Airlines in Mexico Porter's Six Forces Analysis¶

This report provides a detailed analysis of the competitive landscape of the airline industry in Mexico using Porter's Six Forces framework, building upon the previously outlined value chain structure.

Detailed report on the six forces of Porter applied to the Airlines value chain.¶

Porter's Six Forces framework helps to understand the competitive intensity and attractiveness of an industry by analyzing the pressure from five key forces: Intensity of Rivalry, Bargaining Power of Buyers, Bargaining Power of Suppliers, Threat of New Entrants, and Threat of Substitutes. The framework is often expanded to include a sixth force: the Power of Complementors.

Intensity of Rivalry¶

The intensity of rivalry among existing competitors in the Mexican airline industry is high. This is driven by several factors:

Numerous Competitors: The market features a mix of strong domestic players (Volaris, Viva Aerobus, Aeroméxico, and the nascent Mexicana de Aviación) and significant international airlines, particularly on lucrative routes like those between Mexico and the United States. The presence of three major Mexican airlines in the top 10 largest in Latin America by capacity highlights the domestic competitive intensity.
Perishable Product: Airline seats are a highly perishable product; revenue is lost if a seat goes unsold on a flight. This pressure leads to aggressive pricing strategies to fill capacity.
High Fixed Costs and Low Marginal Costs: Airlines have substantial fixed costs (aircraft ownership/leasing, infrastructure fees, labor). The marginal cost of carrying one additional passenger is relatively low, incentivizing airlines to lower fares to attract passengers once a flight is scheduled.
Limited Differentiation: While airlines attempt to differentiate through service levels, routes, or loyalty programs, the core product (air transportation from point A to B) can be perceived as a commodity, especially in the ultra-low-cost segment dominant in Mexico. This intensifies price competition.
Market Share Focus: Airlines fiercely compete for market share, as evidenced by the close race for domestic passenger numbers between Viva Aerobus and Volaris in 2024, with Viva Aerobus holding 38.0% and Volaris 33.3%. This can lead to price wars that impact profitability across the industry.
Strategic Alliances: While alliances like Aeroméxico's joint venture with Delta Air Lines can offer advantages through coordinated networks and revenue sharing, they also shape competitive dynamics.

The competitive landscape in Mexico is particularly dynamic due to the rapid growth and strong position of ULCCs (Volaris and Viva Aerobus), which have injected fresh energy and driven competition, particularly through their focus on low fares and significant ancillary revenues, which can represent a large portion of their total income.

Bargaining Power of Buyers (Customers)¶

The bargaining power of airline customers in Mexico is high and rising.

Price Sensitivity: A significant portion of customers, especially in the leisure and VFR (Visiting Friends and Relatives) segments targeted by ULCCs, are highly price-sensitive. They actively seek the lowest fares, facilitated by online travel agencies and comparison websites, increasing price transparency.
Low Switching Costs: For many routes, customers face low switching costs between airlines. Unless tied to a specific loyalty program or alliance for a particular route, they can easily choose a competitor based on price or schedule.
Information Availability: The internet provides customers with easy access to fare comparisons and flight options across multiple airlines, increasing price transparency and their ability to find the best deal.
Concentrated Distribution Channels: Online travel agencies (OTAs) and metasearch engines have become significant distribution channels, and their concentration can give them some leverage in negotiations, which can indirectly benefit consumers through increased price competition.

While airlines, particularly full-service carriers like Aeroméxico, try to build loyalty through frequent flyer programs and differentiated service offerings such as complimentary food and beverage services on all flights, the prevalence of price-driven decision-making, especially within the large ULCC market segment, grants considerable power to the customer.

Bargaining Power of Suppliers¶

The bargaining power of suppliers in the Mexican airline industry is high.

