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Mexican Airline Development from 1988-2014

Text by R. Stretton
A heavily modified version of this article appeared in the May 2015 issue of Airliner World Magazine.
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Go here for a Genealogy diagrams of Mexico's airlines

Introduction

Mexico is the thirteenth largest nation in the world covering over 760,000 square miles (almost 2 million square kilometres) and, as of 2013, having a population of over 118 million people.  In 2010, it was the tenth most visited nation for tourism and geographically, with four mountain ranges, the nation is well suited to take advantage of the benefits that air travel can bring.​Historically the aviation sector has been heavily regulated and dominated by the two largely government run airlines: Compañía Mexicana de Aviación, S.A. de C.V. (Mexicana) and Aeronaves de México (Aeroméxico).  Following deregulation their dominance was challenged by a range of new airlines, but economic instability and infrastructural shortcomings have posed major stumbling blocks to the disruption of the status quo and the expansion of air travel.  Only since 2005 have a new breed of low cost airlines begun to exploit the market's potential and deliver on its promise to a nation of rapidly increasing wealth, which is set to be well within the top 10 economies in the world by 2050.

1924-1988: A duopoly followed by a monopoly

The first well established Mexican airline, Compañía Mexicana de Aviación (Mexicana), started operations as early as 1924 and was joined by Aeronaves de México (Aeroméxico) in 1934.  These two airlines hoovered up all competition, with Aeroméxico coming under increasing government ownership from 1952.  ​
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This effective duopoly was only changed when in 1982 the Government also took control of Mexicana creating a monopoly; although both carriers retained their own separate identities.  By 1988 the two large airlines held about 90% of the market share with only a few small operators, like Aero California and Aerocaribe, providing alternatives.  Chronic mismanagement led Aeroméxico into bankruptcy in April 1988 although the carrier was privatised and reborn as Aerovías de México, S.A. de C.V. later in the year.  The new Aeroméxico was profitable again by 1990. 
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1988-2005: Competition arrives

From 1988 the Mexican aviation market was opened up to competition with the beginning of deregulation.  The Mexican Government began to sell its majority share in Mexicana in 1989, starting with 25% being sold to a consortium led by Chase Manhattan Bank.  

​Upon deregulation there was an influx of new entrants onto the scene all looking to challenge the traditional two majors.  
These new airlines were typically equipped with either older equipment (like Boeing 727-100s, Boeing 737-200s and Douglas DC-9s) or newer foreign leased equipment (typically Boeing 737-300/500s and McDonnell Douglas MD-80s).  Both approaches had problems associated with them and the majority of the new companies operated for, often very, short periods before folding.  ​Of the many new airlines the most important were La Tur, TAESA, SARO and Aviacsa.  A brief look at their histories will illustrate some of the challenges the start up airlines faced.

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La Tur was a charter airline, which began operations in December 1988 with a pair of leased McDonnell Douglas MD-83s for services primarily to the United States.  A pair of Airbus A300-600Rs was also taken on in autumn 1989 with which operations to Europe were begun; however these were not a success.  The airline planned to reorganise its fleet around Airbus A320s but this plan never came to fruition.  Worsening economic conditions and a fall in the Mexican peso against the US dollar, in which currency lease agreements needed to be paid, as well as increasing competition, led to the airline's closure on December 18, 1991.  Early in 1992 the airline's remaining assets, including its fleet, were taken over by TAESA. ​
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TAESA (Transportes Aéreos Ejecutivos) began operations in 1988 as an executive jet operator but quickly expanded into scheduled operations.  By 1992 it was Mexico's third largest airline and operated 22 Boeing aircraft as well as a large fleet of executive jets. 
For a fuller history of TAESA see:
  • TAESA Pt1: The Little Airline That Could
  • TAESA Pt2: Old is New​
  • TAESA Pt3: DC-9 Disaster
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Photo by Paul Davey from Wikipedia
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Photo by Torsten Maiwald from Wikipedia
As well as absorbing La Tur’s operations it had also taken over another small start-up, Aviación del Noroeste, in 1990 and though the airline’s ATR-42s had been absorbed by TAESA it continued to operate separately with a single 737.  Initially TAESA’s fleet renewal was promising as the airline became the first in Mexico to operate Boeing 757s and 737-500s; however the economic crisis that befell Mexico in 1994 hit the airline's profitability.  It found it hard to afford the lease payments to foreign leasing companies (mainly Guinness Peat Aviation) whose relative value had increased significantly due to the devaluation of the Mexican peso.  Gradually the newer 737s, 757s and 767s were returned and the fleet consolidated around older types.  ​
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Photo by Felix Goetting from Wikipedia
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Photo by Christian Volpati from Wikipedia
This at least allowed the airline to streamline the rather hotchpotch nature of its fleet, which in 1995 consisted of 2 A300s, 2 ATR-42s, 7 727-100s, 2 737-200s, 5 737-300s, 1 737-500, 1 757-200, 5 DC-9-14/15s, 1 DC-10-30 and a Fairchild F-27!  The airline briefly operated international services to Japan but towards the end of the 1990s its service levels and maintenance standards suffered.  On November 9, 1999 one of its DC-9-30s crashed, killing all 18 passengers and crew aboard, and caused the Mexican government to belatedly suspend the airline's operating license.  Unable to survive the attention of the government's safety inspectors, loss of revenue and bad publicity, by February 2000 TAESA was bankrupt.  Its failure ended the operation of the most important competitor to Mexicana and Aeroméxico since deregulation had begun. ​

Servicios Aéreos Rutas Oriente (SARO) was a Monterrey based start-up airline that began operations in the second half of 1991, initially with a pair of ex-Lufthansa and PeoplExpress 737-130s (N410PE and N417PE) and a BAC One-Eleven 400 (XA-RTN).  By late 1994 the fleet included several 727s as well as 737-100s and 737-200s.  However the airline was experiencing financial difficulties even before the Mexican economy nosedived and it shutdown permanently on January 15, 1995.
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Photo by Aero Icarus from Wikipedia
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Aviacsa began as a regional operator and expanded with a pair of British Aerospace 146s in December 1990 opening flights to Mexico City from Tuxla, Gutierrez and Oaxaco.  The BAE 146s were replaced in March 1992 with Fokker F100s and the airline tended to compete against Aerocaribe on regional services. ​
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An Aero Exo 727 by JetPix from Wikipedia
 In 1996 the airline was taken over by the mainly charter operating Aeroejecutivo (also known as Aeroexo) and 727-200s were transferred from the parent airline.  Following the failure of TAESA, Aviacsa expanded its operations with 737-200s and in 2002 the remnants of Aeroexo itself were merged into what was by then Mexico’s third largest airline.
Click here for a detailed history of Aviacsa
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Photo by Richard Silagi from Wikipedia

1988-2005: Privatisation and renationalisation

Following privatisation Mexicana introduced a new livery in 1991, with a variety of individually styled tail designs, and introduced first class onto its domestic routes.  In the same year it also setup the regional partner Aeromonterrey, as a feeder airline in the north of the country, which started operations with Fairchild-Hiller FH-227s.  Earlier in 1990 it had also taken over Aerocaribe, which had been in operation since 1972, and Aerocozumel as additional feeders, this time from Cancun and Cozumel respectively.
Click here for the full history of Mexicana's 1991-1996 livery
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The entrance of a host of new airlines in the early 1990s set off a price war forcing the two majors to reduce their fares in the face of strong competition, especially from TAESA.  This unfortunately coincided with an economic downturn resulting from the Gulf War and increased oil prices.  Feeling the heat from the competition and economic climate it was Mexicana's turn to struggle financially and it was taken over by the revitalised Aeroméxico in 1993.  In comparison to Mexicana, which had been struggling to pay for the new A320s it had ordered, Aeroméxico was ordering new MD-80s, 757s and 767s to renew its fleet. ​
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The new combined airline still had a market share of about 70% and once again the two brands kept their own identities.  The devaluation of the Mexican peso in 1994 hit the combined carrier hard and the next year it was sold to a consortium of banks in a debt for equity swap under the new holding company CINTRA Group.  The combined carrier came full circle soon afterwards when, with the banks themselves in financial trouble, CINTRA was renationalised to avoid its bankruptcy, with both airlines yet again keeping their separate identities.  Mexicana’s subsidiary Aeromonterrey, which had only gained a pair of leased 757s for charter operations in March 1994, was a casualty of the merger.
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Photo by Richard Silagi from Wikipedia
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Photo by Aero Icarus from Wikipedia
Attempts to sell the two airlines privately during the next decade were unsuccessful due to political considerations, the fallout from the 9/11 terrorist attacks and their own poor performance.  In fact it wasn't until 2005 that Mexicana was sold (to Grupo Posadas, a hotel group) and until 2007 that Aeroméxico became privately owned again.  During the CINTRA era there was widespread suspicion that Mexicana and Aeroméxico had colluded together in order to avoid competition with each other and fixed prices.  At the same time, as described, the majority of the first wave of competing airlines had gone bankrupt, including two other mid-90s start ups - Allegro and Aerolíneas Internacionales, leaving Aviacsa as the third largest airline but still well behind the big two.

The story is continued in part 2...​
Pt2 - 2005-2011: Low cost comes to Mexico
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