After Cuts, Aeromar Tries to Regain Its Footing (Across the Aisle)

There’s a good chance you haven’t heard of Aeromar. The Mexico City-based airline has only 10 ATRs these days with most focusing on connecting Mexico City with small airports around the country as well as providing frequency in larger markets where other airlines don’t fill the need. Aeromar is currently restructuring and reportedly owes the government money for fuel. While that might not seem like much to look at, the airline is actually a fascinating operation in that it acts as a showcase for everything going on in Mexican aviation today.

After many years with Mexicana before its demise and then a few stints at smaller airlines, Fabricio Cojuc joined Aeromar in early 2018. Today he is the Executive Director, Network Strategy & Alliances. At the Boyd Conference, he gave an in-depth look at the problems with the Mexico/US open skies agreement. Afterwards, we sat down to talk about Aeromar itself.

Brett Snyder, Cranky Flier: How is the company doing overall? I’ve seen things saying that you’re trying to raise money, you’re having financial difficulties.

Fabricio Cojuc, Aeromar: The industry in general in Mexico is having a hard time. I would say Aeromar is no different from the rest. We had a seismic shift at the beginning of this year, because we were going to be part of Avianca. Avianca was going to acquire 49 percent of the company.

Cranky: And become Avianca Mexico?

Fabricio: And become Avianca Mexico, or Aeromar dba Avianca Mexico. We were going to upgauge to A320s which I personally had my doubts about, but it wasn’t my decision to make. And that went away in part because of the decision not to build the new [Mexico City] airport. It didn’t make any sense for Avianca to think about developing a hub where slots are a big problem. Aeromar has a nice slot portfolio but it’s not enough to sustain a hub on its own. So that didn’t happen. And on top of that, you had all the internal Avianca problems. Put all that together and they pretty much withdrew their intent to do what they were going to do.

So that injection of money, some of it came, but not all of it. Now we’re in the process of raising more funds and trying to look at different sources of capital. One could be another strategic partnership, one could be to get some sort of a loan, so we’re working on that. The company has improved significantly its operating performance over the past 18 months.

Cranky: Is it just that the market’s getting easier?

Fabricio: No, it’s really what we’ve done organically. We pretty much got rid of one fourth of the network and one fourth of the fleet. We downsized significantly. We were flying stuff outside Mexico City that didn’t make a lot of sense. As the larger guys kept growing their fleets, they were looking at the same markets we were already flying. So we pulled that capacity out, we laid off about 15 percent of our workforce, we completely transformed our distribution platform, and it’s paid off. In the past, our booking curve was extremely tight, like 10 days out. Now we’re booking for Easter of next year. That is in part from the Altea platform which is very good for us. I think we’ve become much more competitive in flying against the larger guys, but we know how to push the envelope. There are markets where we can’t compete with them.

Cranky: Wait, you got rid of a quarter of your fleet?

Fabricio: Right, the older aircraft. To give you an example at the end of 2017, our average fleet age was like 17 years old. Now it’s under three.

Cranky: Ok, so you pulled back on point-to-point, you’re focusing on Mexico City, but you can’t grow in Mexico City.

Fabricio: We were able to grow, I would say, significantly by upgauging. We only had [ATR] 42s, now we have seven [ATR] 72s, so that in itself is like 40 percent growth per airplane. We were able to grow our average capacity per departure from 48 seats to 65 seats.

Cranky: But now what?

Fabricio: That’s done. You’re right. What happens in the future… very limited opportunity in Mexico City, but if you look at what’s happening with Aeromexico and Interjet, they are gradually getting rid — well, Interjet not so gradually — but Aeromexico is gradually getting rid of the 70 seaters, looking more at 100 seaters plus. Interjet got rid of all the Sukhois. [Ed note: They aren’t technically gone yet, but they are reported to be on the way out.]

Cranky: Do you want to buy those? I hear one still works.

Fabricio: *laughs* Yeah, right. Look at TAR, they’re flying 11 ERJ-145s but those planes have their issues as well. So there are really big areas of Mexico that have lost service. You may find the Viva[Aerobus] flight once a week, but that doesn’t cater to the traffic patterns that those markets require. That’s where we are looking at growing in the future.

Cranky: So you’d like to increase frequency?

Fabricio: We would like to increase frequency. In Mexico City, we are mindful that it’s going to be difficult unless something major happens with another airline that, for whatever reason, starts withdrawing from certain markets or eliminating service. Then there are slots available. If that doesn’t materialize, clearly large secondary cities in Mexico that can support service selectively, that’s where we start growing in the future. There’s no other choice.

Cranky: Like another airplane in Guadalajara or something like that?

Fabricio: Correct.

Cranky: Tijuana?

Fabricio: Probably not. That’s too far out. Guadalajara is a good candidate and probably the southeastern part of Mexico which is way under-served, places like Villahermosa, for instance. They have terrible service, regionally speaking. They have great service to Mexico City and Monterrey and maybe one flight to Houston or Miami and that’s it. That’s where we could come in.

Cranky: So you have options. You mentioned the possibility of a future strategic partner.

Fabricio: That’s always a possibility.

Cranky: Is there a possibility that you could partner with another Mexican carrier? Could you operate under Aeromexico’s regional brand?

Fabricio: It’s a difficult question to answer. We have done that in the past quite successfully. I understand they are concerned about regulatory or anti-competitive issues. But I think if you look at the business models without putting any names to them, we’re both legacies, they have the large planes, we have the smaller planes… we are highly complementary. We are co-located in the same terminal in Mexico City, Terminal 2. They are getting rid of their smaller regional jets. All of the planets are aligning…

Cranky: But you don’t think the government would allow it?