Aircraft and Engine Manufacturers: The manufacturing of large commercial aircraft and engines is dominated by a few global players (e.g., Boeing and Airbus for airframes; General Electric, Pratt & Whitney, and Rolls-Royce for engines). This concentrated oligopoly limits airlines' choices and gives manufacturers significant power in pricing and terms for new aircraft and spare parts. Supply chain disruptions further exacerbate this power. [See Value Chain Analysis Bottlenecks]
Aircraft Leasing Companies: A significant portion of airline fleets are leased, and airlines often engage in sale-and-leaseback transactions. [25, See Value Chain Analysis Players Analysis] Major global leasing companies, such as Air Lease Corporation (ALC) which has leased aircraft to Mexican carriers, and CDB Aviation which has engaged in sale-and-leaseback with Volaris, hold substantial assets and have bargaining power in setting lease rates and terms. [1, See Value Chain Analysis Players Analysis]
Airport Operators: While there are multiple airport groups in Mexico (GAP, ASUR, OMA, GACM), individual airports often function as local monopolies for specific routes or regions. Airlines are dependent on using these airports and are subject to aeronautical fees (like the TUA - Tarifa de Uso Aeroportuario) set by operators, which can be a significant cost component. The three major private operators (GAP, ASUR, OMA) collectively achieved substantial net profits between 2019 and June 2024, indicating their leverage. [See Value Chain Analysis Volumes and Sizes]
Fuel Suppliers: Jet fuel is a major operating expense and its price is subject to global market volatility. While entities like Pemex and ASA are key suppliers in Mexico, global supply dynamics and the essential nature of the product give fuel suppliers considerable power. [See Value Chain Analysis Value Chain Definition] ASA supplies a significant volume of jet fuel daily. [See Value Chain Analysis Volumes and Sizes]
Labor Unions: Powerful labor unions, particularly for pilots and air traffic controllers (SENEAM), can exert significant influence through negotiations and potential industrial actions, impacting airline operations and costs. The reported critical shortage of air traffic controllers in Mexico underscores the leverage of this labor segment and its impact on operations. [See Value Chain Analysis Volumes and Sizes]
MRO Providers: While there are independent MRO providers like Aeroman and global players like Lufthansa Technik serving the market, specialized maintenance (like engine overhauls) and the need for certified facilities give these suppliers importance, especially when coupled with potential spare part shortages impacting aircraft availability. [See Value Chain Analysis Players Analysis, See Value Chain Analysis Bottlenecks] AICM also applies charges for complementary services related to MRO facilities.

Overall, airlines face powerful suppliers across several critical inputs, which can constrain their profitability and operational flexibility.

Threat of New Entrants¶

The threat of new entrants into the Mexican airline industry is moderate to high.

Capital Requirements: The airline industry requires significant capital investment for aircraft acquisition (purchase or lease), infrastructure development (though often shared or leased), and operational setup, including obtaining necessary certifications. This acts as a substantial barrier to entry for smaller players.
Regulatory Hurdles: The aviation industry is heavily regulated, requiring various certifications, licenses from authorities like the Federal Civil Aviation Agency (AFAC), and adherence to safety standards. Navigating this regulatory environment can be complex and time-consuming for new entrants. Past safety rating issues for Mexico also highlight regulatory influences and their potential impact on market access, particularly to the crucial US market. [See Value Chain Analysis Bottlenecks]
Access to Slots and Infrastructure: Securing desirable airport slots, particularly at congested airports like Mexico City International Airport (AICM) which has faced restrictions, can be a significant challenge for new airlines. [See Value Chain Analysis Bottlenecks] Access to gates, terminals, and other essential airport infrastructure is also necessary and can be limited by existing concessions to operators like GAP, ASUR, and OMA. [See Value Chain Analysis Players Analysis]
Established Player Advantages: Existing airlines benefit from brand recognition, established route networks, loyalty programs, and economies of scale in operations and purchasing. Building a competitive brand and network takes time and investment. Aeroméxico, Volaris, and Viva Aerobus hold significant market share, creating a challenge for newcomers to gain a foothold. [See Market Players Analysis]
Market Liberalization: Despite the barriers, market access has become increasingly liberalized globally, and this trend can facilitate new entry. The emergence of new airlines globally over time also suggests the potential for new players. The recent relaunch of state-owned Mexicana de Aviación, while facing initial challenges in gaining market share, demonstrates recent entry into the domestic market.
Ancillary Revenue Focus: The success of the ULCC model, heavily reliant on ancillary revenues, demonstrates a potential pathway for new entrants to build a profitable model without solely relying on low base fares.

While the capital and regulatory requirements pose significant hurdles, market liberalization, potential for niche strategies (e.g., focusing on underserved routes or specific business models), and government policy allowing new entrants mean the threat of new entry remains relevant.

Threat of Substitutes¶

The threat of substitute products or services for air travel in Mexico is moderate and rising.

