By Valentine Hilaire

MEXICO CITY (Reuters – Aeromexico is expected to declare bankruptcy in the next few days. However, analysts feel that the Mexican carrier faces tough competition from low-cost airlines like Volaris. Volaris has been the country’s busiest, most profitable airline.

Aeromexico filed for bankruptcy June 2020 after demand plummeted in the initial months of the pandemic. Friday’s final court approval was granted for the restructuring plan, which aims to lower its debt by $2 billion to over $1 billion.

Aeromexico might not be able to recover ground it lost to Volaris as Mexico’s most popular airline, despite having reduced its debt and operating expenses under Chapter 11 bankruptcy protection.

Rene Armas Maes from Jet Link International LLC, said that the convalescent airline could have gone “even further to lower costs”.

Aeromexico was able to reduce the number of workers per plane from 133 to 109 during the first month of 2021, but it still had 14 more full-time employees per airplane than its competitors by last year’s end.

All employees, including pilots and administrative staff on the ground are included in this employee-to-aircraft ratio.

Aeromexico operates over 120 aircraft and has 1,600 employees. This is according to Armas international airline benchmark.

Reprezentant of the company refused to comment about its timeline for bankruptcy relief and on its future strategy.

He said that the comeback plan includes some optimistic assumptions, such as that traffic will return to pre-pandemic levels (measured by available seat kilometers) by 2022. Industry consensus, however, is that traffic will reach pre-COVID levels either by 2023 or 2024.

Armas stated that although profitability has no direct correlation with capacity, it does indicate their ability to balance demand and supply.

Apollo Global Management (NYSE 🙂 has become the largest shareholder of the airline as a result a bankruptcy-related debt to equity swap. The controlling investors will likely take the next step and downsize the company, Black Wallstreet Capital Mexico analyst Jacobo Rod said.

Rodriguez stated that the potential sale of parts or assets, such as its fleet and slots at airports by the new owners would be a way to increase profitability and maintain business operations.

Andres Conesa is Aeromexico’s Chief Executive. He has been in the position since 2005. Conesa expressed gratitude to his team as well as the new investors for placing trust on Aeromexico.

Aeromexico will struggle to match Volaris’ lower cost structure even after cutting costs. The airline would remain a legacy carrier and more focused on business travel, stated Marco Antonio Montanez from Vector brokerage.

“It will recover its market shares bit by bit even if recovery is slow,” he stated. Aeromexico needs to find ways to reduce its costs and remain competitive, but it is not likely that the airline will become a low-cost carrier.