Mexican Low-Cost Carriers Poised for US Success
The new air travel agreement between the United States and Mexico, which was originally signed late last year, was officially approved on July 22. The deal means that U.S. carriers have unrestricted access to destinations in Mexico. However, it is Mexico's low-cost carriers who can gain the most from this new arrangement.
Airlines can start establishing new cross-border routes without restrictions on Aug. 21.
Thanks, in large part, to increasingly active low-cost carriers, Mexico's air travel industry had a banner year in 2015. The domestic market grew by nearly 13 percent and international passenger numbers rose by 12 percent.
The growth is continuing this year. The domestic market is on pace to grow by 11-12 percent in 2016. International growth is lagging compared to last year (8.6 percent growth in the first five months of '16), but the newly opened opportunities in the U.S. should help bring this number up to near 2015 levels.
Low-cost carriers have the most to gain
Mexican low-cost carriers are poised to take advantage of the rule changes. Both Volaris and Interjet are already establishing new routes between the U.S. and Mexico. The two airlines have sightly different strategies for U.S. markets, but they have both become a lot more visible at major American airports this year. Now that the treaty is official, this growth will become more noticeable for fliers in the United States.
Strategies for Mexican LCCs
Volaris will fly some routes between major U.S. hubs and smaller markets in Mexico. The goal with these routes seems to be to offer service to Mexican-Americans who are traveling for business or to visit relatives. Examples of these city pairs include Guadalajara-Seattle, Culiacán-Phoenix and Durango-Los Angeles.
Volaris will also try to compete on price on more-crowded routes like Monterrey-Chicago O'Hare, where United has control of three-fourths of the market.
Interjet, meanwhile, has focused on busier routes thus far in 2016, perhaps thinking that it can undercut larger carriers. The smaller LLC has launched flights on popular vacation routes like Los Angeles-Cancun and on major hub routes like Dallas-Mexico City.
Blueprints for success?
Based on the numbers for the first half of 2016, it seems like the strategies being used by Interjet and Volaris have proven successful. With new opportunities opening up on Aug. 21, both airlines should be able to test their plans in new markets north of the border.
Fledgling low-cost carrier VivaAerobus, which is partly owned by Ryanair’s owners, is reportedly planning on entering the trans-border fray as well.
Read More: Mexican Airlines Soar
Are major carriers worried?
The new treaty will help major airlines as well. It will remove restrictions that were getting in the way of a major joint-venture deal between Delta and Aeromexico. Delta is in the process of acquiring 49 percent of Aeromexico, and the two airlines are currently waiting for U.S. authorities to grant them immunity from antitrust laws. Mexico City has already given the deal a green light.
The joint venture could make it easier for both the U.S. and Mexican legacy carriers to compete against the ambitious and more-nimble LCCs on the free market.
Everyone wants to get into the trans-border game. However, low-cost carriers, especially those in Mexico, have an inside track for success because they can offer low fares and they are able to make profits on lower capacity routes.
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