Interjet CEO José Luis Garza Alvarez discusses the potential of the Mexican market.
What does Interjet do differently compared with other carriers?
Interjet is a hybrid low-cost carrier (LCC) with a unique customer value proposition. Even globally, it is very hard to find another carrier that is reducing the number of seats on their aircraft to improve passenger comfort. But that is what we are doing.
While everyone is trying to increase density as much as they can, we are going in a different direction. I believe in customer service, it is in our DNA. So far, it has worked. Investment bankers in New York always tell me everyone is happy with more legroom and not having to pay extra for extras, but we are leaving a lot of money on the table. They say we should reduce legroom, add seats, and charge for everything. This is the trend.
But our model is a good value proposition. I hope we can continue balancing high quality with a reasonable price. The pressure is always there at the board level. Right now, the demand is strong enough to support our model.
The Mexican market today is very dynamic and is growing fantastically
Perhaps I’m a bit old-fashioned in that respect, but I wouldn’t change our service model even a bit. On the contrary I’ve tried to make sure this differentiation is the most valuable asset of our company. We don’t provide luxury but it is a good experience.
Today, flying almost anywhere in the world can be painful. It used to be great. There is room to improve the experience from beginning to end, at the airport and in the aircraft.
The industry is not particularly changing anything but just using marketing techniques.
Carriers are dividing up the services and charging separately for them. Some carriers are losing money on selling tickets and only making money on ancillaries. For me, this is completely irrational. I wonder what type of business are they really in?
We focus on our customer with a complete experience. We provide two pieces of luggage, up to 50kg free, snacks and beverages — nothing extraordinary — but for free. We provide lots of differentiators, particularly with ticketing flexibility. We have choice with three tariff families. I am confident that we can continue this value proposition. I believe that what we are doing makes us a healthier business.
What inspired you to start the airline?
An airline is a complicated business. But being the CEO is a thrilling job. And it was a magnificent opportunity. I’ve been running the company for the last 11 years. Our timing was good. There was a good opportunity in 2004–05 and we guessed correctly. At the time, the two legacy airlines in México had tremendous market shares but also tremendous inefficiencies.
Interjet and others entered the market. Mexicana collapsed, and the weaker airlines at the time, like AeroCalifornia, also failed. The consolidation in Mexico was hard and painful because there were no mergers and there were bankruptcies and value destruction.
The Mexican market today is very dynamic and is growing fantastically. Like Brazil and other Latin American countries, we had a very large bus system and a very small air transportation system. We realized that we could expand the air transport market and there is still room for growth.
Is congestion at Mexico City affecting you?
The Mexico City airport is a major limitation. It is congested and thwarts additional growth. The shape of the Mexican transportation system must change. As long as this airport does not expand, there will be a limit as to how much capacity the airlines can add. Right now, we cannot increase operations and this is why many airlines are flying larger planes in and out of Mexico City, to increase passengers per operation.
This is why we are flying Airbus 321s. These problems at the airport will continue until the new facility is built.
What will the new Mexico City airport mean to you?
Like many complex projects there are some good and bad aspects. On the positive side, after decades of losing time a new facility will be built. Frankly, it was needed 25 years ago.
There are tremendous technical challenges.The ground where it is going to be built is terrible, but there is no other space available within the Mexico City valley for a new airport. There would have been benefits with a site outside the city, though.
It would have meant that the current airport could continue to operate as a complementary aerodrome.
There are also challenges on the financial side but a recent bond offering was quite successful. As long as Mexico continues to do things right on the macroeconomic side, I believe it will get the necessary funding.
The airport will be very expensive, however, and the public will pay for the cost when they travel.
All things considered, it will take longer than the government has said but we will have a world-class airport
Nobody knows how much the airport will cost or what the airport fees will be, but transportation in Mexico City has proven to be highly inelastic. For example, overnight the airport increased international departure fees 70% and there was little effect on traffic demand.
There are risks on the political side, too. There will be a new administration in two years. I think the new administration will continue with the project but it will likely put its mark on it and this could delay the opening.
All things considered, it will take longer than the government has said but we will have a world-class airport.
We are concerned about the size and capacity of the new airport. If we grow at a 7% per annum, the new airport will not have room for additional capacity expansion after it opens. And you shouldn’t spend more than $10 billion on a facility that doesn’t have room for growth. The second and third phases of the airport probably will need to be looked at seriously from the outset.
What is the role of technology in your business?
