Consorcio Aviacsa, S.A. de C.V.

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Consorcio Aviacsa, S.A. de C.V.

Zona de Hangares, Hangar 1, Zona C
Aeropuerto Internacional
Mexico City, D.F. 15520
Mexico
Telephone: (52 55) 5716-9006
Toll Free: (800) 758-2188
Fax: (52 55) 575-6455
Web site: http://www.aviacsa.com

Private Company
Incorporated: 1990 as Aviaxsa S.A. de C.V.
Employees: 3,300
Sales: MXN 8.65 billion ($794.31 million) (2005)
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation

Consorcio Aviacsa, S.A. de C.V., is Mexico's third largest airline and the largest one in private hands. Originally oriented toward Mexico's southeast, the airline now covers all major Mexican cities and a few in the United States. Aviacsa maintains a fleet of Boeing jets to fly passengers to their destinations. By careful cost controls, restricting itself to flights of relatively short duration, and limiting the services it offers, this airline has provided the first successful low-price alternative in Mexico to the two major carriers, Mexicana and Aeroméxico.

A ROUGH TAKEOFF: 1990–94

Civil aviation, historically tightly controlled by the Mexican government, was loosened in 1988, when route exclusivity was eliminated where there was sufficient demand to justify service by two or more airlines. Citing the international trend toward privatization and deregulation of the airline industry, the government's transportation agency emphasized the need to decentralize the industry, particularly at the regional and local levels. The government began opening up concessions for the private sector to operate regional carriers.

Aviacsa (originally Aviaxsa) was founded in 1990 by Luis de Pau, former president of the savings and pension fund of the pilot's union known by its acronym as APSA. Aviacsa took the place of a deficit-ridden, state-run piston- and turboprop-plane airline, Aviación de Chiapas, that went out of business earlier that year, shortly after a crash that killed most of those on board, including a Roman Catholic bishop. The state of Chiapas took a 40 percent stake in the successor airline. The largest private investors were de Pau and a group headed by the former governor of Chiapas. Aviacsa took as its mandate to provide domestic air service to those Mexican cities that had been largely isolated from the rest of the country.

Aviacsa began operations with daily service carrying passengers in a leased 89 seat British Aerospace 146 jet from Tuxtla Gutiérrez, the capital of Chiapas, to Mexico City. With the lease of a second BAE-146 jet, Aviacsa began serving other southeastern cities: Mérida and Oaxaca, the capitals of Yucatán, and Oaxaca, respectively, plus the popular Caribbean resort of Cancún and Tapachula, a city in Chiapas bordering Guatemala. This part of Mexico had been neglected by the country's two chief airlines, Mexicana and Aeroméxico. Aviacsa also quickly developed a profitable charter business to Florida and Cuba and also offered air freight service. In 1991, its first full year of operation, Aviacsa served 203,000 passengers. By the end of 1992 Aviacsa had added two northern Mexican cities, Monterrey and Ciudad Juárez, to its destinations, as well as Villahermosa and Chetumel, the capitals of Tabasco and Quintana Roo, respectively. The airline also went international by adding service, for a time, to Guatemala City.

Aviacsa also had its share of problems in these early years. The company's first president was replaced in 1991 after being indicted on charges of looting the savings and pension fund of the pilots' union of more than $50 million. The following year, de Pau, who was chairman of the board, was indicted in connection with the same case and fled the country, along with the company's controller and the former governor of Chiapas. The two leased jets were repossessed that year for nonpayment. Aviacsa kept flying, however, by leasing four Fokker 100 jets. It continued to grow by offering low cost competition to Mexicana and Aeroméxico.

