Analysis: Aeromexico could still face difficulties after emerging from bankruptcy

An Aeromexico Boeing 737 MAX 9 fuselage is pictured at Benito Juarez International Airport in Mexico City, Mexico July 14, 2021. REUTERS/Luis Cortes/File Photo

MEXICO CITY, Feb 2 (Reuters) – Aeromexico (AEROMEX.MX) looks set to emerge from bankruptcy within days, but analysts say the Mexican airline faces tough challenges from competitors low-cost like Volaris, now the busiest airline in the country.

Aeromexico, which filed for bankruptcy in June 2020 as demand crunched in the early months of the pandemic, won final court approval on Friday for a restructuring plan that aims to cut its debt from $2 billion to more of $1 billion. Read more

But even after reducing debt and operating costs under Chapter 11 protection, Aeromexico may struggle to recover ground lost to low-cost carriers like Volaris (VOLARA.MX), which has overtaken it. as Mexico’s largest airline by passenger traffic.

The recovering airline could have “gone even further to reduce costs,” said Rene Armas Maes, commercial vice president and aviation consultant at Jet Link International LLC.

Aeromexico managed to reduce the number of employees per plane to 109 in the first months of 2021 from 133 in 2019, but still had about 14 more full-time employees per plane than its peers at the end of the year. last, he said.

The employee-to-aircraft ratio includes all employees, from pilots to ground administrative staff.

Aeromexico, which operates more than 120 aircraft, has 1,600 overstaffed employees, according to international airline benchmark Armas.

The company’s representative declined to comment on the timing of its exit from bankruptcy and its strategy beyond that stage.

The return plan contains some assumptions that appear optimistic, including that it will rebound to pre-pandemic capacity as measured by available seat-kilometres by the end of 2022, while the industry consensus is that traffic will be at pre-COVID levels by mid-2023 or 2024, he said.

Although capacity has no direct relationship to profitability, it is an important sign of their ability to balance supply and demand, Armas said.

With Apollo Global Management becoming the airline’s largest shareholder following a bankruptcy-related debt-for-equity swap, the likeliest course of action for majority investors will be to downsize the company.” to make it more efficient,” Black Wallstreet Capital Mexican analyst Jacobo Rodriguez said.

Rodriguez also said the new owners could sell parts of the business or certain assets like its fleet or airport slots to increase profitability and keep business going.

Aeromexico chief executive Andres Conesa – who has held the position since 2005 – expressed his gratitude to his team and the new group of investors for the confidence placed in the airline in a statement on Friday.

Aeromexico would struggle to take on Volaris’ lower-cost structure even after cutting spending, leaving the airline as a legacy carrier more focused on business travelers, who remain in short supply as the pandemic rages, Marco said. Antonio Montanez, analyst at Vector brokerage.

“It will be able to recover its market share little by little, although it is clear that the recovery will be slow,” he said. “Aeromexico needs to explore ways to cut costs and be competitive, but I don’t see it becoming a low-cost airline.”

Report by Valentine Hilaire; Editing by Christian Plumb, Dave Graham and Alistair Bell

Our standards: The Thomson Reuters Trust Principles.