Interview: Andrés Conesa Labastida

How will Mexico City’s new airport bolster the country’s ambitions to become a regional hub?

ANDRES CONESA LABASTIDA: Mexico is geographically well positioned to move traffic between North and South America, as well as from Central and South America to Asia and Europe. That being said, the country needs to have the right infrastructure to fulfil this ambition. The principal requirement of the new airport is for it to be operationally efficient, with minimum connection times for transfer passengers. On an economic scale this is important, as Mexico City will continue to compete with cities such as Bogotá, Miami and Panama for the same transfer passengers. From an operational point of view, it is crucial to keep costs in check for both passengers and airlines to make it an economically viable airport. All stakeholders have been working together in the planning process to achieve these goals and to ensure it can become the leading aviation hub in Latin America.

What role do airlines play in reinforcing Mexico’s trade links with new markets?

CONESA: There has been a huge increase in Asian interest in Mexico in recent years. The country’s automotive sector in particular has been a key investment target for Japanese and Korean companies in central and northern Mexico, where there are sizeable populations of both nationalities. As a result, with the long-range Boeing 787 Dreamliner, Mexico is the only place in Latin America with a non-stop flight to Japan. In a wider context, Mexico can also act as an economic facilitator between two third-party markets.

It’s not just economic relations that play a major role, but also political relations. An example of the importance of these non-commercial barriers was the implementation in 2009 of visa restrictions for Mexicans travelling to Canada. Traffic collapsed after this, but Prime Minister Justin Trudeau’s 2016 policy to reverse these restrictions has boosted aviation capacity between the two nations over the medium to long term.

How has the recent growth of low-cost carriers changed the dynamics of the aviation market?

CONESA: The airline industry is undoubtedly the most competitive sector in Mexico; margins are constantly in the single digits for most key players. Low-cost carriers have grown in size to compete with full-service carriers, and there has been a global trend of consolidation among traditional airlines. That being said, people predicted that full-service carriers would disappear, but it is becoming increasingly evident that there is room for both business models in the market. The highly competitive environment has certainly done full-service carriers some favours; Aeroméxico’s cost per seat is 15-20% lower now than it was 10-15 years ago, as it has forced us to be structurally competitive with operational efficiencies and staff contracts.

How do airlines manage risk in such a volatile and unpredictable industry?

CONESA: By the very nature of the aviation industry, airlines need to carefully manage risks to maintain stable balance sheets. Identifying macroeconomic risks, exchange rate fluctuations and oil price variations are all crucial to long-term stability. As with debt, it is important to spread risk, in this case through part ownership and part dry-leasing of a fleet a staggered, adaptable strategy used by Aeroméxico to account for all market eventualities. In this industry it is very difficult to scale down but very viable to scale up.

To manage exchange rate risk is more challenging, mainly because most associated costs, such as fuel and aircraft purchases, are priced in US dollars, and most airlines accumulate income in their country’s own currency. The strengthening of the dollar over the past two years means that it is important for Mexican airlines to generate non-peso revenue. For fuel prices, it is important to use derivatives in order to protect against future shocks, and for the past 10 years Aeromé xico has hedged half of all its consumption in this way.