Geography and Distance: For long distances, especially international travel or across Mexico's varied geography, air travel remains the fastest and most practical mode of transport, making direct substitutes limited. People prefer airlines for long-distance travel in a very short period.
Alternatives for Short/Medium Distances: For shorter to medium distances, particularly within Mexico, alternatives exist:
- Bus Travel: Mexico has an extensive bus network, offering a lower-cost alternative, though significantly slower for longer journeys. This is a relevant substitute, especially for price-sensitive travelers on certain routes.
- Rail Travel: While Mexico has a rail network, its passenger service is limited and lacks modernization compared to other countries, reducing its current widespread threat as a substitute for air travel. Investment in high-speed rail could increase this threat in the future.
- Private Vehicles: Personal car travel is an alternative, offering flexibility but facing challenges like road conditions, safety concerns, and travel time over long distances.
Virtual Communication: For business travel, advancements in video conferencing and other communication technologies can substitute for face-to-face meetings, potentially reducing the demand for business air travel.

The threat of substitutes varies depending on the specific route and passenger segment. While hard substitutes for long-haul flights are scarce, other modes of transport and virtual communication present viable alternatives for certain travel needs, influencing demand and pricing power.

Power of Complementors¶

The power of complementors in the Mexican airline industry is significant. Complementors are businesses that provide products or services that enhance the value of air travel.

Tourism Industry: Hotels, resorts, restaurants, tour operators, and other tourism-related businesses are crucial complementors. Their offerings make destinations attractive, driving demand for air travel, especially for leisure travelers. Mexico is projected to remain a top tourist destination, supporting the airline industry. The growth of tourism in Mexico directly benefits airlines. [See Value Chain Analysis Introduction]
Ground Transportation: Taxis, ride-sharing services, rental cars, and airport shuttle services (like Viva Aerobus's Viva Bus Shuttle) provide essential connectivity to and from airports, enhancing the overall travel experience. The development of well-designed public transportation networks in congested areas also drives the transportation market.
Global Distribution Systems (GDS) and Online Travel Agencies (OTAs): While also acting as intermediaries in distribution, GDSs (like Amadeus, Sabre, and Travelport [See Value Chain Analysis Players Analysis]) and OTAs complement airlines by providing platforms that aggregate flight information and facilitate bookings for a wide range of customers. [2, See Value Chain Analysis Value Chain Definition]
Aircraft Manufacturers and MRO Providers: Although also suppliers, reliable aircraft from manufacturers like Boeing and Airbus and effective maintenance from MRO providers like Aeroman and Lufthansa Technik [See Value Chain Analysis Players Analysis] complement airline operations by ensuring safety and operational reliability, which are critical to attracting and retaining customers. [See Value Chain Analysis Value Chain Definition]
Financial Institutions: Banks and leasing companies that provide financing and leasing options for aircraft complement airlines by enabling fleet acquisition and modernization. [See Value Chain Analysis Value Chain Definition]
Technology Providers: Companies providing reservation systems, check-in technology, in-flight entertainment, and mobile applications enhance the customer experience and operational efficiency. Aeroméxico, for example, leveraged technology to improve its social media engagement and customer connections.
Government and Regulatory Bodies: While also a regulatory force, the government, through agencies like SENEAM (Air Traffic Control) and ASA (fuel supply) [See Value Chain Analysis Players Analysis], provides essential services that complement airline operations. Their effectiveness and investment directly impact the efficiency and safety of air travel.

Complementors have power because the value of air travel is enhanced by the availability and quality of these related services. Strong relationships with complementors, such as strategic alliances with hotel chains or integrated ground transport options, can provide airlines with a competitive advantage. Conversely, issues with complementors (e.g., inadequate ground transport to an airport or a decline in tourism in a destination) can negatively impact airlines.

In the Mexican context, the interdependence between airlines and the tourism sector is particularly strong, making tourism businesses significant complementors. The development of efficient ground transportation to and from airports, especially with the multi-airport system in Mexico City, is also a crucial complementary factor that impacts the overall passenger experience. [See Value Chain Analysis Bottlenecks] The ability of airlines to leverage technology for direct sales and enhanced customer interaction also highlights the role of technology providers as key complementors. [See Value Chain Analysis Business Models]

Overall, the Mexican airline industry operates in a complex environment characterized by intense rivalry, powerful suppliers and buyers, and varying threats from new entrants and substitutes. The influence of complementors, particularly the vital tourism sector and increasingly important ground transport links and technology providers, also significantly shapes the industry landscape and its potential for growth and profitability.

