In the Great 2017 Mexico City Slot Giveaway, Alaska, JetBlue, Southwest, and Volaris are the Victors

After the US and Mexico agreed to an open skies agreement for travel between the two countries, Delta and Aeromexico wasted no time filing for an immunized joint venture that would allow them to share revenues. This shouldn’t surprise anyone since Delta owns a sizeable stake in the airline and has announced plans to increase its share up to 49 percent. But the road to completing this deal wasn’t easy and required significant slot divestitures in both Mexico City and New York/JFK. The tentative decision is out, and now we know who will be getting those slots.

Once the feds dug in and looked into the details, they decided to extract a pound of flesh to allow this deal to go through. Delta and Aeromexico would jointly have to give up a whopping 24 slot pairs to low cost carriers in Mexico City and another 4 at JFK. At first this appeared to me to be too much to stomach, but Delta and Aeromexico proved me wrong and decided to move forward anyway.

Mexico City’s airport is highly-constrained and that means new entrants can generally only get in to the airport at awful times when nobody else is interested. That explains why Southwest has a flight from Houston arriving at 11:30pm and departing at 5:30am. JetBlue has similar times on its Ft Lauderdale flight as well as on one of its Orlando flights. That, of course, is why the feds stepped in. They wanted to spread the wealth around.

What’s interesting is that unlike in the Cuba proceeding where every eligible airline tried to grab a piece of the pie, there were a lot here who didn’t participate at all. Frontier, Sun Country, Spirit Allegiant, and Hawaiian (ok, not a surprise on that one) didn’t even try. But the rest did, and the tentative decision has everyone getting mostly what they want…with the exception of VivaAerobus.

This was broken down into two phases. In the first phase, 14 slot pairs at Mexico City and 2 slot pairs at JFK would be transferred in time for this summer season. The remaining 10 at Mexico City and 2 at JFK would be transferred in time for next summer… assuming the carriers had tried to get in on their own and were proven to be unsuccessful. So how did this pan out? Let’s look by airline.

Alaska
Alaska was a big winner, getting everything it asked for in the first phase. That means soon you’ll see Alaska flying to Mexico City twice daily from LA, once daily from San Francisco, and once daily from San Diego. This is fascinating to me, because it shows what a dramatic shift in strategy has occurred since the Virgin America merger.

Only two years ago, Alaska opted to transfer its one LA-Mexico City authority to American. At the time, Alaska had a niche serving Mexico beach destinations from LA, but Mexico City was an outlier. It knew it could transfer service to American, let that airline have a more competitive schedule, and still benefit from the codeshare while deploying its aircraft elsewhere.

Fast forward to the Virgin America merger, and now Alaska finds itself competing for business traffic in major markets from Los Angeles and San Francisco. Mexico City once again fits into the profile of a market the combined airline would want to serve. This is certainly good for competition.

JetBlue
JetBlue picked up four slot pairs in the initial round of allocations as well, two from Ft Lauderdale and two from Orlando. These won’t necessarily be new service; they’ll just replace existing flights at poorly-timed hours. One thing I found really interesting is this stat: only 31 percent of bookings on JetBlue’s Mexico City flights come from the US. The off-peak timing must be more palatable to Mexicans looking for a deal to get to Florida and beyond (maybe a lot of friends/family traffic?) than for Americans going down there.

In the second round, we have a controversial victory for JetBlue. The airline will get 2 slot pairs to fly Los Angeles to Mexico City. These were originally proposed to go from Long Beach until my local city council foolishly walked away from discussions. So, JetBlue shifted its request to go from LAX instead, and it got them. Other than a redeye to Buffalo (which clearly seems to be there to make some elected official happy), JetBlue has no flights from LAX to non-focus cities. LA-Mexico City is a hotly-contested market, and I have a hard time seeing how the airline is going to be successful here. But I guess it has a year to figure that out.

