Aeroméxico would continue to face problems after bankruptcy

Grupo Aeroméxico appears poised to emerge from bankruptcy in a few days, but analysts think the Mexican airline faces difficult challenges as it faces low-cost competitors such as Volaris, which has become the most active player in the local market.

Aeroméxico, which filed for bankruptcy in 2020 amid a sharp drop in demand due to the coronavirus pandemic, won final approval from a US court on Friday for its financial restructuring plan.

But even after reducing its debt load and operating costs under Chapter 11 bankruptcy protection, the firm could struggle to make up ground lost to rivals such as Volaris, which has overtaken it as America’s largest airline. Mexico for passenger transport.

The convalescent Mexican airline “could have gone further to cut costs”, said René Armas, commercial vice president and aeronautical consultant of Jet Link International.

Aeroméxico managed to reduce the number of employees per plane to 109 at the beginning of 2021 from 133 in 2019, but still had about 14 additional full-time employees per plane compared to its peers at the end of last year, added the expert.

The employee-aircraft relationship includes all workers, from pilots to administrative staff on the ground.

In all, Aeroméxico, which operates more than 120 planes, is overstaffed by 1,600 employees, according to a benchmark index of international airlines compiled by Armas.

A company representative declined to comment on the timeline for its official exit from bankruptcy and its strategy beyond that milestone.

business travelers

With Apollo Global Management becoming the airline’s largest shareholder as a result of a bankruptcy-related debt-for-equity swap, the controlling investors’ most likely roadmap will be to downsize the company “to make it more efficient,” said Jacobo Rodríguez, an analyst at consultancy Black Wallstreet Capital.

Rodríguez added that the new owners could sell parts of the company or certain assets such as its fleet or airport spaces to increase profitability and keep the business running.

The executive president of Aeroméxico, Andrés Conesa, who has held the position since 2005, expressed his gratitude to his team and the new group of investors for the trust placed in the airline on Friday in a statement.

Aeroméxico would have a hard time taking on Volaris’s lower cost structure even after cutting costs, remaining a traditional airline more focused on business travelers, who remain in short supply as the pandemic continues, said Marco Antonio Montañez, an analyst of the Vector brokerage house.

“The company will be able to recover its market share little by little, although it is clear that the recovery will be slow. Aeroméxico must explore ways to lower its costs and compete, but I do not consider it possible for it to become a low-cost airline”, he commented.