Major Mexican air carrier Mexicana Airlines has filed for bankruptcy following years of financial worry. The airline, the largest in Mexico, has struggled with expenses and low operating income for the better part of a decade. After failing in negotiations to replace a number of employees with contracted workers, the company has filed for bankruptcy and will revise its business strategy.
However, the airline will continue operations over the next few weeks while revising the way it operates. Management plans to bring the airline’s expenses inline with those in other countries while increasing profits to acceptable levels. Financial analysts have blamed the airline’s poor financial performance on pricing errors and the demands of a largely unionised domestic workforce.
The airline had expanded rapidly throughout the 1990s, increasing its employee base and enjoying reasonable profits. But with the swine influenza outbreak and Mexico’s worsening border conflicts, demand for domestic and international travel has decreased significantly. Expenses for the airline remain high due to its large workforce, while union agreements have prevented downsizing.
The global airline industry has been hard hit throughout the economic crisis, with consumer flights seeing significantly less demand than they had previously. Business travellers have also decreased over the past five years, although recent economic recovery has seen an increase in the amount of businesspeople using premium airlines.
However, low-cost air carriers have demonstrated that there is potential for alternative business models in the air travel space. Ireland-based RyanAir and Malaysian AirAsia have both reported steady profits and operating income over last three years, capitalizing on the demand for discount flights and inexpensive international holidays.
Mexicana’s two sister airlines – MexicanaLink and MexicanaClick – will continue to operate as normal throughout the bankruptcy protection case, as both are independently owned and operated.