Southwest
In the first phase, Southwest applied for and got 2 slot pairs to Houston and that’s it. One of these will be used to create a better time for an existing flight. The other will be a new frequency. The airline then applied for another two for the next phase. One of those will go to Ft Lauderdale while the other goes to LA. None of those are particularly surprising, and it was a relatively conservative ask.

Volaris
On the Mexican side, Volaris was the most aggressive and came away with a big victory but mostly not until phase two next year. Volaris will get 1 slot pair at both Mexico City and JFK so it can fly between the two in the first phase. This is particularly notable because of the JFK divestitures, only one of the slot pairs had to be during peak airport hours when it’s hardest to get in. Volaris got that one.

It will also get two more slots in the first phase, one of which will go to LA and the other to San Antonio. In phase two, it’s a bonanza. Volaris will start one flight to Washington/Dulles, one to Denver, one to Chicago/O’Hare, and one to Oakland. It will also split a last slot to do 3 days a week to Ontario and 4 to San Jose. Though Volaris didn’t get everything it wanted in phase one, it did quite well for itself.

It’s interesting to note that the feds were quick to point out that Volaris was a favored candidate on the Mexican side, because it has flown from Mexico to the US for several years and has been successful doing so. Because of that, the feds smiled favorably upon the airline. That’s unlike…

VivaAerobus
VivaAerobus did not fare well at all. It wanted a slew of slots and walked away with only 3 pairs, 1 in the first phase. That one is for Mexico City-Vegas. I suppose it’s not a surprise since no other airline in this proceeding wanted Vegas. In phase two, it’ll get 2 slots at JFK and two at Mexico City to fly between the two airports. The only problem is that VivaAerobus wanted JFK slots during peak hours and Volaris got that instead. So it now has to revise its flight times outside peak hours and then it can get them.

While Volaris has successfully been flying to the US for a long time, VivaAerobus has a tiny footprint. It serves only one destination in the US (Houston) and none from Mexico City. Further, it doesn’t sell connections, so the network benefit is much more limited. Clearly the feds didn’t like that.

Interjet
Lastly there’s Interjet. It received no slots in Mexico City because it didn’t want any was such a large slot-holder already it wasn’t allowed to. All it wanted was a single slot pair at good times at JFK so it could start a flight of its own using slots already on hand in Mexico City. Indeed, it was able to get that easily. It has to change its flight time by about half an hour so that flights fall just outside the peak times at JFK, but this will still be valuable for the airline.


What’s most remarkable to me is that with the except for VivaAerobus, these airlines pretty much all got what they wanted with minor tweaks. There wasn’t quite as much demand for the slots as I think some expected. At JFK, it’s remarkable that for the 4 slots, only 5 were requested and absolutely none of those came from US airlines.

While I still think this was a steep ask from the feds, Delta and Aeromexico decided to accept it. So now, all we can do is look at how the awards were doled out, and it looks like a fair process to me. This actually should increase competition in several markets.

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29 Responses to In the Great 2017 Mexico City Slot Giveaway, Alaska, JetBlue, Southwest, and Volaris are the Victors

  1. Jared says:

    Something tells me flights from LAX-MEX are going to get cheaper with all of this added competition.

  2. Mike says:

    Maybe that Mex-Buf flight is trying to lure Mexican travellers to Canada? Didn’t they just life visa requirements for Mexican travellers?

  3. Bill from DC says:

    Shocked that B6 didn’t want to do JFK-MEX especially in lieu of the LAX service. Unlike the others, B6 could get plenty of connecting passengers on those flights. Seems strange they didn’t even ask for this.

  4. Mike says:

    While the LAX-BUF flight is certainly in an interesting district, I think it relies heavily on price sensitive Canadian travelers being lured over the border.

  5. CraigTPA says:

    @Bill from DC – B6 apparently decided the NYC-originating traffic would be weak and it could take connecting traffic (including some leisure travelers from NYC) through FLL or MCO instead.

