Mexicana Circles the Drain, Blames All Its Problems on Labor

Mexicana appears to be on life support this week and it’s quickly moved to blaming the unions for its predicament. We’ve seen airlines blame labor time after time here in the US, but I don’t believe I’ve ever seen an airline say that the unions are the only problem it has. I can tell you from first-hand experience that the airline has a lot more problems than that, but why confront those if you can just blame labor? It’s so much easier, right? Yeah, right.

The airline, now owned by conglomerate Grupo Posadas, has come out firing. Mexicana filed for bankruptcy in the US and Mexico after having given the unions an ultimatum and failing. The pilots and flight attendants had two bad choices. If you are booked on Mexicana, good luck. Your flight is likely still going for now, but their customer service is non-existent. And the chance of the airline shutting down goes up each day. If you’re booked on Mexicana, make sure your flight is still there. A good chunk have been permanently canceled going forward, though the airline does continue to operate what’s left.

Mexicana Shell Game

As I said, Mexicana is putting the blame squarely on labor at this point:

Although the airline’s operating costs excluding crew labor costs are 30% lower than the average of legacy airlines in the United States, these non competitive labor costs are the main reason why the company has continued to suffer losses, to the extent that it is now financially non-viable.

There’s no question that the pilots and flight attendants make a pretty penny at the airline. One local report says the average pilot salary is $228,000 (that’s US Dollars), and that seems crazy. But I also hate the “average salary” measure because it doesn’t give you a true representation of the contract. Still, it seems quite obvious that concessions are going to be necessary. The flight attendants make an average of $53,000. Mexicana is looking to slash everyone’s salary dramatically while also laying off a bunch of people. But we’ll come back to that in a second. First, let’s talk about Mexicana’s structure to get a better understanding of where this is going.

Mexicana is really three airlines these days. The main airline is the one in trouble here, and the owners are trying to play a shell game. Mexicana itself is the international airline that has around 60 airplanes. Mexicana Click is the low cost/domestic carrier that took the old Midwest 717s to fly mostly within Mexico. It has about half the number of planes that the main airline has. Then there’s Mexicana Link which flies 15 regional jets as well. Those two airlines have much lower crew costs, and it’s clear that Mexicana is now trying to use them to replace Mexicana flying.

The company had given the pilots and flight attendants two options. Neither option was good, and the spin in the press release would impress even a Fox News analyst. I’ve received further background on these offers, and I see it as a no-win situation.

The first offer was to slash wages by 39 to 41 percent and lay off 40 percent of the crews. In exchange, Mexicana would offer profit sharing (no percentage is given) when the airline makes at least a 5 percent margin. Those are pretty drastic cuts and were highly unlikely to gain acceptance. Even if some of the crew members agreed to take such drastic cuts, why would 40 percent of them vote to lose their jobs?

The second offer was just shady. Mexicana wants to sell the airline to the flight attendants and pilots for 1 peso. Sounds great, right? Um, no. This sale includes, of course, mountains of debt that Mexicana has added over the years. In general, I like this idea. I say that, because I don’t like Mexicana and the airline will be bankrupt within a year. When labor runs an airline, things don’t work out well. But the plan is so much more diabolical than that.

The press release does note that the union would only be able to use the Mexicana name for six months, at which time it would have to become something else. What the release fails to note is that Mexicana would also require that the pilots union resign from representing pilots at Mexicana Click because of the conflict of interest. Ah, now it becomes clear.

Mexicana spins off the garbage – the old airline and its debt – to labor. Meanwhile, Click goes union-less. In six months, the old Mexicana becomes some other airline until it limps right into the grave. Then Click becomes Mexicana, without unions and with much lower costs.

If you’re a union, what do you do? Turn it down, and that’s what they did. If you lose more than a third of your pay and nearly half your colleagues, would you vote for option #1? Would anyone in their right mind vote for option #2? Maybe this is Mexicana’s way of bargaining, but it seems to be an ultimatum more than anything else. If Mexicana is willing to negotiate, then maybe something can be salvaged. If not, I fully expect to see the airline go under, with Click eventually rising from the ashes to take over the Mexicana name.

Bottom line: If you’re a passenger, I would not book on Mexicana right now because of the volatility. If you work for Mexicana, I’d start sending my resume out right now. Those stellar customer service skills can be put to good use at, oh, say a cell phone company. Or maybe the cable guys need more help angering their customers.

[Original Photo via Flickr user vaticanus]


25 Responses to Mexicana Circles the Drain, Blames All Its Problems on Labor

  1. Skinny says:

    I flew Mexicana in May JFK-CUN. The flight was so cheap (about $200 r/t including taxes) that I drove three hours from Upstate NY for the flight. The flight down was on an old A320 where the divider between 1st and Coach was falling down (literally) and the flight back was on a newer A320 that did not have any air vents or circulation. I have never been so hot in my life. But with the cost of the tickets, I can understand the airline going under.

  2. David says:

    CF – is this bankruptcy going to be a US style “wave the magic wand, be nice to the judge and all the debts just disappear”, or is this a more serious bankruptcy where the airline really might disappear ?

    • CF says:

      It could be that style of bankruptcy, but it seems like the owners want the airline to disappear so they can just ditch the unions and restart using Click/Link.

  3. ttjoseph says:

    CF – What would be a better path for Mexicana to take here?

