Grupo Aeroportuario del Pacifico (GAP), which operates several airports in Mexico including Guadalajara and Tijuana, again reported strong traffic and demand during its first quarter. The company published earnings last week, delivering a generally bullish outlook, albeit clouded by some uncertainties about proposed political reforms and economic conditions.
Mexico has been one of the strongest airline markets in the world both during and after the pandemic. That’s in part thanks to the appeal of popular tourist resorts like Cancun but also economic momentum tied to nearshoring, the phenomenon in which manufacturers are moving production from Asia to places closer to the U.S. According to GAP, Guadalajara’s passenger volumes rose 23 percent in the first quarter of 2023, compared to the same quarter of 2019. Tijuana’s growth was a remarkable 54 percent. GAP also runs airports in beach towns like Puerto Vallarta and Los Cabos.
Guadalajara happens to be Mexico’s third busiest airport after Mexico City and Cancun, based on 2022 passenger volumes. Tijuana is now number four, surpassing Monterrey. During its Q1 call, GAP executives expressed concern about government policy proposals but optimism about Mexico regaining Category I safety classification from the U.S. FAA, enabling more flights. The upgrade should come in the third or fourth quarter, GAP said. In the meantime, the company is opening a second runway at Guadalajara later this year. It’s also building a new terminal for Puerto Vallarta.
During a deep-dive presentation for investors last month, GAP gave many reasons for its optimism about Mexico’s airline industry, noting that its three major airlines—Aeromexico, Volaris, and VivaAerobus—are forecasted to grow seat capacity by some 40 percent by 2027. All three have many new aircraft on order, with Viva for one expected to have 92 planes by 2025, up from just 37 before the pandemic. During the pandemic, a fourth competitor—Interjet—suspended service amid financial distress.
The nearshoring effect should also continue to drive traffic gains, as will heavy investment in hotels and other tourism infrastructure. Volaris, by the way, is GAP’s largest airline customer at the many airports it operates. Foreign airlines are important customers too, with JetBlue for example recently adding a New York JFK route to Puerto Vallarta. Iberojet of Spain is now offering Cabo flights from Madrid.
The booming Tijuana market has some unique characteristics. The airport, interestingly, has a pedestrian bridge for passengers that crosses the U.S. border into southern California. GAP is in fact positioning it as an alternative gateway to San Diego. It says Tijuana’s airports is “dramatically cheaper” to serve than San Diego or Los Angeles. It’s also less capacity constrained. The area around Tijuana itself is home to a thriving medical tourism sector, along with many industrial companies relocating facilities from Asia. GAP hopes to lure more Tijuana flights from Asia, not to mention more from the U.S. and Central America.
While air traffic growth prospects across Mexico indeed look promising, challenges remain, including Mexico City’s poor airport infrastructure. This was on track toward rectification before the current Mexican government canceled a major new airport project midway through construction. ASUR, another airport company that runs the facility in Cancun, noted recently that the number of aircraft that Mexican airlines fly today is roughly equal to the number they flew in 2008. Many Mexican airlines have since collapsed, including names like Mexicana, Aviacsa, Aerocalifornia, Alva, and—as mentioned—Interjet.
The market is now more concentrated, with the top three players controlling 99 percent of the market, compared to 71 percent for the top three ten years ago. This concentration has prompted some talk of adopting new government policies to promote more competition. Ideas have included launching a new state-backed airline to allowing foreign airlines to compete domestically, an arrangement known in the industry as cabotage.
