Overview - Avolar

Avolar, a “New Generation” LCC based in Tijuana, Mexico, launched in Aug-05 with a single B737-500 aircraft and is recognised as the first low-cost airline in Mexico.

Avolar’s business plan calls for a fleet made up exclusively of B737-300 and B737-500 aircraft. Avolar had five aircraft in service at the end 2005, and integrated approximately one aircraft per month in 2006. This plan of acquisition will culminate in 30 aircraft being placed in service by Sep-07.

Avolar plans to order a further 20 B737-700s to strengthen its domestic network and launch a number of international routes to the USA and Canada. The airline will take delivery of the narrowbody twinjets from 2008 to 2010. The airline plans to use these aircraft to reinforce its North American presence, with flights to Chicago, New York City, destinations in Arizona and Nevada as well as Canada.

Mexico might not be grabbing the headlines like India and other fast-growing LCC markets. But it is nevertheless one of the most exciting aviation markets on the globe right now.

Unlike India, airport infrastructure is not a significant barrier to growth in Mexico, with almost a decade of airport privatisation making the sector one of the country’s most transparent and well run.

According to our latest review of start-up plans of several Mexican LCCs, up to 130 new aircraft could be added within three years – putting it in the league of India in terms of capacity expansion.

Mexico’s domestic aviation market is the second largest in Latin America after Brazil – and both offer exceptional growth potential, with populations of 106 million and 186 million respectively.

Mexico’s Civil Aviation Department (CAD) recently predicted air travel in Mexico will more than double by 2008 to over 40 million. By contrast, India’s high profile domestic market is expected to rise from around 22 million last year to 45 million by 2010 as travelers switch from trains to planes.

The impressive growth forecast for Mexico is based on an estimate that more than 20 million travellers will replace long distance bus travel in favour of cheaper air travel. With virtually no passenger train network, the only alternative to air travel is the arduous and often expensive bus network.

Mexico is an ideal domestic market for LCC operations with a large population and significant distances and inhospitable terrain to travel. Investors – including some big names synonymous with successful low cost operations – are lining up for exposure to the sector – while airports are also running hot.

But not all survive the initial wave of new entry. GOL is already predicting there will be casualities, while Mexicana’s CEO, Emilio Romano, stated in Dec-05 that “some new LCCs will fail, some of them will merge and some of them will succeed. It is my perception that there are more airline projects in Mexico than you can reasonably expect to be successful”.

All the signs show however that Mexico has a big sky to mine. Whatever the final market composition, airports and tourism operators can expect a surge in new demand, stimulated by the low fares new competition is bringing to Mexico.