In 1994 control of Aviacsa was purchased for about $6 million by a Monterrey-based charter airline, Transportes Aereos Ejecutivos, S.A. de C.V. (Aeroexo). Owned by Alejandro and Eduardo Morales Mega, Aeroexo had ties to Monterrey's powerful Lobo family and through it, to influential Mexican politicians. Aviacsa continued operations as a company separate from Aeroexo, concentrating on southeastern Mexico. It was operating six daily flights from Mexico City to Tuxtla Gutiérrez and two from Mexico City to Tapachula. More flights had been added from Mexico City to Chetumal, Oaxaca, and Villahermosa. In addition, Aviacsa was running a daily Maya World flight from Cancún to Mérida, Oaxaca, and Villahermosa, all gateways to major Mayan ruins, and Tuxtla Gutiérrez, close to existing Maya communities in the Chiapas highlands. This route had a bilingual staff and served dishes typical of southeastern Mexico. Most Aviacsa passengers, though, were business executives. Many of these customers were based in Mexico City, flying out in the morning and returning home in the evening. All passengers paid the same rate and received the same class of service, which was said to be comparable to Mexicana and Aeroméxico.

Aeroexo's acquisition of Aviacsa greatly expanded its route network and was followed by an $80 million purchase of Boeing 727s, mostly bought used from the defunct U.S. airlines Eastern and Pan American, and also from Australia's Qantas Airways Inc. The company also bought several McDonnell Douglas DC-9s. This decision, although it enabled Aeroexo to initiate service to the United States, proved unwise when, later in 1994, currency flight led to a devaluation of the Mexican peso, followed by a deep recession. Aeroexo fell into serious trouble, with debts perhaps as high as $100 million owed to Mexican banks. Alejandro Morales, the company's chairman of the board, was sought by the federal government for allegedly obtaining bank loans under false pretenses and embezzling money from a brokerage firm. He fled to Houston. Eduardo Morales, the firm's director general, stayed on, however.

RECOVERY AND EXPANSION: 1995–2003

The unpleasant consequence, for the airlines, of the 1994 peso devaluation and subsequent recession was a 19 percent drop the next year in the number of passengers on domestic flights. Mexicana and Aeroméxico, recently privatized, fell into virtual bankruptcy and had to be rescued by the federal government, which, along with lender banks, assumed control. The economic crisis slowly eased, but some other airlines went under as well. By 2000 the number of firms offering scheduled service had fallen from 19 to 12.

Aviacsa, by contrast, registered a small gain in passenger traffic in 1995 and did even better the next year before recording its first decline in 1997. Passenger growth resumed the following year, when the airline had 28 planes in operation (averaging 26 years in age, however, considerably more than Aeroméxico or Mexicana). By the end of 1999, Aviacsa was not only serving Mexico's southeast but also Guadalajara, Monterrey, and Tijuana, plus at least two U.S. cities: Houston and Las Vegas. Within Mexico, the airline added Acapulco, Hermosillo, León, Mexicali, and Morelia to its destinations in 2000, when Aviacsa transported 1.38 million passengers in domestic scheduled service.

COMPANY PERSPECTIVES

In Aviacsa, our mission is to provide air transportation services for passengers and cargo, with state of the art technology and qualified human resources who feel motivated and proud of working for the organization, and are oriented to operate with the highest safety levels that today's society requires and demands.

Rigorous attention to controlling expenses allowed Aviacsa to continue operations as a low cost carrier. A key measure, enabling it to save as much as $20 million a year, was the establishment of its own repair shop in 2000. The airline had the ability to repair up to 95 percent of an airplane's components with excellent turnover time response. A team of over 400 engineers, inspectors, supervisors, mechanics, and operators was at work guaranteeing that all the planes were in optimal condition. The airline hired United Technologies Corp.'s Pratt & Whitney in 2003 to do a final check on repaired motor parts. This firm's international reputation constituted for Aviacsa a great technological advance. Also welcome was that Pratt & Whitney was doing the work in Mexico City, whereas before it was being performed abroad, at greater cost.

