Mexican airlines could face turbulence if US recession fears worsen

Mexico’s COVID-plagued aviation sector has benefited from a strong reactivation in travel, but analysts fear its takeoff will soon be dented by the recession in the United States.

Earnings for terminal operators in Mexico’s most important tourist destinations rose sharply in the last quarter, thanks to strong traffic figures for both domestic and international passengers.

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

Asur, which operates the airport in the Caribbean coastal city of Cancun, doubled its profits in the second quarter from the year-ago period.

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

CHINA AND MEXICO BECOME FRONT OF SENATE HEARING ON SPIKE FENTANYL DEATH

Terminal operator OMA, more focused on business travelers 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 travelers took flights to Mexico. But after just the first five months of this year, tourism officials have already registered 41.6 million air passengers.

Yet the recovery could be stifled.

Of the more than eight million international visitors who arrived in Mexico by air between January and May, 67% were residents of the United States, where a recent drop in gross domestic product has raised fears of a recession.

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

For now, there are still reasons for optimism. According to a survey by market research consultancy PQR Planning Quant, some 57% of Mexicans are planning a vacation this summer, up from 36% a year ago, a level that could help keep domestic passenger traffic stable.

The buoyancy of the sector has helped national airlines weather 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. Nevertheless, its second-quarter revenue nearly doubled.

MEXICO TO PROVIDE $1.5 BILLION FOR US SOUTHERN BORDER INFRASTRUCTURE

Competitor Volaris also saw its quarterly turnover increase, by 20% more modestly. But the surge was overshadowed by higher costs from rising aviation fuel prices.

This phenomenon affects most airlines in Latin America.

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