A diplomatic dispute between the U.S. and Mexico has ensnared the Delta-Aeromexico joint venture and forestalled the proposed antitrust-immune alliance between discount carriers Allegiant and Viva Aerobus.
Some analysts are joining the impacted airlines in questioning the tack being taken by the U.S. Department of Transportation and suggesting it could harm consumers.
"I'm at a loss, frankly, as to what the U.S. government expects to signal with this," said Carlos Ozores, vice president for ICF, a global aviation consultancy.
The DOT issued a tentative order in January denying Delta and Aeromexico's request for an extension of antitrust immunity, which enables the carriers to jointly schedule, market and operate flights between the U.S. and Mexico. If the decision stands, the carriers will have to unwind the alliance by late October. The two airlines filed a formal objection and are awaiting a final order.
Beginning last July, the DOT also suspended review of the antitrust immunity application for Allegiant and Viva Aerobus.
Driving both DOT decisions are moves by Mexico's government under President Andres Manuel Lopez Obrador related to commercial aviation in Mexico City.
In 2022, the Mexican government reduced the number of hourly flight operations allowed at the city's primary airport, Benito Juarez, from 61 to 52, and further cut them to 43 in early January.
Those actions are part of the Lopez Obrador government's push for more service to the new, military-run Felipe Angeles Airport, which the president brought online after halting construction on what was to be a $13 billion Mexico City airport, shortly after taking office in 2018.
The DOT said in its January order that the capacity reductions at Benito Juarez violate the open skies air transport agreement between the U.S. and Mexico. Adherence to that agreement is a necessary condition for any partnership between a U.S. and Mexican airline to receive antitrust immunity, the department said.
In official responses, Delta, Aeromexico, Allegiant and Viva Aerobus said the DOT actions amount to overreach that is harmful to consumers. Delta pressed the DOT to continue consultation with Mexico and to consider actions that specifically punish Mexico, such as restricting the operations of Mexican airlines to and from the U.S.
What's at stake for flyers?
Allegiant and Viva Aerobus, meanwhile, contend that Benito Juarez would only be involved in 6% of the 92 alliance routes the carriers plan to launch in the first two years of their partnership.
In a regulatory filing, the carriers wrote that to withhold its proposed alliance, which "has satisfied the public interest test and promises innovation and increased price competition, represents a step back from DOT's historic encouragement of such developments." The carriers added that to do so over a single airport dispute "is not only disproportionate but likely unprecedented in the context of a market already benefitting from open skies access."
Ozores, along with Brett Snyder, author of the Cranky Flier blog, agreed that the Allegiant-Viva Aerobus joint venture would have clear consumer benefits: Allegiant doesn't fly to Mexico, so the partnership wouldn't eliminate them as competitors on any route. And by combining service, the carriers could deploy their combined fleet to provide low-cost alternatives to larger competitors.
The overall consumer benefits of the Delta-Aeromexico partnership are less clear.
Delta said elimination of the joint venture would put 23 daily cross-border frequencies at risk. But the partnership hasn't driven substantial U.S.-Mexico capacity increases for the two carriers since its 2017 launch. Since 2015, the airlines increased their combined transborder seat count by just 3%, compared with a marketwide increase of 42%, according to an analysis Ozores did of OAG flight schedule data.
Still, there would be some impact. Snyder cited Aeromexico's service between Boston and Mexico City, set to launch March 21, as an example of a route that could be hurt if the DOT ends the Delta-Aeromexico joint venture. The Mexican carrier would rely heavily on Delta, which has a Boston hub, to sell that flight. Absent the venture's profit-sharing, Delta would have less incentive to do so, even if it continues codesharing on the route.
"I think they're really just trying to push Mexico to live up to their promises," Snyder said of the DOT. "But I don't think Mexico will give in."
Ending the alliance, he added, won't help U.S. consumers. Ozores agreed, saying that breaking up the joint venture won't hurt Lopez Obrador. "But I'm not endorsing any type of punishment," he added, "because I think at the end of the day you are really hurting consumers."