Skip to main content

Aeromar -- the Mexican Army solution...

 Sometimes you get a trifecta, and with the above, I get that; it's about Mexico, it's about the airline industry and it's about the Mexican government.  Reading what is being said about that plan makes you realize that there's a sucker born every minute.

The Mexican airline business is not doing well, too rapid an expansion, with declining margins, insufficient capital and aggressive unions that have created financially tricky situations.  In addition, you add Covid and the loss by Mexico of its Schedule A carrier rights and you have a difficult situation for airline owners, who rightly carry a large portion of the blame for their difficulties.

Still, Aeromar is a small regional carrier with 12 aircraft, all of them aging ATR (turboprop) that operate a domestic service across Mexico.  The airline has a lot of debt and a lot of problems (as I mentioned above) and the owners are looking for additional capital.

Enters the military that is looking to capitalize on their current businesses; The logic so far is that by being vertically integrated, owning the airport, controlling the airspace and owning an airline it would be a winning formula for the military to make money.

First (of many) problems with this logic; the airline's two "additional hubs" would be the airport of Tulum and the New airport in Mexico City (n addition to the secondary hub of Guadelahara that it currently operates).  So the logic here seems to be to operate out of "new" but secondary airports, rather than from the big airports in Cancun or Mexico City.  why this is a problem?  Simply they give up all the international traffic; travellers will not use Tulum or the new Mexico City airport because they are pure domestic plays.  Therefore, this airline would only attract Mexican traffic, to domestic leisure destinations

Secondly, unless Mexico changes the rules of aircraft priority (and IATA may have issues with that), what the military seems to be suggesting is that by controlling airport, airline and air traffic they will be able to extract monopoly rent from travellers.  It would be difficult for a military-owned airline to get preferential treatment, but if it did, other carriers would find a way around that problem, at any rate, operating out of secondary airports negates that "advantage" since they are generally very quiet anyway and have a lot of excess capacity.

Third, operating an airline is difficult, and running one profitably is even more difficult.  If that is the real aim.  Old saying how do you become a millionaire as an airline owner -- start as a multi-millionaire!

Forth, current Mexican law prohibits the ownership of an airline by an airport operator...

I would suggest the following, having seen dealings with the Mexican military establishment in the past, that organization has a huge problem of corruption at all levels.  One way of looking at this would be to say that Aeromar needs new aircraft, its main domestic rival, TAR Aerolineas operates a leased fleet of small 50-seat jet that command premium prices by users because of their selected destinations.

The Mexican military is not the first who have thought of that idea, in fact, there is a long track record of military entities owning airlines.  It has been a disaster, and a good way to lose money.  However, there are other reasons to want to own an airline...these make it more probable that the Mexican military will find a way to own both the airports and an airline.  Mexico should not expect a profitable enterprise, but that's probably beside the point









Comments

Post a Comment

Popular posts from this blog

what people get wrong about tariffs

 The issue is simple. What percentage of the economy is dependent on tariff goods? The truth, is that the US economy is far more closed than people understand. People genuinely believe that all manufacturing has ceased to exist in the United States all given to China on the altar of woke policy the truth can be further from That statement. Only about 15% of US GDP is related to foreign trade. Of that amount, slightly more than half is from Canada in Mexico. And half of that is energy. What that means, is that about 7% of US GDP is tariff dependent. The proof in the pudding, is how little money tariff generates. People think that 30 or 50 billion is a lot it’s not in an economy that has $3 trillion. The impact on the US economy will be less visible but not absent. Inflation hasn’t occurred yet first because tests have hardly started to bite, but more importantly it’s such a small percent of the economy. Now certain things are critical. The rare earth metals from China were critical....
Post a Comment
Read more

The end of Tesla?

 it takes a special kind of idiot, to think that he can antagonize his entire customer base, and think that it will not impact his business. When Elon Musk went to work for Donald Trump, and created the doge department, he antagonized every liberal, and these people represent 90% of his client base.That’s not a brilliant move. Now Elon Musk is worth hundreds of billions of dollar, so he shouldn’t care a great deal, however, he needs to care because of several other issues. The cyber truck has been a disaster, most have had to be recalled because of defective glue, it’s not a truck, it’s not a car, it’s noisy, relatively uncomfortable, but great as a development platform. What Tesla has learned in making car manufacturing more seamless is truly amazing. The problem was that Elon Musk was so pissed with the Democrats, and with Joe Biden, in particular because of some slight, which were just plain stupid too. By the way, that he decided to support with hundreds of millions of dollar, ...
Post a Comment
Read more

Demographics

 I am preparing a kind of family tree for our children so that they know where they came from.  In my family I am the only survivor, although my brother and sister died recently they were both in their seventies (a story I told already).    It was a fun process, but it provided more than that.  First, I married relatively young I was 26 when I married and nearly 30 when our first child was born.   I was looking at my ancestors.  On my mother's side, she had 6 siblings, Four died before the age of 30, two in war, and two from illnesses.  Only she and a single sister survived.   The two boys had a child each but they died in WWII, and the other sister died as an infant.   what is interesting is that every one of my mother's siblings had children in their early 20s.   I know that my mom was hardly 20 when my brother was born.    What is remarkable is that among our friends, we are the only ones to have fou...
Post a Comment
Read more