References¶

IATA - Vision 2050 Report
The Infrastructure Consortium for Africa - Profitability and the air transport value chain
MBA Skool - Delta Airlines Porter Five Forces Analysis
IMARC Group - Mexico Transportation Market Size and Forecast to 2033
IMARC Group - Mexico Freight and Logistics Market Size and Share 2033
Emplifi - Aeromexico | Emplifi case study
MEXICONOW - Viva Aerobus and Volaris: two of the main airlines with the most complimentary income worldwide
IBISWorld - Using Porter's Five Forces to Develop Business Strategies
IATA - Understanding the pandemic's impact on the aviation value chain
Research Dive - Airline Market Size & Growth Analysis by 2027
CAPA - Centre for Aviation - Most of Mexico's airlines start 2025 on stable footing. Will geopolitics affect their durability?
Viva Aerobus - Terms and conditions
Mexico Business News - AICM Justifies Mexicana MRO Charges Under Airport Law
Skift - Local Politics Threaten to Derail Mexico's New International Airport
OAG - Latin America: The Airline Landscape | Aviation Market Analysis
Aeromexico - Airline food and drink service
ALTA - ALTA presents Mexico Aviation Insight
Proyectos México - Airports
International Trade Administration - Mexico - Aerospace
Mexico Business News - Mexican Air Traffic Controllers Protest Poor Working Conditions
Fábrica de Periodismo - Mexicana transportó 256 mil de los 55 millones de pasajeros en vuelos nacionales en 2024; apenas 0.46% del mercado
Mexico Business News - Mexico Lacks 500 Air Controllers, Nearly Half Its Workforce
Argus Media - Mexico's jet fuel demand set to shift
Mexico Business News - Mexico's Top Airport Operators Net MX$98 Billion Profit
ICF - MRO Market Update and Industry Trends
Aviacionline - Top 20 Busiest Air Routes Between Mexico and the United States
Magnetic Group - U.S. Aviation Supply Chain Challenges: Parts Shortages, Rising Costs & Labor Resource Crunches
Quora - How are Micheal Porter's Five Forces relevant to an airline business?
Quizlet - Porter's 5 Forces Flashcards
NalsarPro - Directorate of Distance Education NALSAR University of Law, Hyderabad

Five Forces Analysis * IMARC Group - Mexico Transportation Market Size and Forecast to 2033 * IMARC Group - Mexico Freight and Logistics Market Size and Share 2033 * Emplifi - Aeromexico | Emplifi case study * MEXICONOW - Viva Aerobus and Volaris: two of the main airlines with the most complimentary income worldwide * IBISWorld - Using Porter's Five Forces to Develop Business Strategies * IATA - Understanding the pandemic's impact on the aviation value chain * Research Dive - Airline Market Size & Growth Analysis by 2027 * CAPA - Centre for Aviation - Most of Mexico's airlines start 2025 on stable footing. Will geopolitics affect their durability? * Viva Aerobus - Terms and conditions * Mexico Business News - AICM Justifies Mexicana MRO Charges Under Airport Law * Skift - Local Politics Threaten to Derail Mexico's New International Airport * OAG - Latin America: The Airline Landscape | Aviation Market Analysis * Aeromexico - Airline food and drink service * ALTA - ALTA presents Mexico Aviation Insight * Proyectos México - Airports * International Trade Administration - Mexico - Aerospace * Mexico Business News - Mexican Air Traffic Controllers Protest Poor Working Conditions * Fábrica de Periodismo - Mexicana transportó 256 mil de los 55 millones de pasajeros en vuelos nacionales en 2024; apenas 0.46% del mercado * Mexico Business News - Mexico Lacks 500 Air Controllers, Nearly Half Its Workforce * Argus Media - Mexico's jet fuel demand set to shift * Mexico Business News - Mexico's Top Airport Operators Net MX$98 Billion Profit * ICF - MRO Market Update and Industry Trends * Aviacionline - Top 20 Busiest Air Routes Between Mexico and the United States * Magnetic Group - U.S. Aviation Supply Chain Challenges: Parts Shortages, Rising Costs & Labor Resource Crunches * Quora - How are Micheal Porter's Five Forces relevant to an airline business? * Quizlet - Porter's 5 Forces Flashcards * NalsarPro - Directorate of Distance Education NALSAR University of Law, Hyderabad