Mexican aviation’s takeoff could hit turbulence amid U.S. recession fears

5:20 pm Wednesday, August 03rd, 2022

MEXICO CITY (Reuters) – Mexico’s COVID-battered aviation sector has benefitted from a robust reactivation of travel, but analysts fear its takeoff could be soon shaken by recession in the United States.

Profits of air terminal operators in Mexico’s most important tourist destinations grew strongly last quarter, thanks to solid traffic numbers for both domestic and international passengers.

“Aviation has had a surprising recovery,” said Pablo Casas, director of the National Institute of Aeronautical Legal Research (INIJA). “The long (pandemic) confinement led to this build up of travellers,” he said.

Asur, which manages the airport for the Caribbean coastal city of Cancun, doubled its earnings during the second quarter from the year-ago-period.

Meanwhile, GAP, which operates the air facility serving the booming resort area of Los Cabos, saw its second-quarter net profit soar 64%.

Terminal operator OMA, more focused on business travellers with its main airfield in the industrial city of Monterrey, was not far behind, with net profit jumping 49% in the quarter.

In 2020, when most travel was suspended due to COVID, some 48.4 million travellers took flights in Mexico. But after just the first five months of this year, tourism officials have recorded 41.6 million air passengers already.

Still, the recovery could be stifled.

Of the more than eight million international visitors arriving in Mexico by air in the January-May period, 67% were residents of the United States, where a recent fall in gross domestic product has raised fears of recession.

“Our market is in the United States,” said Fernando Gomez, an independent airline industry analyst. “A possible recession would obviously impact everyone, but it would hit Mexico directly.”

For now, there remain reasons for optimism. Some 57% of Mexicans are planning vacation travel this summer, up from 36% in the year-ago-period, according to a survey by market research consultancy PQR Planning Quant – a level which could help keep domestic passenger traffic steady.

The dynamism in the sector has helped domestic airlines deal with adverse conditions, including the U.S. Federal Aviation Agency’s downgrade of Mexico’s aviation safety rating in 2021, which has yet to be restored.

Grupo Aeromexico, the country’s main airline, recently emerged from bankruptcy and has been struggling with losses since before the pandemic. Nonetheless, its second-quarter revenue almost doubled.

Competitor Volaris also saw its quarterly revenue grow, by a more modest 20%. But the surge was overshadowed by higher costs from aviation fuel price increases.

That phenomenon is affecting most airlines across Latin America.

Citing frequent jet fuel price increases, Brazil’s Gol recently cut some of its financial goals for this year after reporting a steep net loss in the second quarter – even though its net sales tripled in the period.

(Reporting by Noe Torres; Writing by Valentine Hilaire; Editing by Kenneth Maxwell)