In a scathing smack-down of Mexican government policies, the US Department of Transportation (DOT) has told Aeroméxico and Delta that they must end their joint venture because the Mexican government sucks. Alright, that might be a little too basic, but the sentiment is there, and it has ramifications beyond just this partnership.
This is a fight that has been escalating for some time as Mexican President Andrés Manuel López Obrador (AMLO) has repeatedly made poor policy decisions that have pushed the aviation relationship between the two countries closer to the brink.
For the US to even consider the antitrust immunity required for a joint venture between a US and foreign carrier, the most basic requirement is that the two countries have an open skies policy that allows unfettered access to airlines of both countries to the other market. (Apparently Japan can escape this requirement despite Haneda shenanigans?) This requirement is why you never saw a joint venture between a US airline and a Chinese carrier. ”Open skies” does not exist, and so it’s not even a possibility.
In México, there was an open skies policy put into place during the previous presidential administration, but questions remained about how it would evolve. Because of these questions, when Delta and Aeroméxico filed for antitrust immunity, they were given it only for a period of five years. After that, a completely new review was required to see if the conditions still warranted allowing the partnership.
The original joint venture was approved by DOT on December 14, 2016, so it should have expired at the end of 2021. Delta and Aeroméxico pleaded to remove the requirement for a new review, but all DOT did was allow the renewal filing date to be extended to the end of 2022. DOT also said it would allow antitrust immunity to remain in place until the second review was finished. The renewal filing was made in March of 2022, and it’s taken nearly two years to get a decision.
In the meantime, there has been nothing good happening in the Mexican aviation scene. The original primary concern was around Mexico City’s primary airport (MEX) which was overcrowded and heavily restricted. Under the previous administration a brand new airport to replace MEX was being built, and that would have alleviated all the concerns about access to the capital city.
AMLO came into office on December 1, 2018, and immediately canceled that entire project which was already significantly built. I’ve written about this before, so I don’t need to rehash it, but he instead decided to turn a military base far away from town into a secondary airport that would relieve — not replace — MEX. Felipe Ángeles International Airport (AIFA) opened for commercial service right about the same time Delta and Aeroméxico filed their renewal application, in March of 2022.
During this time, AMLO continued to erode any confidence in the aviation system. In May of 2021, the US downgraded the Mexican aviation safety rating to Category 2. This prevented airlines — including joint venture partners Delta and Aeroméxico — from codesharing. It also meant Mexican carriers could not add new service to the US. Despite repeated assurances that it was almost fixed, México did not return to Category 1 status until 2 1/2 years later in September 2023.
During this time, AIFA was turning out to be a failure. It’s not that airlines didn’t fly there… they knew they had to or they’d endure the wrath of AMLO’s government. But they didn’t even fly there enough for AMLO’s liking, because he decided to buy the Mexicana name and create a military-run airline to fly from the airport which… just makes it less likely that anyone else would want to go in there and compete with a subsidized operation. At a high level, this move did not reduce demand enough at MEX to create entry opportunities. Instead, it made things worse.
How is that even possible that it could make things worse? Well, AMLO made a sweeping decree requiring all cargo service to leave MEX for AIFA, even if airlines already had the authority to operate there. The US did not take kindly to this at all, and that prompted the US to suspend evaluation of the Allegiant/Viva Aerobus joint venture which had been pending for years. Apparently this warning was not enough to persuade the Mexican government to actually abide by its air treaties.
To make matters worse, the government actually forced the reduction of capacity at MEX. Why? I’ll let the DOT explain for itself.
…the capacity at MEX has been reduced over the last three IATA traffic seasons, to the detriment
of both current air carriers and potential new entrants. The Mexican Government has premised
these actions on the need to undertake significant renovation of MEX because of saturation
levels at the airport; however, the Mexican Government has more recently conceded that no such
construction plans exist but indicated, in a communication to the Department on November 28,
that no additional capacity would be added at MEX as long as operational and technical
conditions at the airport prevail. As such, there is no valid operational basis on which to
undertake the already-enacted capacity reductions and no possibility of new entry at MEX for the
foreseeable future.
It would appear that these two moves formed the proverbial straw that broke the camel’s back. And now, DOT has denied the renewal of antitrust immunity, so the joint venture must be dissolved. DOT has given the airlines until the end of the IATA summer season (late Oct) to dismantle the partnership to make things easier. It’s a tentative decision pending the final ruling, but the only way I can imagine this not going final is if AMLO’s government backs down. Good luck. This means just a few months after the safety rating was raised to Category 1 and Aeroméxico and Delta were finally able to plan a future, they have to dismantle the whole thing.
This must make Delta absolutely livid. It has invested hundreds of millions of dollars into Aeroméxico, first before the pandemic and then again during bankruptcy. It now owns about 20 percent of the airline and will not be able to coordinate the way it had envisioned. It can now only have an arms’ length relationship… codesharing, frequent flier partnership, SkyTeam membership, and all that. It just can’t coordinate network and pricing which is a real blow.
At the same time, this will deprive all sorts of travelers from cheap fares as envisioned by the Allegiant/Viva Aerobus joint venture. That was one of the most pro-consumer alliances ever proposed since Allegiant doesn’t serve the Mexican market at all today. This would have created a whole different kind of opportunity that won’t exist otherwise.
The only hope at this point rests on what happens on June 2 when the Mexicans go to the polls to select their new president. Mexican law allows only a single 6-year presidential term, so AMLO is done on December 1 when he has to step down.
As of now, the polls show AMLO’s ideological successor Claudia Sheinbaum comfortably leading. As far as I’ve seen, there’s no reason to think she will change the policies that AMLO has put into place, but that doesn’t mean it can’t happen if pressure mounts for her to fix this mess in some way… as unlikely as it may be.
Up to this point, back channel negotiations have clearly failed and forced the DOT to take this dramatic step. Until the Mexican government decides to come to the table, the country’s aviation market will suffer mightily.
