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.
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 Aeromexico posted a loss of US$102 million, 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 blocking of the middle seat for an extended period in the name of social distancing. Then Viva may have to adjust its prices and forgo its low-cost model.
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 over ten leasing companies have repossessed their airplanes 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.
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.