US Airlines Press Into Latin America
US Airlines, struggling at home, cause a commotion abroad as they take business away from foreign carriers
LATIN America is emerging as a highly profitable market for foreign airlines, particularly United States carriers. But local carriers are not exactly putting out a welcome mat at Mexico City's Benito Juarez International airport.
"If we don't protect our national sovereignty and keep our operational wits about us, we'll be displaced from our traditional strongholds," warned Ricardo Garcia Sainz, president of Compania Mexicana de Aviacion, in January. A few weeks later, Aerovias de Mexico (Aeromexico) bought a 55-percent stake in Mexicana, creating a merger of Mexico's two largest airlines.
Analysts say the merger is an act of self-preservation.
"Both Mexicana and Aeromexico were hurt by the competition between themselves and by outside carriers," says Hector Novoa, an industry analyst with Operadora de Bolsa, a Mexico City investment house. "Mexicana was forced to cancel several traditional routes to the US. An alliance is the only logical move."
To reduce political flak over the creation of a near monopoly, Mexicana and Aeromexico planes will keep their different paint schemes but will operate under one management team. The Mexican government and the two companies insist this is an "alliance," not a merger.
Mexico is not the only nation worrying about outside competition. Chile's airline association recently lobbied its government to block American Airlines and United Airlines from expanding service there. United plans to boost capacity 23 percent by using larger aircraft, while American plans to double the number of weekly flights from the US by June 1.
The Latin American attraction is simple: profits. US carriers have been taking a beating in their home market, competing against each other. But they are finding easier pickings south of the Rio Grande.
"Traffic between the US and Mexico is growing at a rate of 17 to 18 percent a year. You've got a growth market with high yields and that makes for very profitable routes, not just in Mexico but especially on the longer-haul flights to South America," says Robert Booth, president of Aviation Management Services, a Miami consulting firm specializing in Latin America.
The boom in traffic is due in part to the regional economic recovery that has taken place over the last four years. Foreign businessmen are coming here in droves.