Air travel in Mexico is big business—and it’s getting bigger: In 2015 almost 70 million travelers flew into, out of, or across Mexico, a 12% increase over 2014. And Grupo Aeromexico, already the county’s largest airline, wants to take advantage of that growth by focusing on its most profitable travelers and adding new, profitable routes. Until recently, however, Grupo Aeromexico had trouble determining just which passengers and routes fit the criteria.
Grupo Aeromexico is a hub-and-spoke carrier, which means it transports passengers to and from its hub in Mexico City. But while the company could analyze financial performance for direct routes from its hub to various “spoke” destinations, it was almost impossible for it to understand the economic potential for connecting flights—such as those departing from Managua, Nicaragua, connecting in Mexico City, and then flying to their final destination in Los Angeles.
“We didn’t know if a connection was profitable to us or not, or whether it made sense to offer more connecting flights from Managua to Los Angeles in the future,” says company CFO Ricardo Sanchez-Baker.
Grupo Aeromexico uses cloud analytics to focus on its business travelers and add new, profitable routes.
More Connections in the Cloud
The airline decided to focus on the premium market of business travelers rather than compete for more budget-conscious tourists. The idea was to use analytics to identify the most profitable travelers, connection routes, and service offerings while keeping its cost structure down. Using Oracle Business Intelligence Suite Enterprise Edition Plus Managed Cloud Service to analyze passenger-profile and travel-history data pulled from several business units, it began running sophisticated financial models against a mix of variables including travel frequencies, ticket prices, fuel costs, currency exchange rates, and types of aircraft to determine which passengers, routes, and services rendered the highest profit margins.
That work is paying off. Thanks to its cloud-based analyses, Grupo Aeromexico identified a large number of business travelers who frequently commuted to Queretaro, an emerging business center two hours north of Mexico City, for work. And these premium business-class travelers were not just departing from Mexico City but also were connecting from high-margin destinations across the company’s entire global network—from the United States, South America, and even Europe. So in October 2015, the company added Queretaro to its route network, expanding its offerings to close to 80 destinations—more than any other airline in Latin America.
Because integrating data from multiple on-premises applications from its 26 business units was difficult and running dependable analytics from these systems was nearly impossible, “before the cloud, we couldn’t get to this level of precision and wouldn’t even consider Queretaro as a profitable destination,” says Benjamin Hernandez, CIO of Grupo Aeromexico.
But with Oracle Managed Cloud Services’ prebuilt integrations for the company’s on-premises enterpise resource planning applications, the airline can run more complex and comprehensive profitability analysis in less time. These capabilities also helped Grupo Aeromexico compress its monthly financial close rate from 40 days to just 10. As a result, “we are not only able to offer more destinations at lower costs, but we also are attracting more capital to grow our business,” says Sanchez-Baker.
Premium Service, Low-Cost Structure
In contrast to rival airlines that offer low-price tickets and no-frills service to vacationers, Grupo Aeromexico has structured its business to deliver premium services to business-class travelers. Yet despite its premium service model, “since moving to the cloud, we’ve been able to maintain the lowest cost structure among all competing full-service airlines in the Americas,” says Sanchez-Baker.
With its operating profit up more than 46% since 2014 and its partner, Delta Airlines, increasing its 17% stake in the company to 49%, Grupo Aeromexico points to cloud analytics as the linchpin in its success.
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According to Sanchez-Baker, “as we look to further expand our route network, we have to make sure that each connection we offer is efficient. In this sense, the knowledge we get from using cloud technology enables us to measure the marginal impact of each connection—and then allocate resources and adapt our business practices to maximize profitability.”
In a study conducted last October by OAG, a UK-based market intelligence consultancy for the aviation industry, Mexico City was ranked ninth among the largest megahubs in the Americas and its airport was cited as growing at the fifth fastest rate of any airport around the world.
“We believe that this ranking is the direct result of us having more connectivity throughout our network,” says Sanchez-Baker.
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