In a rare lunch with journalists three years ago, Mexican billionaire Carlos Slim was asked if he planned to invest in the privatization of the country's two top airlines, Aeromexico and Mexicana.
The flat out "No" reply meant the man with the Midas touch and worth over $20 billion had no interest in going anywhere near the Mexican airline industry, which was inefficient and taking huge losses despite sky-high fares.
But times are changing. Slim this week sank $25 million into a new Mexican low-cost airline, Vuela, the latest of a string of new arrivals that herald a new era for air travel in Latin America's second-largest economy.
Firstly, Cintra, the government-run holding company for Aeromexico and Mexicana, is now making profits, a good sign for this year's planned privatization of the carriers that dominate Mexico's skies.
And alongside's Slim's investment in Vuela, other low-cost carriers are queuing up to start operating in Mexico, as they have done recently in countries such as India.
"We are perhaps the most important emerging economy in the world that still has not really tried the low-cost airline model," Andres Conesa, the chairman of Cintra, told Reuters in a recent interview.
Mexico's market runs at around 30 million passengers a year, not much in a country with more than 100 million people.
Bob Booth, chairman of AvGroup, a Miami-based aviation consulting firm, reckons most of them are businessmen or other frequent flyers.
If they average five one-way trips per year, that puts the real number of regular flyers at well below 10 million people, said Booth. "The potential is there for growth," he said.
Start domestic, then go regional
That potential is why Brazilian airline GOL plans to launch a low-cost carrier here in 2006 and why ABC Aerolineas, another low-cost airline, plans to enter the fray in December.
Vuela, whose other investors include Mexico's top broadcaster Televisa, also hopes to start scheduled flights in the first half of next year.
Experts say the flood of start-ups has taken some wind out of the sale of Aeromexico and Mexicana.
But there is still interest in the privatization as Mexicana is being packaged with Click, a low-cost airline already operating in Mexico, and Aeromexico will be sold with the regional airline Aeroliteral.
"Obviously it makes it more difficult for the sale of Aeromexico and Mexicana, but on the other hand it is going to take time for the startups to really make an impact, and Mexicana's Click is up and running," Booth said.
Experts reckon the low-cost airlines should start to develop the domestic market first and then go regional, maybe looking at U.S. cities with Hispanic ties like Los Angeles or Miami, and also Central America and the Caribbean.
That is not unlike GOL's business model in Brazil where the company spent a few years establishing itself on home soil before expanding internationally.
It is also likely that one or more of the start-ups, or even the traditional carriers Aeromexico and Mexicana, face a struggle in the competition, with the low level of flying culture in Mexico despite huge distances and mountainous terrain.
"They have to stimulate the market and get people out of the automobile or bus to fly," Booth added.
But it should be good news for the customers in Mexico, whose main complaint is the high cost of flying. To encourage that to change, the government has issued more operating licences as it privatizes the state-owned carriers.
"We hope that there is more competition and that there are lower prices," said Cintra's Conesa.
By: N. Peter Kramer
