News That Matters

at what chaper it all went wrong?

Despite the unparalleled crisis, airline bankruptcies so far have been few and far between. Some bankrupt airlines even received a helping hand – case in point, Virgin Australia that was bought out by Bain Capital. However, in South America, bankruptcy proceedings have become an unfortunate trend even amongst the biggest players. Aeromexico, Avianca (AVHOQ) and LATAM are operating under Chapter 11 bankruptcy proceedings, despite being among the largest airlines in Latin America. What went wrong?

“This is our last chance to survive this crisis. Time is against us and every day that goes by places more agony on an industry that is seeking clarity on timelines to restart operations,” commented International Air Transport Association (IATA)’s regional vice president for the Americas Peter Cerda. On average, tourism accounts for 8.1% of the total Gross Domestic Product in Latin America, accounting for about $298 billion, according to IATA data.

Question of state aid?

It goes without saying that tourism and air travel go together much like peanut butter and jelly does. Take out one and the other is not as tasty anymore. If no tourists can feed air travel money due to international travel restrictions, the latter encounters severe issues. During the current crisis, many airlines were kept alive and well-fed by government aid.

Seemingly, Latin America’s trio of Aeromexico, Avianca (AVHOQ) and LATAM stayed hungry and were forced into Chapter 11 bankruptcy protection. June 30, May 10, and May 26, 2020, respectively, were the dates then three based in Latin America had to write their eleventh chapters, seeking protection from their creditors as they restructured.

At first glance, it could look like it was down to the fact that neither of the three has received state-aid at the time of their bankruptcy. Airlines in other regions have, including CARES Act in the United States or numerous government-backed measures across Europe.

But was this inevitable?

Low-cost domination in Mexico

Aeromexico is the de facto national flag carrier of Mexico. The Mexican government disinvested from the airline in 2007, leaving the airline at the mercy of the public market. Since, the path ahead has been turbulent, to say the least. Aeromexico had to weather the financial crisis of 2008, including the fact that its main competitor, Mexicana, closed operations in August 2010. Nevertheless, the airline kept on operating.

Its competition, namely from low-cost carriers, was growing. The mid-2000s saw several LCCs in Mexico opening up, namely Interjet, VivaAerobus and Volaris. The trio of carriers joined a market that was slowly but steadily growing. If in 2003 there were 18.4 million domestic passengers, the domestic market in Mexico finished 2008 with 27.6 million passengers, according to the Federal Civil Aviation Agency (AFAC) data. 10 years down the line, and the market has gone on to grow massively. In 2018, it was a 49.7 million-strong domestic traveler market.

However, market growth was primarily driven by low-cost carriers. In 2008, Interjet, VivaAerobus and Volaris had a market share of 10.8%, 4.8% and 12.2%, respectively, which grew to 20.5%, 18.4% and 28.4% in 2018. Meanwhile, Aeromexico lost 0.3% of its total market share and was dethroned as the largest airline in Mexico by Volaris in 2018.

Aeromexico stopping momentum

Overall, while domestic passenger numbers grew by 33.5% from 2015 till 2018, throughout the period, Available Seat Kilometers (ASK), measuring capacity, grew by 36.9%. Aeromexico struggled to capture the momentum, as it is now entering a four-year streak of net losses. On the bright side, it always managed to post an operating profit, albeit the operating profit margin has only gone down since 2015. If in 2015 it was 8%, in 2019 the number dropped to 4%. In 2018, Aeromexico barely scraped by with an operating profit margin of 0% and an operating profit of MXP9 million ($443,346).

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *