Volaris, the Mexican ultra-low-cost airline that once thrilled investors with a model that focused on persuading passengers to switch from buses to planes, has no plans to change its core strategy, even though its stock has lost more than 60 percent of its value during the past two years.
The market, "keeps on growing," CEO Enrique Beltranena said in an interview. "In general, traffic in domestic and international is growing at a faster pace than GDP."
That"™s true, but recent changes in the Mexican market are having an effect on Volaris, which introduced its Ryanair-style model to the country in 2006. The airline has struggled because of several factors, including currency exchange pressure, higher fuel prices, and deceased demand for its U.S.-Mexico flights, blamed in part on geopolitical factors. It has tried to cope by focusing on ancillary fees, but there"™s one problem "” the Mexican government does not permit airlines to charge for checked bags on domestic flights.
Volaris had a rough year in 2017, losing 595 Mexican pesos or about $32 million. But there"™s good news, too. The carrier generated a billion pesos in operating cash, or roughly $53.3 million, and still has a cost base lower than every airline in the Americas except Viva Aerobus, though it"™s well behind Europe"™s Wizzair and Ryanair, according to its own data.
Volari"™ stumbles came as the airline introduced a major expansion in the United States, adding 24 new trans-border routes in 2017, far more than the seven new domestic routes it started. The new international routes include some obvious ones, such as Mexico City to Miami, and some unusual ones, like Milwaukee to Guadalajara.
But U.S.-Mexico routes are slightly problematic, especially in city pairs that don"™t attract many tourists or business people. On their first quarter earnings call in February, Volaris executives said they"™ve had trouble filling aircraft at high prices outside of major demand periods. Aeromexico executives also said last month they"™re seeing a "softnes" in transborder VFR markets, or markets where many travelers are visiting their friends and relatives, rather than traveling for work or tourism.
Volaris is smaller than Aeromexico, but it is more exposed to the U.S. market. With business lagging, Volaris cannot offset the trouble by adding more capacity to London, Tokyo and Amsterdam, Madrid and Shanghai, as Aeromexico has done. And while it can try to attract more U.S. tourists and Mexican and American business travelers to fill seats, that"™s easier said than done.
Volaris flies to nearly 30 U.S. airports, including some, like Milwaukee, Reno, Nevada and Fresno, California, that don"™t support many international fights. It also is less active in Mexico City than some other airlines, a problem because Volaris executives have said fares there have held up better than others. But Mexico City is not an easy place to grow, because the airport is at capacity…