Structural changes have slowly been taking place in one of the largest international markets in the Americas, and unusually, it looks like the US airlines are losing out, either because strategically they are looking elsewhere or because the competition and market is changing right in front of them. What was once a very lucrative market for US airlines now appears to offer more opportunities for both the Mexican and low-cost airlines, so what is happening?
A structural shift in capacity
Sometimes aircraft deliveries play an important role in a market’s structure. That certainly seems to be the case here; several Mexican low-cost airlines have taken delivery of new aircraft and placed some of those into the US market. Since 2023 Volaris has added 31 new aircraft to its operation and although the airline continues to be impacted by the Pratt & Whitney engine issue, it has increased capacity to the United States by 25% over the last two summer seasons. Driven by that expansion in capacity, Mexican-domiciled airlines now have a 40% capacity share compared to 34% in summer 2024, representing a significant shift in the balance of production.
US airlines reduce capacity to Mexico
A secondary factor in this increasing share for Mexican carriers has been a pullback in capacity from the US based airlines; collectively this summer they will operate one million fewer seats than in Summer 2025 as the collapse of Spirit Airlines and capacity cuts from all the major operators reduce capacity share. Recent tensions between the two countries and their air service agreements have been an issue for some airlines, but not of sufficient magnitude to be pinpointed as the reason behind a reduction in one million seats from season to season.
In total American Airlines has dropped nearly 170,000 seats to Mexico, year-on-year. Alaska Airlines has cut capacity even deeper with a 38% (240,000 seats) over the twelve months
The states of a nation
Which states have dropped airline capacity to Mexico? Departing capacity has fallen from all major markets. Both Texas and California, the two largest markets, have seen capacity fall by some 300,000 seats ( 7% and 10% respectively). Amongst the five largest states for departing capacity to Mexico, Florida has the largest percentage decline with a 15% fall and loss of 168,000 seats. American Airlines and JetBlue both dropped over 10% of their historic capacity from Florida, while Volaris, perhaps seeing an opportunity, has increased capacity by 14%.
Six states have reported some capacity growth to Mexico, led by Oregon with a 36% increase in capacity albeit from a smaller starting base. Volaris has added an extra 18,000 seats year-on-year from Oregon. Amongst the larger markets, Illinois is the only one to see any year-on-year capacity growth: American Airlines has added 63,000 seats while United have added a further 23,000 and Volaris another 63,000, resulting in a near 100,000 increase in capacity; some of that may be unsustainable next year if the market does not respond favourably.
Leisure markets appear most affected by US-Mexico capacity cuts
Across the largest destinations in Mexico there are some very clear winners and losers. The largest loser in absolute terms is Cancun, where capacity has fallen by over 570,000 seats, the equivalent of 2,700 seats a day. Puerto Vallarta has a near 30% loss of capacity compared to last Summer. San Jose del Cabo is another capacity loser with a 16% reduction in capacity and some 230,000 fewer seats from its largest international market.
One of the few markets to see any growth is Mexico City, where an easing of bi-lateral tensions and widened access to slots has resulted in an 8.7% growth in capacity year-on-year. Guadalajara has seen an additional 137,000 seats added in the same period.
A short-term blip or something else?
Capacity always ebbs and flows, even in the most mature of markets. However, the recent changes in the US – Mexico market appear to be more than just a short-term change and could be reflective of deeper factors. These include:
• Market wear-out could be a factor for US citizens visiting Mexico
• The current strength of the Mexican Peso which has appreciated by 8% in the last year
• Other wider geo-political issues may also be playing a role
With airlines increasingly cautious of growth it is unlikely that US-Mexico capacity will recover to previous levels next Summer, and perhaps the question is, is this the end of the market adjustments or are there more to follow? Only time will tell!
