Video of the week – Volaris prepares for Mexico’s peak, but believes ‘superior ULCC business model’ will help it recover much faster than traditional carriers as economic activity returns

13 May, 2020

At some point, nearly every region of the world will face the major crisis created by the Covid-19 coronavirus pandemic, which is now continuing its march into Latin America. Although cases in Latin America have not yet reached the levels in other countries, the region’s aviation markets are beginning to see a precipitous slide in demand.

Mexico’s airlines are using the tried and tested strategies adopted by airlines worldwide to cope with the crisis: slashing capacity and parking aircraft. And as is the case in other markets, some airlines in Mexico are better equipped to weather the crisis than others. One example is the ULCC Volaris, whose CEO Enrique Beltranena believes that due to its “superior ULCC business model” it will recover much faster than traditional carriers as economic activity returns.

Right now, it and all of Mexico’s airlines are bracing for the peak of Covid-19 in the country, estimated to occur this month. In a recent exclusive interview with CAPA TV, Mr Beltranena said that Volaris had cut its capacity for Apr-2020 by around 80%, and that during May-2020 the airline would operate just 12% to 15% of its originally published schedule.

Volaris is Mexico’s largest domestic airline by passengers carried and before the pandemic had planned 10% capacity growth year-on-year for 2020. Now, Mr Beltranena warns that the company is bracing for “potentially negative growth”.

“With more than 60% of our fleet on the ground, and revenues down 80%, we strongly think the government should support airlines with significant and fast economic help”, explains Mr Beltranena. The most pressing issue for airlines now is cash flow, and that problem requires an aid package specifically for airlines in the form of loans, the CEO believes.

“Something that is important is that we are not envisioning the government coming to restructure or do a sabotage of our airlines”, he says “We are just requiring specific aid packages related to credit that can help us support the process of not having revenues in the following months. So we are not envisioning government subsidies in any way in the short term or the long run.”

The Volaris CEO is forecasting some consolidation in Mexico, and “only the financially strongest airlines will continue in the market”, adding that he could not predict exactly whether it would turn out to be consolidation by attrition, but given that there will be lower capacity after the crisis, some companies could seek bankruptcy protection or shrink to a minimal size.

Mr Beltranena believes that consolidation will be the first phase of recovery after the Covid-19 pandemic. The second phase, which “is what we call the medium term development”, of broadly six to nine months, “...we expect the return of about 75% of original capacity, airlines will see the benefit of reduced capacity in the market, and fares as well as loads may recover”.

LEARN MORE… You can discover more about how Volaris has responded to the current coronavirus crisis and the views of its CEO in this exclusive CAPA TV interview with Enrique Beltranena.