The New York Times
October 6, 1999

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.

          The commission 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.

          Sanchez said 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
          commission reported.

          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
          insufficient demand.

          "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."

          Travel agents 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.

          Mexicana's problems were more straightforward than Aeromexico's. The
          company's dollar-denominated debt simply ballooned during Mexico's 1995
          financial crisis.

          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.

          And pressure against Cintra is intensifying. In August, an organization that
          represents the tourism industry asked the competition commission to break
          up Cintra.

          Nonetheless, 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.

          "The government 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