    The B6 ask for LAX is more surprising, since that’s going to be O&D…unless B6 has some plan to ramp up LAX. But if that’s the case, wouldn’t we have heard about it by now as part of the Great Terminal Move? (Or unless B6 thinks MEX will get preclearance sometime soon, but I’d think we would have heard about that months, if not years, ago.)

    • CraigTPA – The LAX one was just sort of something they stumbled on. They started it as a Long Beach request, so this was probably something they hoped would prime the pump locally – a tangential gain to be had if the customs facility was approved. Once that failed, JetBlue probably figured it might as well try LAX. If this is the start of a new LAX strategy, well, good luck with that…

  6. Chicago Chris says:

    Gotta say I was impressed with the LAX-BUF loads when I’ve taken it. Some of the passengers were Canadians or LA locals traveling to Canada or LA. Others local traffic looking for a nonstop to western NY.

    Out of 8 trips, one was completely full and the others about 70-80% full on a Wednesday. Probably beats having the aircraft RON in Buffalo.

    • Brian says:

      It also takes a lot of load of BUF-JFK-LAX. If 150 people are flying BUF-JFK every day just to go to LA, then launching BUF-LAX lowers costs and free up a slot pair in JFK.

  7. CZBB says:

    LAX-BUF is really LAX-Toronto-South (/StCahtherines/Hamilton). There’s about 5m Canadians within 2hrs of BUF

    By converting what would be an international flight into a domestic one, the Canadian traveller saves about $50 in American taxes levied on flights entering the USA.

  8. Tim Dunn says:

    The only surprise was that anyone expected low cost carriers to do anything except add service to the largest markets which are already well served.

    Some markets like Los Angeles will see much more service but all of the new service combined doesn’t add up to the level of service that AM and/or DL already have in the market. The reason why AM-DL pushed back before was because the DOT was demanding slot givebacks in some markets like JFK that exceeded the amount of service AM-DL operated. The reason they agreed to the revised terms is because AM-DL still have a large enough presence in the markets that low cost carriers are adding while also maintaining or growing their service in dozens of other markets.

    Joint ventures, including this one, aren’t about the local market. Carriers wouldn’t agree to a joint venture just to share their own market strength in a local market with another airline. Joint ventures are about creating a much larger, seamless market that extends well beyond the local markets that required divestiture.

    And let’s also remember that the only divestitures were at MEX and JFK but the JV is for AM-DL between Mexico and the US. Because of geographic positioning of both AM and DL’s home markets, AM helps DL expand its presence deep into Latin America far beyond Mexico while DL helps AM extend its network well beyond the US.

    And finally, let’s keep in mind that the DOT’s requirements mean that the carriers that had the greatest potential to challenge AM-DL were prohibited from participating in the slot bid process. Specifically, AA and UA were excluded because they are larger to/from Mexico than either AM or DL. B6 was excluded from JFK because it could fund JFK slots itself if it wanted to add JFK-MEX. In fact, because low cost carriers are adding service across the US through these slots, they will gain access to market where they will have a larger impact on DL’s US competitors than they will on AM-DL which gain ATI and a JV with each other while DL’s competitors simply gain a new competitor. UA gains a much more effective competitor to Latin America across town in Houston, Florida-Mexico in which AA is the largest carrier will have a much larger low cost carrier presence while everybody gains new competition in Los Angeles. The slot divestiture process makes it likely that there can be no other joint ventures formed between US and Mexican airlines which gives DL an advantage.

    Finally, the chances are very high that MEX does or will have additional slots that will not require the second round of divestitures from AM-DL but might not be at the times that were as generous as these slot awards even though they are still commercially viable.

    And beyond the joint venture and increased flights by low cost carriers, DL still is investing to own nearly half of AeroMexico which gives them access to the revenue that is not part of the JV and significant participation in the way AM runs its business, just as is happening with Virgin Atlantic.

