 INFRASTRUCTURE: ON THE ROAD TO MODERNIZATION |
Considering the number of travelers expected to visit Mexico in the coming years, Mexico will need to improve its infrastructure considerably, especially its airlines and airports.
Much to the glee of investors, most of Mexico's infrastructure-chiefly the railways, airports, highways, and ports-has been privatized over the last 10 years. Indeed, more and more companies are buying state enterprises and winning government concessions, injecting millions of dollars of much-needed private capital and modernizing in the process. Mexico's airports, for instance, are currently in the process of privatization.
Airlines and airports are proof positive of Mexico's pledge to open the sector. In an effort to improve service, efficiency, and productivity, Mexico has made a concerted effort to open the sector to private investment. During 1998, the country's airports were privatized and separated into four groups according to their region. The Southeast Airport Group, the Pacific Group, the Central North Group, and the Mexico City Airport have either been privatized or are in the process thereof.
Mexico City International Airport Director Roberto Canovas Theriot recently expressed his hope to increase the number of flights that move through Mexico City. However, the airport-which carries more than 20 million passengers a year and deals with more than 60 airlines-still needs to invest in infrastructure.
"We run 60 operations per hour with our current infrastructure," says Canovas Theriot. "We may grow in the number of operations per hour up to 75, but we need to construct another runway and increase our terminal buildings."
The Southeast Airport package includes the airports in the resorts of Cancun, Cozumel, and Huatulco, as well as the cities of Merida, Minatitlan, Oaxaca, Tapachula, Villahermosa, and Veracruz. Seventy-four percent of the group was put on the stock market, a maneuver that generated some 3.1 billion pesos in investment and kicked off the privatization of the nation's terminal areas.
"Strategically," says Pacific Group General Manager Ubaldo de Azpiazu, "we think we are in a privileged position because of our airports located in areas of new development, for instance Guadalajara, the Bajio region, Tijuana, the maquiladora belt. What's more, we are very directed toward the Pacific, which gives us a competitive edge against our competitors."
The Central North package, a group of airports highly coveted by investors, includes Acapulco, Chihuahua, Ciudad Jaurez, Culiacan, Durango, Mazatlan, Monterrey, Reynosa, Tampico, Torreon, San Luis Potosi, Zacatecas, and Zihuatanejo. Louis Priede, former general manager of Grupo Aeroportuario del Centro y Norte, has made clear the new group's full commitment to rapid development and expansion.
"The first (priority) would be the development of both national and international cargo potential," says Priede. "Later would be all of the links that could be made with strategic airlines."
As far as airlines are concerned, U.S. companies dominate the U.S.-Mexico market. American, United, Continental, and Delta hold a 46-percent market share on direct flights between the two neighbors, while the two major Mexican carriers, Mexicana and Aeromexico, together hold 34 percent. Airlines such as TWA, Northwest, Alaska, Aerocalifornia, and Aviacsa share the remaining 20 percent. Continental has been especially aggressive in opening new routes to cities in Mexico, and currently offers direct air links from the United States to 20 Mexican cities. Moreover, Mexican airlines and airports are looking to Asia more and more as a new market, especially in light of the booming manufacturing sector along the border.
The domestic airline market, however, is quite another story. Until only recently, Mexico's skies have not been what you would characterize as "friendly." Since its creation, Cintra, the holding company for airlines Aeromexico and Mexicana, has received a number of complaints for price-gauging and monopolistic practices, such as hiking rates, lowering travel-agent commissions, and making dubious agreements with airlines not to compete. Cintra denouncers claimed that smaller airlines were doomed to fail when pitted against Mexicana and Aeromexico's might.
In an important move to increase competition within the airline industry, the Federal Competition Commission (CFC) announced the break-up of Cintra and that both Aeromexico and Mexicana will be sold separately. Cintra was created in 1995 to capitalize the two airlines after the notorious devaluation that same year. The government's share through bank bailout agency IPAB is around 55 percent.
In the meanwhile, Mexicana and Aeromexico have been pursuing alternative means of modernizing their fleets and improving service, foremost among them the alliance. Global networks are changing the nature of the airlines industry in Mexico, where competition will soon pit large blocs against each other rather than companies themselves.
Mexicana is forging commercial agreements with the airlines in Star Alliance, now in-line with United Airlines, Lufthansa, Air Canada, Varig, Air New Zealand, and Scandinavian Airways. They are also in the process of negotiating even more agreements with Austrian Airlines, Ansett Australia, Thai Airways, All Nippon Airways, British Midland, and Singapore Airlines.
