Here’s How Mexican Aviation Will Look Post Coronavirus

The Centre For Aviation (CAPA) estimates that fewer competitors could emerge in the Mexican air market if there’s…

Here’s How Mexican Aviation Will Look Post Coronavirus

The Centre For Aviation (CAPA) estimates that fewer competitors could emerge in the Mexican air market if there’s no economic stimulus to address the fallout of the coronavirus pandemic. The organization also added that the Mexican government should study the viability of building the new airport.

Mexican airlines are facing difficult circumstances like other airlines around the world. Photo: Getty Images.

Which players are in a good financial position?

One airline currently in good shape is Volaris – it remains in a stable financial position, CAPA said. The low-cost carrier had a cash balance representing 23% of its 2019 revenues. Meanwhile, Viva Aerobus closed 2019 with a cash flow of 4,354 billion Mexican pesos (more than US$177 million). The airline said this amount was 33.8% of its yearly revenues. 

These two airlines started the year with better financial positions. On the other side, Aeromexico began the year with cash balances of approximately 13% of its total annual revenues. Of course, this amount has changed since. 

Even though , the airline also ended with approximately US$563 million in cash. The airline managed to increase its cash position as it ended 2019 with over $US368 million. This amount is 19% of its 2019 revenues.

Of these three players, Viva Aerobus has the upper hand. Viva Aerobus is a low-cost airline that operates 91% of its flights within Mexico. This arrangement gives the carrier an advantage to recover quickly once the pandemic is over. One hindrance to recovery could be the for an extended period in the name of social distancing. Then Viva may have to adjust its prices and forgo its low-cost model. 

Volaris has the best financial position in Mexico. Photo: Daniel Martínez Garbuno/Simple Flying

And what about Interjet?

As we’ve stated before, Interjet has not disclosed its financial results since 2019’s first quarter. While the airline grew in passenger numbers last year, it may have had financial challenges. CAPA noted the following:

“Having parked 21 Sukhoi Superjet 100s Interjet has only two aircraft currently in service. The majority of its Airbus fleet, which is a combination of current generation and Airbus A320neo family jets, are also in storage.”

At the beginning of the year, Interjet had a fleet of 66 Airbus aircraft and 22 Sukhoi (one of which was cannibalized). As of 23 April, the airline has 14 Airbus and the 22 Russian-built planes. The reason for this decrease is that from the Mexican low-cost carrier. 

Currently, Interjet is in a precarious situation. The Mexican government hasn’t pushed a stimulus package similar to the CARES Act of the US. Additionally, the forecast right now is that the Mexican economy will contract 6.6% for 2020. 

With all of these factors combined, the Mexican economy will recover slowly. Undoubtedly, the crisis “will affect how demand will recover in the country’s air travel market,” said CAPA. 

There are doubts surrounding the future of Interjet. Photo: Daniel Martínez Garbuno/Simple Flying.

Is it worthwhile to build an airport right now?

Finally, CAPA said that the Mexican government should analyze the viability of building a new airport for Mexico City. As we know, the current government is upgrading a military base into a commercial airport. It is due to open on 21 March 2022. This airport, known as Santa Lucía International Airport, will operate simultaneously with Mexico City International Airport and Toluca International Airport. 

Nevertheless, Mexico City’s airport saw a 35% decline in its passenger numbers in March. This fall will be more significant in the months to follow, and no one knows how long it will take for the demand to recover. 

Do you think the Mexican government should stop building an airport? What measures should Mexico take to help its airlines? Let us know in the comments. 

Source : Simple Flying More   

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All Is Not Lost For Virgin Australia’s Frequent Fliers

With over ten million members, about 40% of Australia’s population is signed up to Virgin Australia’s frequent flyer…

All Is Not Lost For Virgin Australia’s Frequent Fliers

With over ten million members, about 40% of Australia’s population is signed up to Virgin Australia’s frequent flyer scheme, Velocity. As Virgin Australia unfortunately slid into voluntary administration earlier this week, many of those Velocity members have expressed concerns about their points.

Virgin Australia administrators have re-assured frequent flyers their points are safe. Photo: Virgin Australia News Room.

It doesn’t help that many people have long memories. Nearly twenty years ago, USD$466 million worth of Global Rewards points were lost when Ansett collapsed. In recent weeks, in an attempt to stem a flight to safety, Velocity blocked points transfers to Singapore Airlines’ Krisflyer scheme.

There are reports as much as USD$1.27 billion worth of Velocity points remain unredeemed.

This week, after Virgin Australia entered into voluntary administration, Velocity suspended all redemptions for 28 days. Furthermore, local credit card issuers began blocking points transfers to the program. It was enough to make a lot of points junkies very twitchy.

Administrator moves to assure frequent flyers their points are safe

But Virgin Australia’s administrator, Deloitte, has been quick to reassure Virgin Australia’s frequent flyers that all is not lost. While Virgin Australia may have collapsed, Velocity hasn’t. Vaughan Strawbridge from Deloitte said this week;

“Velocity is a separate legal entity, it is well set up, the members are well protected.. we’re going to work with them as part of this process there will be a pause on redemption for a period but they’re a key part of how this business is restructured and comes out of administration.

“The frequent flyer program is an incredibly good asset.. the Velocity points are not lost they are all preserved, and they are still there.”

Frequent flyer scheme a profitable asset

Velocity is one of Virgin Australia’s most profitable assets. In 2014, Virgin Australia sold a 35% stake in Velocity for US$213 million to Affinity Equity Partners. Last year, the airline moved to buy back its stake, paying Affinity about US$460 million to do so. Velocity had proved a nice little earner for Affinity. Ironically, the buyback added to Virgin Australia’s debt levels, one of its key drivers into voluntary administration. The bondholders who funded last year’s buyback also look to now be out of pocket.

Virgin Australia’s frequent flyer program, Velocity, has about 10 million members. Photo: Virgin Australia News Room.

But the deal was recognition of the value of Velocity to Virgin Australia, and the frequent flyer scheme is a very tasty asset. However, Deloitte won’t be hiving it off from a restructured Virgin Australia. It will be retained and sold as a critical component of any resurrected airline. In a sales pitch that landed on the desks of potential Virgin Australia buyers midweek, Deloitte highlighted the current and potential strengths of the Virgin Australia business. A key pillar was Velocity. Deloitte described Velocity as highly cash generative.

Carrying the scheme forward will generate goodwill and cash

While most analysts don’t think the airline emerging from the ashes of Virgin Australia will follow the same flight path as its predecessor, all agree the new airline will need the support of Australia’s frequent flyers.

Carrying Velocity and its member’s points balances forward into that new airline will generate immediate market share, goodwill, and support. It will also generate cash for the airline.

Preserving Velocity and its member’s balances will generate a lot of goodwill going forward. Photo: Virgin Australia.

That, at least, is the thinking. And it makes sense. A points wipeout will leave a sour taste in everyone’s mouth. Preserving Velocity points will put a spring in the step of ten million relieved frequent flyers. Trashing a valuable asset like Velocity makes no sense for any of the stakeholders.

While Velocity members have a reason for cautious optimism, most will be waiting for the 28-day points redemption freeze to end to see what happens then.

Source : Simple Flying More   

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