Fabricio: To be very honest, I don’t know. And I don’t know if there’s even a will to try that at this time because there are so many things going on. So it might be best to wait and see. But we have a good cooperation with them with interline and hopefully that matures into something bigger. We like to partner with whomever wants to partner with us. We are a small guy, a small fish in a big pond. The more we can do that, the happier we are.

Cranky: I saw you just added Turkish with their new flight [to Mexico City]. I don’t know how much that will help but it’s something.

Fabricio: We’re thinking about a handful of passengers a day, but when you start multiplying that by x number of days and weeks and years, it becomes real money.

Cranky: And your airplanes don’t hold a lot of handfuls of passengers.

Fabricio: No, that’s right. It’s interesting because these guys are able to bring people from the oil and gas industry from Russia or Europe. And there’s plenty of that going on in Mexico, and we fly to cities that nobody else flies into. If you want to go there by air, you go on us.

Cranky: You’d think some of those cities might be able to support larger aircraft? Are they constrained?

Fabricio: I would say yes. One of the big limitations in some of these airports is that runway length or width is insufficient. They can’t handle an A320 or 737. Number two, because slots are so scarce in Mexico City, if you’re a Volaris or an Aeromexico and you can deploy a flight to Tijuana or Cancun, you’re not going to put it in the small secondary city because the trade-off isn’t worth it. So that gives us a little shield. And the economics of the aircraft, on very short hauls, the ATR kills the 737 or A320.

Cranky: It’s not very fast, but you don’t need it to be fast.

Fabricio: Look, if you’re talking about one hour flight time, it’s about the same regardless of what aircraft you’re flying. Let’s say after an hour and twenty minutes, we lose out to the jet.

Cranky: So McAllen, that’s your one US destination.

Fabricio: Right, we’ve been flying there since 2013.

Cranky: And that fits into this idea of smaller…

Fabricio: Correct, but I would say McAllen has a good alternate choice which is Reynosa right across the border. It has its issues, people may not like to go there, issues with violence. So it’s a little niche of people who have grown accustomed to using our service. It’s not so much high volume but more good quality of revenue. That’s something nobody else will fly.

Cranky: There really aren’t many other places in the US you could consider.

Fabricio: Well, we have talked to a couple of US airports. We would rather focus on making McAllen work daily Right now we’re at five a week. We were daily in the past. Make sure that works for us, and again, because of the slot scarcity and the fleet being completely maxed out, it’s difficult to consider flying a longer sector flight… unless we did it from somewhere else.

Cranky: Do you want to grow the fleet? Is that part of the recapitalization?

Fabricio: We’re actually in the process of looking at two additional ATR 72s. Ideally we would like to close this year with 12 and we would like to do two more per year until 2023. By 2023 we should be looking at double the size of the current fleet.

Cranky: Is this something you can do currently or do you need the recapitalization?

Fabricio: We can do it but at a slower pace. But again, you need to take into account that the full macroeconomic context is not very conducive to growing fast. Mexico is growing very slow, the economy is almost stagnant. There is a lot of uncertainty everywhere. So this fragility forces us to be more conservative. The company is very conservative and has always been very conservative. Growth is definitely in our future, but the pace of growth will depend upon our ability to raise the capital and how rapidly the overall macroeconomic environment improves, because right now it’s not very good.

Cranky: Talk to me a little about the United partnership. That came from Continental, right?

Fabricio: We started in 2010, then the merger and in 2011 it became United-Aeromar. It’s been fairly steady. It’s a unidirectional codeshare, their code on us. Most of our network is covered by the United partnership. On all of our flights you can accrue and redeem mileage which opens up the whole Star Alliance network.

Cranky: So you decided it was worth it to adopt the [MileagePlus] program?

Fabricio: We use it more as an alternative to not having our own in-house program. We’re so small we haven’t found the right equation to make an in-house product. In the past we did Club Premier with Aeromexico, but as part of the unwinding of that relationship which became a basic interline agreement, that was lost. But we still have United MileagePlus. It’s probably easier for us at this stage given our size to develop something in parallel, and when it makes sense, we can simply trigger that and reach it with a United partnership. But for now, it’s acting as our in-house program.

Cranky: I imagine you have a lot of business travelers…

Fabricio: Our mix is probably 65 to 70 percent business.

Cranky: So that program makes a big difference for people to be able to fly all the time and use their miles.

At that point, our conversation veered off into broader discussion about the Mexican market, so this seems like a good place to stop. Thanks to Fabricio for sitting down with me.

(Visited 2,103 times, 1 visits today)

Get Posts via Email When They Go Live or in a Weekly Digest


Join the Conversation

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.

9 Responses to After Cuts, Aeromar Tries to Regain Its Footing (Across the Aisle)

  1. Aaron says:

    Really good article. I would be interested in the rest of the discussion about the mexican market.

  2. Yosef Romano says:

    Well, I remember looking at their prices a long time ago and they were outrageous. Now there’s a lot more of competition, that certainly helped.
    We recently flew with them to puerto Escondido, they had great fares but the planes were basically empty.
    It was a first for me, both airline and airliner, and the flight was very smooth. Practically, it was a sightseeing flight.

    Anyway, what’s with the jet in the milenio newspaper link?

  3. tharanga says:

    I previously commented about airline executives being unlikely to really say anything about strategy in interviews. Wow – this interview shows how wrong that expectation can be. Candid and interesting; this was great to read.

    • CF says:

      tharanga – And this is why I like interviewing VP level folks instead of CEOs. They have a lot more to say!

Do NOT follow this link or you will be banned from the site!