  9. Eric Morris says:

    Open skies but closed borders? The funniest thing I notice is the Mexican version of TSA is much less intrusive than the nitwits here in the “Land of the Free”.

  10. David sf easybay says:

    Is there really that much traffic between LAX and MEX for all those flights?

    • Tim Dunn says:

      There are usually casualties when the government gets in the way of the free enterprise system, in this case creating a mob rush for market access that is likely not supported by real demand, certainly not to the cities that the carriers chose.

    • Anthony says:

      Well, MEX is the largest city in North America by population, LAX is third largest.

  11. Zack Rules says:

    Cranky, 40% of Buffalo’s traffic is Canadian. For many Canadians, Buffalo is just as convenient with easier/cheaper parking and far cheaper flights. At the same time, many Western New Yorkers use Toronto to go international long haul, avoiding a stop at a hub. Plus, the city of Buffalo itself is slowly bouncing back so local demand is better than one might expect.

    LAX-MEX has a lot of traffic, some 700,000 per year or LAX’s eighth largest international market. But David sf easybay is right, there are some 13 daily flights including 4 on LCCs. Adding 5 flights will push prices down but I imagine the demand is still fairly high there.

  12. James S says:

    My guess is there was less urgency here because the slot situation at MEX is not infinite. A new replacement airport is under construction and will be open by 2024, if I’m not mistaken.

    This isn’t LGA or DCA or SFO where expansion will simply never happen and it’s worth fighting tooth and nail to get whatever you can. In a few years, MEX will be an open airport, so I’d venture that this round was more about solidifying immediate competitive advantage (important to Alaska and Volaris) or re-timing horrifically bad flights (Southwest and JetBlue) – hence the lower-than-expected interest.

    • Tim Dunn says:

      those are very good points… but the DOT’s order had nothing to do with making a determination that the market needed more capacity – just that it needed more low cost carrier capacity to try to balance out the increased size that AM-DL would have with the JV. Since they can’t – or don’t – strip slots from existing services, they just tell carriers that they have to fork over slots which are used to increase service.
      The size of the market is immaterial. The government’s efforts to try to level the playing field – which perhaps they very well should do in order to approve joint ventures throws capacity into the market which isn’t otherwise what it would have added. Low cost carriers aren’t about the miss the opportunity so they suck up the poor economics just to make sure they don’t miss out until the new airport opens.

      This is the same thing that happened with Cuba… the difference being that Mexico is an established market w/ lots of real trade and tourism flows already in place

  13. Alberto J Quintero says:

    B6 got one flight at day leaving mco & fll with this 4 slot would the mean another flight will be added plus exiting one change to better time?

    • Alberto – JetBlue does 10x a week from Orlando and one daily from Ft Lauderdale. So yes, this be growth for them on top of what they have today.

  14. Anthony says:

    A bit off-topic, but I wonder what Alaska Air’s route map will look like a couple of years from now…

  15. Anthony says:

    (show = shown)

  16. Ryan says:

    Is it possible to find profitability metrics somewhere for JetBlue on the Buf–LAX flight?

  17. James says:

    CF,

    There are a few factual mistakes in your post.

    First, you really should go read the DOT history behind the AM-DL case and the conditions set regarding awarding the slots being divested.

    For example, Interjet very much wanted MEX slots and argued as such, but they were not one of the carriers allowed to participate as they are already the second largest slot holder at MEX. Interjet is considered an incumbent, not a new entrant or limited competitor. So your point “it didn’t want any”, is far from the case.
    Same goes for JetBlue at JFK, and why they could not request slots for a JFK-MEX route either.

    The DOT basically prequalified and named which competitors could apply for the divested slots at MEX and JFK as part of larger pleadings in the AM-DL JV case. Feel free to go back and read.

    Thank you for your attention.

    • CF says:

      James – Thanks for this. Not sure how I missed it. I was well aware that certain airlines were excluded from the process, but I somehow missed that Interjet wasn’t allowed to do Mexico City. I’ve updated the post.

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