Mexico was the star of last month’s Boyd Aviation Forecast Summit, an influential annual gathering of aviation industry executives, financial analysts, and media.
In this pandemic year, air travel between the United States and Mexico is down significantly less than domestic travel within the United States, or all international air travel from the United States. The latter fact is no surprise, given that in October, as United Airlines executives noted at the conference, Brazil and Mexico were the only two countries in the world opened to their passengers, without a need for Covid-19 testing or quarantines.
The resilience of the US-Mexico traffic is a testament to the strength of the bonds between our two neighboring countries. Air travel between the US and both Canada and the United Kingdom in September was practically non-existent, after being the top two international destinations a year earlier. US-Mexico air travel in September, by contrast, was “only” down about 40% from a year earlier, and Mexico had catapulted into the top international destination for US air travel.
The market segments are a snapshot of resilient cross-border flows. Business travel is down significantly, as it is elsewhere, but what airlines categorize as “southbound leisure,” “VFR,” and “northbound leisure” have recovered more quickly (in that order) than anyone would have anticipated in the bleak days of March/April, when the airline industry worldwide was essentially grounded. “VFR,” by the way, is industry jargon for “visiting friends and relatives.”
If Mexico was the star destination at the conference – cited repeatedly by executives from Delta, United, and the Airlines 4 America trade association – Volaris was the airline that stole the show. Or at least the airline whose presentation brought a much-needed glimmer of optimism to the conference.
Leading global aviation experts are now talking about the recovery of their industry as a four-year proposition, but Holger Blankenstein, the executive vice president for Airline Commercial Operations at Volaris, told the conference his airline was already operating at 85% of last year’s capacity and was well on its way back to profitability. I could practically hear the gasps on Zoom.
Volaris is an airline well suited for the circumstances, an “ultra-low-cost carrier” that relies heavily on leisure and “VFR” fliers traveling within Mexico and between the US and Mexico, thus avoiding the catastrophic erosion of business travel and interruption of service to so many other international destinations that have forced carriers like Aeromexico and LATAM to file for bankruptcy. Its lower costs and relatively healthy balance sheet also allowed Volaris to weather the storm better than most, and gain market share from troubled competitors like Interjet (Mexico’s carriers did not receive government aid to help confront the pandemic).
Ultra-low-cost carriers like Volaris and VivaAerobus, another fast-growing Mexican airline, have been booming for years around the world. They are the target of complaints and snickering about the bare-bones service and all the extra charges for things traditional airlines have already bundled into the price of your ticket, but the snickering tends to come from people who have already been flying a lot. These carriers are less concerned with impressing them than they are about democratizing air travel by expanding the universe of people who can afford to fly.
Blankenstein told the aviation forecast summit that Volaris, which is now the largest airline in Mexico commanding 44% of the domestic market and some 20% of the international market, considers bus lines, not other airlines, as their top competitors. The pandemic has only accelerated the airline’s aggressive bus-switching marketing campaigns (“though our flight attendants handing out brochures were kicked out of the bus terminals,” Blankenstein added with a chuckle.) He said 36% of the airline’s routes compete only with bus service.
In an interview a few weeks after the conference, Blankenstein was still sounding bullish, saying Volaris was now flying 94% of its year-earlier schedule, and seeing load factors above 80% — unfathomable numbers for large US carriers.
He said the airline’s long-term thesis that Mexico is an underdeveloped aviation market where you can stimulate new demand for reasonably priced air travel among a young population and an expanding middle class will survive the pandemic. If anything, the growing awareness that flying is relatively safe compared to many other activities (on account of aircrafts’ air-filtration technologies) gives Volaris yet another argument to get people to ditch the bus.
American friends always look skeptical when I tell them how nice intercity bus travel in Mexico can be, but Blankenstein’s mission is to make that executive-class bus travel obsolete. The fact that many business travelers in Mexico still travel by bus is a testament to the country’s history of underdeveloped and high-priced aviation sector. Blankenstein says when he first came to work in Mexico years ago it was “stunning” to him that people wouldn’t think twice about taking 10,20-hour bus trips. Volaris set out to offer those travelers a similarly-priced alternative by air.
Hearing him say all this, I thought of the sixth-grade trip my mother took me, my brother, and our two best friends on from Chihuahua to Mexico City. The tickets on what was back then the state-owned airline cost many hundreds of dollars each, so we took the 20-hour bus ride. I checked on Volaris.com this morning and saw that a roundtrip Chihuahua-Mexico City ticket for a week from now can now be had for some $30 if you don’t bring anything onboard, $70 if you only bring a carry-on, and $130 if you check a bag. Snacks and all else are extra, of course, and I’d probably be among those grousing about the service, but I would arrive in Mexico 18 hours sooner, at a lower cost, and at a lower risk of viral infection.
Blankenstein says the opportunity for Volaris and other low-cost carriers remains enormous. Air travel in Mexico doubled in the decade prior to this year, but Mexicans still only take on average 0.4 air trips per capita, compared to more than 2 per capita for Americans.
The growth and ambition of Volaris is also a story of the resilient US-Mexico relationship, at the human level. The carrier has added new routes even during the pandemic, connecting Mexico City to Fresno, San Jose, Sacramento, and Fresno, catering to that “VFR” market.
Volaris is also a testament to cross-border flows in a way that is less obvious to passengers, as a holding of Phoenix-based Indigo Partners, the aviation investment firm founded by William Franke of America West fame, that also owns stakes in other low-cost carriers around the world, including Frontier Airlines and Hungary’s fast-growing Wizz Air.
I’ve long expected global aviation consolidation to take the form of more combinations along the lines of the Delta-Aeromexico code-sharing and equity alliance (which, like Indigo’s investment in Volaris, faces limits on foreign ownership), perhaps someday leading to a seamless unified brand between the two. But the Indigo collection of low-cost brands is more a case of what some academics call “glocalization” – combining cross-border investment and cost-management efficiencies with the preservation of distinct national brands. Think of it as the bus riders’ version of globalization.
* Andrés Martínez is a professor of practice in the Cronkite School of Journalism at Arizona State University and the editorial director of Future Tense, a Washington, D.C.-based ideas journalism partnership between ASU, Slate magazine, and New America Twitter: @AndresDCmtz
