Mexican airlines face losses due to oil prices

MEXICO CITY (Reuters) - Mexican commercial airlines, hurt by soaring oil prices, could lose up to $1.2 billion this year, a government official said.

Mexico's airline sector, like everywhere else in the world, is struggling with high oil prices and the Mexican government's refusal to subsidize jet fuel is making it harder for local carriers, some of which have canceled routes this year.

"If things remain as they are today, with oil at $130 - $140 per barrel, Mexican airlines could lose this year between $1 billion and $1.2 billion," Gilberto Lopez Meyer, head of Mexico's civil aeronautics, told Reuters in an interview this week.

There are about a dozen commercial airlines in Mexico, where only 5 percent of the population uses planes as a mean of transportation.

The arrival of six low-cost airlines in recent years helped boost passenger traffic but triggered an intense competition for clients.

"Airlines don't think it is possible to immediately pass the fuel costs to ticket prices because they would end up with no passengers," Lopez Meyer said.

"Prices are gradually increasing and while the market, the passengers and the demand get used to these new prices, airlines are losing an important amount of money."

Mexican airlines already are adding fuel charges to ticket prices but they still allow two luggage pieces per passenger and many of them offer free beverages and snacks.

High fuel prices are expected to bring in a round of mergers that would shrink the number of players in the field and Lopez Meyer believes that only those airlines with deep pockets will survive.

This week, low-cost Mexican airline Interjet said it had bought the rights to use Mexico City's airport from struggling Aero California, a small rival recently grounded by the government after it failed to pay some flight rights.

Despite oil prices and a slowdown of the economy in the United States, passenger traffic in Mexico held to double-digit growth through May, according to the latest government data.

But the third quarter could prove particularly challenging, Lopez Meyer said.

"September is coming and that's when a sharp decline will happen. In average, full year (passenger traffic) will end up 6, 7 or 7.5 percent," he said.

(Editing by Carol Bishopric)