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 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 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.
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.
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 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.
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.