's dominant airlines, launched a low-cost carrier called Click Mexicana.
Backers of other low-cost airlines include the grandson of a Mexican president, who is readying Interjet for a December launch; a former finance minister, who plans to start Vuela next year; and a Fort Worth entrepreneur who wants to offer U.S.-Mexico service on Mexus Airlines.
"It's happening at last, and I believe it will be the big story at the end of 2005," said Bob Booth, the chairman of Avman Inc., a Miami consulting firm.
Mexicana says the growth potential for low-cost airlines is enormous. "We could probably double the number of people traveling by air," said airline spokesman Adolfo Crespo.
Good luck, skeptics say.
Mexico already has quasi-discount airlines such as Aviacsa, Aero California and Líneas Aéreas Azteca. Aviacsa and Aero California fly older planes, but they also offer competitive fares. Aviacsa in particular has expanded in recent years.
The larger question is what happens with a planned sale of Mexicana and AeroMéxico, which account for more than 70 percent of the market.
The government is planning to boost competition by selling them to private investors as two separate companies, after years of ownership by Cintra SA, a state-controlled holding company.
Traditionally, however, regulators have shied away from threatening the two airlines' market dominance. Although both companies provide good service, their round-trip fares typically go for several hundred dollars, even for short trips. Top fares can be a lot higher.
"The industry is regulated to protect the interest of AeroMéxico and Mexicana, and the leadership of the airline employees' unions," said airline expert Michael Roach, of Roach & Sbarra Consulting in San Francisco.
"It's an incredible reflection on Mexico that they do not have a low-cost carrier, and an incredible impediment to the Mexican economy. It's a national scandal," he said.
Preparing for take-off
But that scandal may soon end thanks to several low-cost airline projects:
•Click Mexicana is the new brand name of Aerocaribe, a Mexicana unit that focused on southern Mexico.
Click will begin by offering service between Mexico City and eight destinations, from Nuevo Laredo on the Texas border to Mérida on the Yucatán peninsula. Instead of Aerocaribe's DC-9s, Click will use 100-seat Fokker 100s with newly upholstered leather seats.
Click will soon add other flights, including one from Mexico City to Cancún and on to Havana, Cuba.
Click's labor costs will be lower than Mexicana's, helping the new carrier keep prices down, said Mr. Crespo, the Mexicana spokesman. But although initial round-trip fares range below $200, it remains to be seen whether they will stay as low as the rock-bottom prices that U.S. and European low-cost carriers typically charge.
"Click is going to have fares that are 15 percent to 30 percent lower than other carriers' fares," Mr. Crespo said.
•Aerolíneas ABC plans to fly its low-cost Interjet service from Toluca, 40 miles west of Mexico City, by the end of 2005. The airline's chief is Miguel Alemán Magnani, son of a former Veracruz governor and grandson of the late Mexican president Miguel Alemán Valdés.
Interjet plans to fly A320s, according to media reports. It recently signed a deal for 10 new A320s for 2007 delivery, according to a press release from Airbus SAS, the European aircraft manufacturer.
•Concesionaria Vuela Compañía de Aviación SA, or Vuela, also slated to fly out of Toluca, could take to the skies early next year.
Vuela is backed by an investment fund controlled by Pedro Aspe, a former Mexican finance minister, and Connecticut-based Discovery Capital Management. Some investors in TACA, a Central American airline, are also participating.
Executives say they will court not just people who fly already – Toluca is near some of Mexico City's wealthiest suburbs – but also budget travelers who use Mexico's comprehensive bus lines.
In 2004, federal officials reckoned airlines handled fewer than 38 million passenger trips, including international traffic. Bus lines handled 2.86 billion.
"Mainly, we're going to compete with buses," said Jorge Luis Moya, TACA's director in Mexico and head of the National Air Transport Chamber, referring to Vuela.
"But we're also going to make some inroads in the existing airlines' markets."
•Two other projects – Avolar Aerolíneas and Líneas Aéreas Mesoamericanas – are also in the works. It is unclear whether they will fly.
•Ash Huzenlaub, a 29-year-old Fort Worth entrepreneur, is still planning Mexus Airlines, which he envisions as offering low-cost service between the United States and Mexico.
"We are still alive, we are still hunting this down," he said.
Different routes
Low-cost carriers employ a variety of business models. In the United States, some, like Southwest, are known for no-frills service. Planes on Europe's Ryanair are so Spartan that they lack window shades and have seats that don't recline.
Others, like JetBlue Airways Corp., offer their passengers free satellite TV and – like Click – leather seats.
But the hallmark of low-cost carriers around the world remains cheap, easier-to-understand fares.
They're already a big success elsewhere in Latin America. In Brazil, GOL Linhas Aéreas Inteligentes SA has taken the market by storm since its 2001 launch. Investors from Peru to Chile are now laying plans to follow GOL's example.
Mexico's recent history offers at least one cautionary tale, however. In the 1990s, an airline called Transportes Aéreos Ejecutivos SA, or TAESA, grew by offering discount fares on popular routes.
After a deadly 1999 crash, however, government investigators found a pattern of safety violations and poor maintenance of the airline's aging planes.
Gilberto López Meyer, the director general of civil aeronautics at the Communications and Transportation Ministry, vows to avoid similar problems now. He also says that low-cost airlines will bring needed competition and provide an economic boost.
"If more people can fly somewhere for a few hours instead of spending 18 hours on a bus, we're adding value to our economy," he said.
If the low-cost carriers succeed, that is. The response to Click Mexicana remains to be seen. It's also unclear if its rivals can make Toluca an effective alternative airport to Mexico City.
Most of all, however, the world is littered with airlines that call themselves low-cost but don't necessarily offer reliable service to their customers and regular profits for their owners.
Besides, running any airline successfully is one of the business world's great challenges.
"There's a lot of people who bristle at how the airline business is being run by the traditional industry," said Bob Mann, head of R.W. Mann & Co., an airline industry analysis firm in Port Washington, N.Y.
"But the airline business is a funny business. Everyone wants to be in it, but a lot of people lose their shirt."
A Look At Mexico's Low-Fare Options
CLICK MEXICANA
Backed by Compañía Mexicana de Aviación SA.
Began flying Friday.
Initial destinations from Mexico City: Nuevo Laredo, Saltillo, San Luis Potosí, Mérida, Tuxtla Gutiérrez, Huatulco, Puerto Escondido and Zihuatenejo.
INTERJET
Backed by Aerolíneas ABC.
Plans to launch service from Toluca by year's end.
Recently placed a tentative order with Airbus SAS for 10 A320s for delivery in 2007.
VUELA
Backed by Protego investment fund, Discovery Capital Management and some investors of Central America's TACA airline.
Plans to launch service from Toluca in 2006.
MEXUS AIRLINES
Backed by Fort Worth entrepreneur Ash Huzenlaub.
Exploring opportunities for low-cost U.S.-Mexico service. |
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