Technology is paramount. Just consider distribution. Internet direct sales was a dramatic change. In 2004, the leading airlines in Mexico used to sell no more than 4% of their tickets on the web. The rest was through intermediaries.
We believed in the Internet direct sale model and the impact has been fantastic. And e-commerce in aviation is just beginning.
Getting in direct contact with the customer using CRM technology and with big data analysis is just getting started.
Our aircraft from the very beginning were digitized. We monitored them with digital technologies and measured on-time performance, safety, and maintenance electronically. This is commonplace now but it was a leap forward at the time.
Do governments recognize the value of aviation?
Not entirely. Governments in the past viewed air transport as an elite form of transportation for the wealthy and prioritized road transport for bus travel. These were times when 3-5% of the population was using air transport.
Today, air travel is more like a commodity and considering the time saved, efficiency, and safety, it has a much broader customer base. A little more than 30% of Mexican families can afford air transportation. This is huge.
Mexico is becoming one of the most important countries for aerospace
The value of aviation is not just the movement of passengers. It is the economic impact in the communities where there is air transportation. It is an accelerator for development and GDP growth and it brings great technological advances. The labor generated by the industry is a highly trained and technically-savvy workforce generating tremendous value for the country.
On the horizon is the impact of bringing in new aircraft. If you look at Mexico up until the 1990s or 2000s, the fleets were outdated. Now, we have one of the youngest fleets in the world. This contributes to a dynamic workforce of engineers, maintenance bases, and technology behind the scenes at the maintenance facilities. And it has brought a new breed of people to the industry. Mexico is becoming one of the most important countries for aerospace and that is fantastic.
What is the future of aviation in Mexico?
The dynamics will change radically. For decades, Mexico has been afraid of competing with the US carriers and the US market, which is the biggest in the world. This fear is rooted in reality. There are roughly 350 Mexican commercial aircraft in operation, which is a fraction of a single fleet of one of the US majors.
We discovered that the US carriers prefer to have a strong partner in Mexico and co-operate in a joint effort, not only cross-border but also globally. Delta and Aeromexico have shown the path. It takes a strong commercial alliance and a strong maintenance alliance.
As the airlines in Mexico expand their footprints, it makes sense for some of this expansion to take place in Central and South America
And maintenance is particularly attractive here. It is not only strong on the productivity side but also inexpensive. What has been done in tech ops in Querétaro is an example of that. The huge US fleets are better off both in terms of cost and productivity if they have the have the major maintenance performed in Mexico.
The other attractive element here is equity. Co-operation among alliances have their limits. If you want to have a deeper integration, you have to have some sort of capital equity investment. It is not just money, it is the talent, management, and best practices that are brought in.
Now that we have an open skies agreement in the US, there is little doubt there will be radical change in Mexico, and the US integration is inevitable. It also makes sense for us to forge alliances with our southern neighbors. As the airlines in Mexico expand their footprints, it makes sense for some of this expansion to take place in Central and South America.
Tell us a little bit about why you joined IATA?
We joined IATA when at the time that we moved into global alliances. We had to adjust our regional distribution and communication with our customers to a hybrid model. We needed to be able to interconnect our reservation system with others and we recognized the tremendous value of the Billing and Settlement Program (BSP) and the IATA clearing house. It is the worldwide standard and it has brought us tremendous value. From 2006 we have been IOSA-compliant but we were not IATA members until 2015.
What is the future for Interjet?
We aren’t oneworld-focused. We started with our most logical partner, which is Iberia, and with Iberia came British Airways. Iberia is a codeshare and BA is an interline agreement.
Then LAN, a member of oneworld, came into the picture, and also American, our US codeshare partner. I don’t believe we are ready to become a full oneworld member yet but we aren’t ruling it out either.
José Luis Garza Alvarez
December 2005 – Present day Chief Executive Officer, Interjet. Garza Alvarez has been responsible for the success of Interjet since the beginning. The airline was built from scratch in record time and began operations in December 2005. During this process he created a complex execution plan as chief coordinator.
1991 Established Garza Alvarez & Associates, a financial services and consulting firm specializing in setting up, developing, and financing new projects, as well as financing and financial services.
1976: Master’s in Management, The London School of Economics.
1966-90: Bachelors Degree in Political Science and Public Administration, Universidad Iberoamericana, Mexico.
Academic Honors: Graduated Magna Cum Laude and was granted the national award for being one of the best students in Mexico.