Another means of modernizing the industry has been code sharing, which allows two airlines to list the other's flights as their own, sell tickets on them, and spread the load of passengers evenly between the two carriers. Mexicana has been sharing codes with United since 1997, Lufthansa since 1998, and Air Canada since 1999. Aeromexico has been doing the same with Delta and Air France since 1995. | Ironically, most industry insiders had hoped the alliances and code sharing would appease Cintra detractors. Mexicana and Aeromexico's methods were to no avail, however, after hostile rhetoric flared up again when government authorities grounded Taesa's 23 planes in December 1999, tipping the scales even further in Mexicana and Aeromexico's favor.
Analysts are nevertheless optimistic about the sector's future. If the Fox government continues to impose tough standards on the industry and cracks down on technical requirements, airlines will have no choice but to invest in equipment and improve service.
Other sectors within Mexico's infrastructure have not fared so well or evolved so quickly. Mexico's highways, for instance, have been something of a boondoggle for the federal government and private contractors. While Mexico boasts 96,000 kilometers of paved roads and more than 6,000 kilometers of toll roads-some of the best in all of Latin America-there has been little construction since the peso crash of 1995. Most construction companies were especially hurt by the devaluation and struggled to make interest on loans. In fact, the government so far has bailed out several failed highway projects to the sad tune of 50 billion pesos.
The industry still has failed to recover fully. Soon after the crash, highway tolls were set especially high by construction companies trying to recuperate some of their losses. Because the tolls were too high for the general populace, however, very few people used the roads. Even when the government took control in 1997 and lowered tolls, they were still too high for most commuters and trucking companies.
Again, analysts expect the sector to modernize in the near future due to the government's growing attention to the problem. The Federal Roads and Bridges organization-otherwise known as CAPUFE-has recently been restructured and given more autonomy.
"The objectives are," says erstwhile CAPUFE President Daniel Diaz Diaz, "efficiency in the responsibility the organization has with respect to the operation of installations for highways, national bridges, international bridges, and toll highways."
Mexican highways have had a tougher road to follow than their railway counterparts. Now that the private sector is taking over for the public, the sector is modernizing, albeit slowly. In fact, the railway privatization process has mostly been completed, the most intensive periods occurring between 1997 and 1999. Railroad concession holders have committed to investments of more than 13 billion pesos over the next five years.
Mexico's major lines-the Pacific-North, Southeast, and Northeast railways-have all been privatized, and the companies that own them are now fully operating. In 1999, moreover, the federal government closed down the state-owned Mexican National Railways, whose oversight functions will now be handled by a new regulatory agency. While the government did opt to hold onto the Trans-Isthmus spur, which connects the Pacific Ocean with the Gulf of Mexico, for reasons of national security, private investment in the sector has been considerable, improving service and standards in the process. New owners will have invested US$1.3 billion (1997-1999) to modernize the infrastructure of the privatized lines.
The industry has already grown more dynamic. Railway companies no longer simply move cargo from Point A to Point B. Take, for instance, industry leader Transportacion Maritima Mexicana (TMM), which has invested more than 300 million dollars in the purchase of 150 new locomotives. Company investment programs will probably exceed US$900 million over the next few years.
"Right now," says TMM Executive Vice-President Luis Calvillo, "our efficiency rates are close, equal, superior to Europe and American standards. And when it comes to railway theft, our rate even is lower that it is in the United States."
Grupo Mexico is the other major player in the railroad sector. With more than 10,400 kilometers of track, Grupo Mexico covers about 90 percent of commercial and industrial Mexico. The company also connects with four major ports along the Pacific and two in the Gulf of Mexico Region. It also covers six points along the U.S.-Mexico border, including Nogales, Naco, Aguaprieta, Ojinaga, and Piedras Negras. Grupo Mexico not only serves all of Mexico, but also brings traffic in from Asia for transportation to the United States and vice versa.
"What we are developing today, and hope to do," says Grupo Mexico CFO Jesus Eduardo Gonzalez, "is continue to consolidate ports and warehouse facilities where we already have connections and develop them to bring in traffic from Asia."
Mexico's ports, which likewise have improved drastically after being privatized as well, represent another investment opportunity. The port of Manzanillo in particular has generated a lot of excitement. Manzanillo doubled its capacity within the last year due mostly to the goods arriving from Asia. TMM invested heavily throughout the privatization process that took place about five years ago and made a successful bid for the Manzanillo container terminal along the Pacific coast, betting wisely that the city would develop into one of the most important ports in the Pacific basin, which it has. Manzanillo offers services not just to Mexico from Asia, but serves as a base for goods coming in from the Far East to Central and South America, |
