Mexico Aviation Woes Reach North Into U.S.

Aug. 24, 2010
Mexicana bankruptcy causes ripple effect in Texas


Aug. 24--Mexico's aviation industry woes have spread north of the border.

Mexico City-based Mexicana declared bankruptcy on Aug. 2, and not long before that, the Federal Aviation Authority downgraded the Mexican aviation industry's safety ranking. Both are causing a ripple effect in Texas.

In the last few days, Mexican investors bought a controlling stake in Mexicana, Bloomberg News reported. A holding company called Tenedora K, made up of Mexican firms Grupo Industrial Omega and Grupo Arizan, among others, bought a 95 percent stake in the carrier. Officials from the holding company could not be reached Monday.

Earlier this month, the airline said it had cash-flow problems and was looking for investors.

After filing for bankruptcy, the Mexican carrier later cut some of its service, including one of its two daily flights out of San Antonio, and it suspended ticket sales until further notice. That has already cost San Antonio's airport more than $11,000 in landing fees that Mexicana would have otherwise paid for its morning flight.

"We're obviously hoping that they bring the flights back, for customer convenience sake," said Rich Johnson, spokesman for the City of San Antonio's Airport System, which is also served daily by Aeromexico and once a week by Aeromar.

Out of Houston's Bush Intercontinental Airport, Continental Airlines, Aeromexico and VivaAerobus combined offer nearly 300 weekly departures to Mexico, but Mexicana does not fly from the Bayou City.

The reduction in Mexicana service could benefit U.S. carriers that fly to Mexico.

"It's already offered up some opportunities for U.S. carriers to come in and take up a little market share," said Hunter Keay, an airline analyst with Stifel Nicolaus.

Continuing saga

Problems in Mexico's aviation world are just part of a continuing saga there.

Like the rest of the global airline industry, Mexico's airline business was battered by 9/11, high fuel prices and the economy.

Last month, Mexico's safety ranking was downgraded by the U.S. -- which the Mexican government's transportation agency said was due to a shortage of flight inspectors.

For Mexican carriers, the downgrade means they can't establish new routes to the U.S. or code share with any U.S. airlines.

On Aug. 30, Houston's Continental and Mexican carrier Aeromar planned to start code sharing, a marketing pact where airlines sell and issue tickets for flights operated by another carrier.

Aeromar would have cooperated with Continental on flights between Houston and Mexico City and Newark and Mexico City. Continental would have marketed Aeromar's flights between Mexico City and other Mexican communities Continental doesn't serve.

That deal is on hold until the FAA upgrades Mexico's ranking. Only 20 nations have the same safety ranking.

Mexico's tourism sector was also hurt by swine flu last year.

The H1N1 virus caused many carriers including Continental to reduce the number of flights to Mexican destinations once popular with tourists and business travelers. Continental has since restored its Mexico service to pre-swine flu levels.

"We're currently seeing strong demand for Mexico this summer both from business travelers and customers traveling to Mexico for vacation," Continental spokeswoman Julie King said.

Entry of low-cost carriers

Several low-cost carriers, such as VivaAerobus, have recently joined the market but failed to persuade more middle-class Mexicans to fly instead of driving or taking buses, said Pete Garcia of Pete Garcia International, a Houston airline consulting group.

"In Mexico, it really hasn't stimulated new traffic. All they've really done is take away from other carriers," said Garcia, who has consulted for Aeromexico.

Mexican carriers Aeromexico and Mexicana also chose to expand into some of the same markets the other airline served, Garcia said.

"Part of the reason both airlines are doing so poorly is because they decided to compete with each other far more aggressively," said Garcia, who served as Continental's vice president of Latin America until December 2007.

Another difficulty for Mexican carriers is that their flight attendants and pilots earn higher wages than U.S. airline labor, he said.

Old-fashioned amenities

And both Aeromexico and Mexicana still serve food and alcohol to passengers in an era when most U.S. airlines have done away with such perks. The policy may please business passengers, but other travelers would prefer to spend less for their tickets, Garcia said.

"They would rather pay less and not get all those frills," Garcia said.

Garcia said the airline must renegotiate its labor costs and get rid of older fuel-guzzling aircraft.

"I think they can come back, but they need to re-evaluate their whole business plan," Garcia said.

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