Aeromexico lost approximately US$1.3 billion (29.930 billion Mexican pesos) in the first six months of 2020. The Mexican carrier also saw a 50% drop in its passenger numbers. The airline, which is currently under a Chapter 11 reorganization in the US, published its quarterly financial results yesterday. Let’s investigate further.
Aeromexico will need to rely on international travel
In 2019, Aeromexico lost the battle against Volaris for the number one spot as the leading domestic airline. Aeromexico is the oldest Mexican airline in service and has a legacy service that has battled against the low-cost model.
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Five years ago, Aeromexico had a 33.8% domestic market share; by 2019, it had decreased to 24.3%. In comparison, Aeromexico ended 2019 with a 46.1% share of the international market.
Now, the Mexican airline has agreed to return 19 airplanes as part of its Chapter 11 reorganization. Aeromexico will rescind the leasing contracts of 10 Boeing 737 and nine Embraer E170. This decision will effectively hamper the carrier’s domestic market performance, even when it still has a firm order with Boeing for the 737 MAX.
With that in mind, Aeromexico will see how Volaris becomes a powerhouse in the domestic market while capturing the share Interjet leaves behind, mainly at Mexico City International Airport. In the long term, Aeromexico will have to emphasize its long-haul offer as it is the only Mexican airline to connect with Europe and Asia.
Will the billion USD in losses repeat in the future?
In the second quarter, Aeromexico posted a consolidated net loss of US$1.2 billion. To put it in perspective, the year prior, the airline lost US$50 million in the first six months. But Aeromexico says that this billionaire loss is not to be repeated in the future.
According to the carrier, US$908 million of the net loss was due to one-off non-cash items. That means the remaining amount is the actual net loss of Aeromexico during the quarter. The Company claims that its financial results also show the loss value of certain assets within the airline. It said,
“The Company performed impairment tests on its fixed assets. These tests are carried out as a matter of course when specific events or circumstances arise, which may lead to a permanent reduction in the net book value of certain assets […]. As a result of this analysis, the Company recognized one-off non-cash adjustments in its quarterly results.”
In particular, Aeromexico saw a US$659 million depreciation of property and equipment, which very likely relates to its fleet.
What about the fleet and the number of passengers?
During the first half of the year, Aeromexico posted a 54.3% decline in its passenger numbers. By July 2019, the airline had transported over 10 million passengers. This year, it has had 4,708,000 passengers.
The load factor of the scheduled flights over the first half of the year has been 74.1%. In the second quarter alone, the load factor was 57.8%, due to the drop in demand worldwide.
Slowly, Aeromexico has been increasing its capacity, since hitting an all-time low in May. “By the end of the quarter, domestic capacity increased by 40.7% and international capacity by 55.6% compared to April 2020,” said the carrier. In May, Aeromexico operated 1,733 scheduled commercial flights both domestically and internationally. By August, the carrier intents to operate 7,400 flights.
Finally, in its report, Aeromexico confirmed that, during the first half of 2020, it eliminated seven airplanes from its fleet. The carrier ended 2019 with 125 planes in its fleet, and by 30 June, it only had 118. It returned five Boeing 737-800 and two Boeing 737-700.
At least six of these planes were returned during the first quarter of the year, as reported at that time. The extra Boeing 737-800 may be part of the 19 airplanes that Aeromexico is returning as part of the Chapter 11 filing. Nevertheless, Aeromexico is set to end the year without 25 planes it had when 2020 started.
What do you think of Aeromexico’s results? Let us know in the comments.