By the end of 2020, Grupo Aeromexico could reduce its fleet by 30% compared to how it started the year. The airline is currently under a Chapter 11 reorganization in the US and has already rejected the leasing contracts of 19 airplanes, but more could follow. What do we know about the subject? Let’s investigate further.
Bye-bye to the E170 and B737-700 fleets
Aeromexico filed for a Chapter 11 reorganization on 30 June. Yesterday, it accessed the first US$100 million of its DIP Financing of the US$1 billion that is looking for. Nevertheless, the company is aware that it will have to shrink to readapt itself.
It has already rejected the leasing contracts of five Boeing 737-800, five Boeing 737-700, and nine Embraer E170. Aeromexico has already reduced its fleet from 124 airplanes at the beginning of the year to 105.
But, the Mexican airline is planning to have 80 airplanes by the end of 2020, according to a presentation of the company, of which Simple Flying has a copy. The carrier said,
“Chapter 11 allow Aeromexico to optimize its fleet through aircraft rejection and/or lease renegotiation as well as reassessing future aircraft delivery commitments.”
In particular, Aeromexico plans to simplify its fleet from six aircrafts sub-fleets to four. It currently has 19 Boeing 787, four B737-700, 29 B737-800, six B737 MAX, and 47 Embraer E190. It has already eliminated its nine Embraer E170.
We expect the four remaining B737-700 could also leave the company shortly. But what other airplanes could go? The long-haul fleet and the B737 MAX are safe. We expect Aeromexico to reject the leases of part of its Embraer E190 and Boeing B737-800 fleets.
Will Aeromexico up-gauge its fleet to compete with low-cost carriers?
Even before the pandemic, Aeromexico had difficulties facing low-cost competition in the Mexican domestic market. As discussed previously, Volaris has become a powerhouse in Mexico and won’t back down due to the pandemic. The same can be said about Viva Aerobus. Meanwhile, Aeromexico remains as the only legacy airline in the country, facing higher costs.
To address this issue, Aeromexico intents to up-gauge its narrowbody fleet with “pivot to highly efficient 737s, closing the unit cost gap to Mexican low-cost carriers.” Up-gauging is a term used when an airline project to grow by getting more seats on a similar-sized plane. Up-gauging significantly reduces costs per seat mile and increase profit margins. The airline stated,
“Aeromexico will significantly reduce the number of regional aircraft in favor of larger and more efficient 737-800 / MAX-8 / MAX-9.” This will drive the average narrowbody gauge up from 120 to 150 by 2023.
But also, Aeromexico is planning to densify its domestic fleet, meaning it will put more seats on its planes.
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What about the long-haul strategy?
Aeromexico is the only carrier in Mexico to fly long-haul routes. Before the pandemic, it operated in South Korea and Japan in Asia and England, the Netherlands, France, and Spain in Europe. It has a fleet of Boeing 787 Dreamliner that suits it perfectly.
The Mexican airline is in a tough spot: international demand will be the last to recover from the COVID-19 pandemic. Moreover, transatlantic flights are going to be at the end of the line. Nevertheless, Aeromexico can’t give up on these routes. Being the sole long-haul operator in the country, it has a secure market, even if it takes a while to bring it back to 2019 levels.
That’s why Aeromexico is not expecting to reduce its widebody fleet. Instead, it plans to up-gauge it by bringing more B787-9 than B787-8, due to lower unit costs.
What do you think of Aeromexico’s plans? Let us know in the comments.