Aviacsa was also saving money because its pilots belonged to a relatively pliant union that allowed them to fly 15 percent more hours than those of Mexicana or Aeroméxico. This enabled the airline to fulfill its expanded number of flights without hiring more pilots. Aviacsa's overworked pilots demanded the right to join another union that would better serve its interests. In response, the company fired a number of dissidents, replacing them with pilots from an airline that had gone out of business. This did not prevent Aviacsa's pilots from voting, 65 to 35, in 2002 to change unions, but management continued to resist, tying up the matter in litigation. The case was still being argued in 2005, when the International Air Line Pilots Association told the Mexican Supreme Court that it was difficult "to understand why there exist pilots … in Mexican airlines who are forced to be represented by inefficient unions that don't defend their rights."

The years between 1999 and 2003 were marked by several hurdles to increased air travel, such as the economic downturn in the United States during 2000–01 and the drop in traffic after the 2001 destruction of the World Trade Center towers in New York. Mexicana and Aeroméxico actually lost passengers. By contrast, Aviacsa more than doubled the number of its passengers in this period and tripled the size of its fleet. In 2003 it was offering direct service from Mexico City to 15 Mexican cities. From Monterrey, it was also offering direct service to 15 destinations. In all, it was flying to 18 Mexican cities and five in the United States: the aforementioned two plus Chicago, Los Angeles, and Miami. Aviacsa was operating 120 flights daily and transporting an average of 200,000 passengers per month. The company's fleet consisted of 20 Boeing 737s and 6 Boeing 727s. Its frequent flyer program allowed passengers a free flight on the route most used if they bought five tickets during a period not greater than a year. Moreover, the flight was available even in high season, could be transferred to another party, and the route could be changed. A flight-plus-hotel package was available to almost all of the airline's destinations. Aviacsa was the only one of Mexico's 13 airlines to earn a profit in 2003.

CONTINUED GROWTH IN 2004–05

The following year was even more successful for Aviacsa. The number of its passengers rose by about 37 percent. It held 12 percent of the Mexican market, 21 percent of the market to the 18 national destinations that it operated, and almost 30 percent of the busy Mexico City–Monterrey route. Successful new routes included Puerto Vallarta–Monterrey–Ciudad Juárez and Oaxaca-Acapulco-Tijuana. Passengers were divided almost equally in three categories: migrants, businesspeople, and tourists. The company felt comfortable enough to deny being a low cost airline, at least in Mexican terms.

Aviacsa announced in early 2005 that it would buy 20 Boeing 737s during the year at a cost of $80 million. Some of these ten- and 11-year-old models were to replace some of the ones already in service, but others would be used to open new routes, such as Puebla–Monterrey–New York, Toluca–Monterrey, Toluca–Guadalajara–Los Angeles, and Zacatecas–Monterrey. In May, a dressed up Boeing 737 clad in bright colors made a tour of all the cities to which Aviacsa flew in order to celebrate the airline's 15th anniversary. Aviacsa was operating 150 flights daily to 20 Mexican and five U.S. destinations.

KEY DATES

1990:: Aviacsa begins operations as the privately run successor to a state-owned airline.
1992:: Company officers have fled Mexico, and two leased jets have been repossessed.
1994:: Aviacsa is sold to a Monterrey-based charter airline for about $6 million; the new owners incur heavy debt by purchasing a fleet of used Boeing 727s.
1999:: The cities Aviacsa serves include Guadalajara, Monterrey, Houston, and Las Vegas.
2003:: Since 1999 Aviacsa has more than doubled its fleet and number of passengers.
2005:: Aviacsa transports 3.7 million passengers and has an occupancy rate of 65 percent.

At the end of 2005 Aviacsa announced that it was planning to replace all of its fleet of 29 airliners by 2010. The company was also planning to add ten planes during this period. For 2006 it intended to initiate operations in Toluca, and in the early months of the year it added service linking Mexico City to Durango, Puerto Vallarta, and Veracruz. However, in May it dropped service to Chicago and Miami, citing too many unfilled seats and the high price of fuel. Service to these cities had initiated in Mexico City and Guadalajara, with a stop in Monterrey on both routes. Aviacsa reported transporting 3.7 million passengers in 2005. Its occupancy rate was 65 percent.

Robert Halasz