    • CF says:

      I don’t think brinksmanship is going to get them anywhere here. This is an airline that I’ve found to offer very poor customer service, inconvenient flight times, but surprisingly low fares. For example, they were a full $100 less than other airlines for a trip from Oakland to Acapulco in November. Is that to compensate for not being anyone’s first choice? Maybe. Or maybe they need people to come in and get their revenue mgmt together.

      I fully believe that concessions will be necessary here, but acting like that’s the only problem left isn’t going to make it happen. Also, offering two really bad options makes them seem like they want to resolve it, but it makes me think they’d rather just watch everyone go away.

  4. Over they weekend they cancelled flights from all three airports here in the bay area. They either had no crews or were afraid to bring airplanes here in case they were seized.

    This is just another big headache for American Airlines since they and Delta have already had to rebook all codeshare flights with MX(AA) and AM(DL) to show as the real Mexican carrier codes due the Cat 2 status that was given to Mexico, now AA will have issues since MX has been cancelling flights.

    I’m sure UA is happy MX left Star Alliance and CO must be happy since they have a lot of service to Mexico and with MX doomed to problems that could only help them.

    But the flip side is another old name carrier is having problems and may big the dust which is always sad to see.

  5. Allan says:

    This looks like an opening for Volaris to increase their route network from the U.S. to resort destinations in Mexico.

  6. Asad says:

    well you wonder how it got so bad, did the unions have any other choices in the past ? Why would the management give the unions a better deal ? what’s their incentive here ? It seem that the unions have made a pretty penny for a while and now that the ship is going down and they have two ugly choices. I expect we’ll see a re-play of this in CA when the union’s pensions come due in 10 years.

    • CF says:

      At this point, the airline looks like it has made the decision to not worry about minimizing impact on passengers, so that’s the one big thing that usually encourages management to keep the peace. Other than that, it’s just a matter of principle.

  7. EAG says:

    CF – Just curious, why do you not like this airline? I don’t know much about it, having only flown one trip on them – it was a disappointment (DFW-MEX-EZE in business class), but not terrible.

    • CF says:

      I had one absolutely horrendous experience flying them in 2004. We went down to Cabo and had poor communication, unexplained delays, military guards with guns searching bags, a missed approach with no explanation at all, and then sitting on the ground for over an hour remotely at LAX with no word from the cockpit. I was honestly about 5 minutes from popping the exit door. The icing on the cake, however, was that I never received a response to my complaint despite the auto reply guaranteeing a response within a couple weeks.

      I also had a client recently scheduled to fly on Mexicana when they canceled one of the flights, added a connection, and threw in a really long layover. That was unacceptable, but they were not willing to budget. A request for help via Twitter got Mexicana to send my request on to customer service for review, but I was told it would take 15 days to review. I still haven’t heard back.

      I’ve never heard of a good experience with this airline.

  8. /me buys stock in Alaska Air Group

  9. Asarkiss says:

    Mexicana has stopped selling tickets today… The start of the end.

  10. Asarkiss says:

    CORRECTION: they have suspended most, but not all, destinations. This does not affect Link or Click.

  11. Steve says:

    Good job picking apart that intended whipsaw between all the carriers Cranky! Saw them in ORD today, but not sure if I will see them again.

  12. David Z says:

    Count me among those who hardly had any good experience dealing with Mexicana. And that’s when they changed some of our clients’ schedules…and actually refused to let us refund when we couldn’t work it out.

  13. Granted taking a 40% pay cut isn’t great, but is that worse than having no job at all? Keeping 60% of the jobs at 60% of the pay sounds better than having 100% of the employees looking for a new job at the same time.

    • CF says:

      Well, but that’s just it. The bottom 40% aren’t going to vote for this contract, right? I mean, they’ll be out of a job so why would they support it? That means that you need to get nearly everyone in the upper 60% to vote for it and that’s unlikely.

      • Agreed on the 40% that is losing a job, but I don’t see why the other 60% don’t accept it. I would rather look for another/better job while I have a job. The alternative is looking for another/better job without a salary, while all of my coworkers are flooding the market with their resumes.

        Some salary is better than no salary.

  14. Pingback: Mexicana update – no longer selling tickets - Musings of The Global Traveller

  15. Dave11 says:

    Hi CF, maybe you can give me some thoughts. The company I work for provides office supplies to Mexicana, and they owe us money for 5 months now. You think my company will get paid eventually or we’ll lose the money?

    • CF says:

      It’s all at the mercy of the bankruptcy judge now. You’ll get in line just like all unsecured creditors. I would be very surprised to see you get the full amount, but you may end up with pennies on the dollar. Good luck.

  16. ZAP says:

    I flew out of Mexico on August 6th on Mexicana. That flight was miserable (people actually vomited in the aisle after eating the pasta meal, and the in-flight movie was Scooby Doo!), but at least it wasn’t cancelled. I hope that I can get back on the 22nd, and we have another flight booked with them in late September.

    Doesn’t it seem as if this could take down Click and Link also? Especially if there’s any truth to the allegations that management transferred funds to those two entities before provoking this crisis. People also don’t seem to want to book on Click or Link either right now, since they don’t have confidence in anything with “Mexicana” in the name.

  17. Pingback: Mexicana Surpasses Alitalia as the Worst Airline Ever - >> The Cranky Flier

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