Top Airline Stock in Americas Woos Mexicans to Ditch the Bus

August 13, 2015

(Bloomberg) -- Mexico’s Volaris has gone from the worst- performing airline stock in the Americas to the best in little more than a year as it finally persuaded the country’s loyal bus riders that for only a few pesos more, it’s worth flying. 
“Mexico is a country where people still take long bus trips,” Jose Maria Flores, an analyst at Casa de Bolsa Ve Por Mas in Mexico City said in an interview. Swapping a short flight for a long ride is “a niche they’ve identified that’s allowing them to gain a lot of market share because it hadn’t been exploited by anyone other than bus companies.” 
Volaris, Mexico’s only listed budget airline, has returned 
69 percent this year through Aug. 11, outperforming 22 carriers in the Americas and more than recovering from a 39 percent drop over the same period in 2014. Fuel prices that are down by about half have helped Volaris lower fares, luring passengers who previously may have suffered through prolonged land journeys to save money. 
The Mexico City-based airline has pulled passengers off buses, offering free flights to more than 30,000 travelers in exchange for their tickets at depots. That campaign has expanded since last year to include routes commonly used by bus travelers, such as Tijuana-to-Durango, or even by cross-border passengers, like Denver-to-Chihuahua, said Chief Executive Officer Enrique Beltranena. 
“We go to the bus terminals and find out which passengers are using buses in segments that are about five hours, and we tell them ‘why are you using a bus? You should be flying,’” 
Beltranena said in a telephone interview. “We need to do more routes that are suited for them.”

Convincing Fares

A one-hour-and-20-minute flight to Guadalajara from Mexico City costs as little as 619 pesos ($38), according to Volaris’s website, while the six-and-a-half hour bus ride can cost 571 pesos. 
Those fares persuaded Magali Ramirez to get on a plane for the first time in her life. The 23-year-old accounting student sat with her mother on the floor of Mexico City’s airport on Tuesday, waiting for her Volaris flight to Guadalajara. 
“My friends and I were thinking of going by bus,” said Ramirez, who’s vacationing for a week in the nation’s second- biggest city. “Because of the prices we decided to go by plane.” 
After a brutal fare war with Aeromexico SAB, the nation’s largest carrier, Controladora Vuela Compania de Aviacion SAB, known as Volaris, has posted profit that beat analysts’ 
estimates in the past four quarters and reported 19 percent passenger traffic growth so far this year.

Cheap Fuel

Jet fuel prices have dropped so low they’re enticing travelers out of their own cars in Mexico, where gasoline costs set by the government haven’t fallen as extensively, while highway tolls have climbed, according to Signum Research. 
“The main factor is that with Volaris’s fares today, it’s cheaper to fly by plane than ride the bus or drive your car,” 
said Alberto Carrillo, a Mexico City-based analyst at Signum. 
“International traffic has also grown. Volaris is covering strategic routes” for Mexicans living in the U.S. 
The company began flying between Guadalajara and New York City in July and Guadalajara and Dallas in April. It plans a total of 25 new routes this year, 17 of them to the U.S., Beltranena said.

For Related News and Information: 
Stories on emerging markets: NI EM  
Top stories on Latin America: TOPL  
Stories on emerging-market currencies: TNI EM FRX Most-read news on Mexico: MNI MEX

To contact the reporter on this story: 
Nacha Cattan in Mexico City at +52-55-5242-9283 or ncattan@bloomberg.net

To contact the editors responsible for this story: 
Edward Dufner at +1-214-954-9453 or edufner@bloomberg.net 
Molly Schuetz, Bruce Rule 


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