VZCZCXRO3653
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1322/01 1332048
ZNR UUUUU ZZH
R 132048Z MAY 09
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 6483
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHOT/AMEMBASSY OTTAWA 2611

UNCLAS SECTION 01 OF 02 MEXICO 001322 
 
SIPDIS 
SENSITIVE 
 
STATE FOR WHA/MEX AND EEB/TRA 
STATE PASS TO FAA (FRANCESCHI, GLENDINNING) 
STATE PASS TO DOT (HEDBERG) 
 
E.O. 12958: N/A 
TAGS: EAIR ECON KFLU MX
SUBJECT: AIR TRANSPORT: FLU SPARES PASSENGERS, HITS FINANCES 
 
REF: A. MEXICO INFLUENZA SITREPS (MEXICO 1277 ET AL) 
 ¶B. MEXICO 1260 
 ¶C. MEXICO 1298 
 
¶1. (U) This is the third in a series of cables reporting on the 
economic impact of the influenza outbreak in Mexico. 
 
¶2. (SBU) SUMMARY:  The transportation system in Mexico has withstood 
the H1N1 assault at its current intensity rather well.  While fear 
of the influenza has subsided, the economic costs for airlines are 
real and painful.  Flu-driven drop in passenger demand has driven 
airlines to substantial capacity cuts and is making for choppy 
financial waters for Mexican air carriers.  The Secretariat of 
Communications and Transportation (SCT), airports, and air traffic 
controllers have earned solid marks for ensuring the continuity of 
their systems during the influenza pandemic. The GOM has heeded 
calls for relief to the sector, but what is most needed is a return 
of tourist travel.  END SUMMARY. 
 
CARRIERS CUT CAPACITY -- FOR HOW LONG? 
-------------------------------------- 
 
¶3. (SBU) Reacting to a sustained drop in demand, U.S. carriers have 
cut Mexico capacity by an average of 40% through at least June.  For 
some carriers, the cuts will remain into the fall.  In the meantime, 
airlines are re-assigning aircraft to more profitable U.S. domestic 
routes.  Mexico routes historically have been profitable for U.S. 
carriers.  They are committed to operating here (American Airlines 
has been in Mexico since 1941) and are prepared to restore capacity 
as demand rebounds.  For now, the Centers for Disease Control (CDC) 
recommends deferral of non-essential travel to Mexico, planes are 
half-empty, and bargain airfares abound.  With the summer all but 
written off and autumn traditionally a low period, the holiday 
travel season that begins in November may be the next time U.S. 
carriers see healthy passenger volumes. 
 
¶4. (SBU) European carriers base their Mexico business on two-way 
tourism -- Europeans to Mexico and Mexicans to Europe.  They were 
initially the most affected of the airlines, in particular by 
blanket cancellations implemented by tour group operators like 
Thomas Cook and TUI AG.  Thomas Cook intends to unfreeze Mexico tour 
packages on 19 May, though just how many European tourists are ready 
to hit the beaches is uncertain.  Air France plans to fly groups of 
travel agents, promoters, and opinion leaders to Mexico to spread 
the message that the country is again open for vacation.  European 
lines have been reluctant to pare the frequency of their wide body 
flights. 
 
¶5. (SBU) Mexican carriers, for whom every route is a Mexico route, 
have seen their schedules disrupted across the board.  The impact of 
a continued slowdown on companies' cash flows could be substantial 
in a sector that before the flu was already amidst a low cost 
carrier shakeout.  Domestic routes looked almost unaffected early in 
the crisis, then took a pounding during the long 1-5 May weekend. 
Mexicana's CEO, Manuel Borja, told us he believes domestic traffic 
will spring back quickly.  Both flag carriers report big drops in 
their three primary passenger segments -- business travelers, 
paisanos (Mexican nationals living abroad), and tourists.  Mexicana, 
built around a north-south route system that reaches into North, 
Central and South America, is the Mexican carrier most exposed to 
the falloff in international bookings.  This no doubt informs the 
company's militancy against the CDC's Mexico travel warning. 
 
GOM AID -- BETTER THAN NOTHING BUT... 
------------------------------------- 
 
¶6. (SBU) Airlines view GOM financial assistance, announced by the 
Finance Ministry (Hacienda) on 5 May (ref B), as timely but too 
little.  They call the 200 million peso (USD 15.3 million) 
allocation for tourism promotion a wise step, but wonder how quickly 
it can repair the country's damaged reputation as tourist 
destination.  Whereas business travel is likely to recover to levels 
approaching normal (that is, back to the already-low 
downturn-induced baseline) as the immediate crisis subsides, few 
believe the confidence of international tourists will return so 
quickly.  Additional measures suggested range from a reduction in 
landing fees to more competitive jet fuel prices.  One airline 
executive noted prices for aviation services were not unduly high in 
Mexico, but rather that effective action required quality and 
efficiency improvements to such services.  Secretary of Hacienda 
Carstens announced a second relief package on 11 May (ref C) that 
includes 3 billion pesos (USD 228 million) in credit facilities for 
 
MEXICO 00001322  002 OF 002 
 
 
airlines -- a measure for which domestic carriers had previously 
agitated. 
 
QUARANTINES, SUSPENSIONS, BAD NEIGHBORS 
--------------------------------------- 
 
¶7. (SBU) The Foreign Secretary pronounced "brother" countries 
Argentina, Cuba, Ecuador, and Peru in violation of international 
agreements on civil aviation for their suspension of flights to and 
from Mexico.  The Foreign Ministry (SRE) followed those comments 
with a formal complaint at the International Civil Aviation 
Organization.  While Argentina appeared to bow to diplomatic 
pressure and was to renew flights on 4 May, as of this writing the 
country had seized on a variety of technicalities to prevent service 
from actually resuming.  Ecuador announced it would re-open to 
Mexico traffic on 7 or 8 May -- a largely symbolic gesture, as there 
is no regularly-scheduled commercial air service between Ecuador and 
Mexico.  SRE, SCT and airport contacts still note with mixed pride 
and relief that a motion considered by the European Union to suspend 
flights to Mexico was soundly defeated in late April.  China and 
Singapore have both quarantined Mexican nationals.  The GOM's 
flag-draped rescue-by-777 of passengers stranded in China met with 
widespread approval in Mexico.  Passengers and the plane's pilots 
have made multiple media appearances.  (Note:  Goodwill generated by 
China's donation of two 747-loads of humanitarian supplies -- 
including many of the hi-tech thermal imaging devices just installed 
in Mexican airports -- appears short-lived as consequence.  End 
note.) 
 
¶8. (SBU) COMMENT:  Domestic, paisano, and business travel will 
return to normal more rapidly than tourist travel, but don't expect 
the already-recession-emptied business cabin to pad many bottom 
lines.  In turn, domestic tourism will be back before its 
international cousin.  The influenza slowdown on top of the economic 
downturn (and before that a year of sky-high fuel prices) could be 
sufficient to knock out another Mexican low cost carrier, several of 
which failed in 2008-2009.  END COMMENT. 
 
BASSETT