Agency Confronts Mexico Airline Company as Monopoly
By RICK WILLS
MEXICO CITY --
When Jorge Garcia, a travel agent, books a flight
between Mexico City and New York, the round-trip price for the
cross-continent flight is typically $400, maybe less. When Garcia
reserves a round trip between here and San Luis Potosi, only 260 miles
away, the cost is $340.
"That price is
so ridiculously high that nearly everyone who makes the trip
takes the bus instead, even the wealthy," said Garcia, president of the
1,300-member Mexican Association of Travel Agents.
Garcia and others
in Mexico's travel industry say the prices on some
domestic air routes in Mexico are exorbitant and reflect what they call
monopoly abuse by Cintra SA, the holding company that controls Mexico's
two largest airlines and 82 percent of the country's domestic flights.
Cintra is a hybrid
company, formed by several of the airlines' large creditor
banks as a private company in 1995, with approval from the government.
At the time, Mexico's two big airlines, Aeromexico SA and Mexicana de
Aviacion SA, faced bankruptcy.
But in the middle
of a nationwide financial crisis, the banks with loans out
to the airlines were also in acute financial trouble. They quickly turned over
the Cintra shares they were holding to a government bank bailout agency.
As a result,
the government today holds 70 percent of Cintra's shares. The
company, however, is still run as a private business.
Now, in an unusual
confrontation, a government agency, the Federal
Competition Commission, is challenging Cintra. In a series of lawsuits, the
commission, an independent agency that tries to curtail monopolies, has
accused Cintra of abusing its near-monopoly status.
originally gave the holding company permission to operate
the two airlines and has the power to revoke it.
In one lawsuit
the commission says the company manages the two airlines
as a single company and has raised prices as much as 30 percent in four
years on 26 routes where it has no competition, often to the detriment of
"What we are
seeing are very high profits in areas where there is no
competition, the profit of a monopoly," said Fernando Sanchez Ugarte, the
president of the commission.
the commission had evidence that Cintra was trying to force
Mexicana, the smaller of Cintra's two airlines, out of business by
eliminating the airline's flight routes. Mexicana was the largest Mexican
airline in 1993, but its flights have been cut in half since then, the
A Cintra spokesman,
Luis Villegas, denied that the airlines were run as a
monopoly and said Mexicana routes had been eliminated only if there was
"Both airlines are separate and viable businesses," Villegas said.
Hotel and restaurant
owners in a number of Mexican resort towns blame
Cintra for a drop in tourism. In Pacific coast resorts like Huatulco and
Ixtapa and the Caribbean island of Cozumel, Cintra has reduced the
number of flights and raised fares.
In Puerto Escondido,
a Pacific beach town, Mexicana canceled daily
service to Mexico City in 1997. Occupancy has fallen about 40 percent at
the Santa Fe Hotel, one of the resort's larger inns, said Walter Rios, who
handles reservations there.
A Mexicana subsidiary,
Aerocaribe, now flies daily to Puerto Escondido
but in smaller airplanes and with fewer seats available.
"The effect on
this town has been devastating," Rios said. "It's empty like it
has never been."
across the country are angry with Cintra and suing it for
what they regard as another facet of monopoly abuse. Last December the
company cut their commissions from 10 percent to 7 percent.
"Only a monopoly
could cut our wages 30 percent and get away with it,"
Garcia, the travel agent association president, said.
When Cintra was
formed, Aeromexico was operating under a shadow cast
by its former chairman, Gerardo de Prevoisin, who was recently extradited
from Switzerland to Mexico. de Prevoisin is accused here of using $57
million in airline funds as collateral for personal loans. He is also blamed
for the bankruptcy of the Aeroperu airline, a Cintra subsidiary.
were more straightforward than Aeromexico's. The
company's dollar-denominated debt simply ballooned during Mexico's 1995
But the management
turmoil has continued at Cintra, the holding company.
In August, after Aeroperu entered bankruptcy and the government took
control of Banca Serfin SA, a major Cintra creditor, Ernesto Martens,
Cintra's president, was replaced with Jaime Corredor, a government
functionary. Martens' removal was the decision of Cintra's two largest
nongovernment shareholders, Banco Nacional de Mexico SA and
Bancomer SA, the competition commission said.
So far, Cintra
has won some legal victories on both the regulators' case
and the travel agents' suit. Both the travel agents and regulators say the
company's successes in court really amount to delays.
against Cintra is intensifying. In August, an organization that
represents the tourism industry asked the competition commission to break
it is unclear how soon, or even whether, change will come to
Cintra. The government has said it is in favor of privatizing big state-run
businesses but has been slow to do it.
An array of state-run
companies has for decades run Mexico's electricity
industry, the railroads and, most famously, its petroleum industry. It was
only economic distress since the late 1980s that forced the government to
try to sell many of its companies.
"There is no
political will to control monopolies, and the credibility of the
regulatory system in Mexico is close to nil," said Rogelio Ramirez de la O,
the director of Ecanal, a Mexico City-based economic research firm.
needs to appear that it is regulating monopolies, but the
attempt to appear modern is really only a game in Mexico," he said. "Only
companies with no political power are regulated, not companies like