Aeroméxico and Delta Joint Venture Forced to Unwind As Political Fight Escalates

Aeromexico, Delta, Government Regulation

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.

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14 comments on “Aeroméxico and Delta Joint Venture Forced to Unwind As Political Fight Escalates

  1. Delta and Aeromexico coordinating pricing sounds rather monopolistic. Yes, that means DL and AM make higher profit by being anti-competitive. Why are you so keen on it ?

    1. David – Meh, I?m a lot more high on the Allegiant/Viva deal than Delta/Aeromexico. But Delta/Aeromexico did allow them to start adding new routes, so it does expand service options, and there?s still a lot of competition. I feel bad for the airlines since they are caught in a war between politicians.

  2. I don’t know much about Mexican politics so this is probably a dumb question but why is AMLO so obsessed with forcing traffic to AIFA?

    What political benefit does anyone get from killing an airport project that was already in progress and would have alleviated MEX’s congestion problems?

    1. He saw the new (now abandoned) airport as a symbol of corruption, a symbol of the rottenness of the system that denied him the presidency in the past.

      It would be a big surprise if there wasn’t some corruption involved. But Mexico City desperately needs more airport capacity.

      He’d made it a symbol of everything he opposed, so, whether it was needed or not, it had to go. He proposed a useless alternative and is bound and determined to show that it’s a good one, reality be damned.

      History is full of politics forcing aviation outcomes that make no sense. An infamous one is that Ireland, for decades, forced flights to the US/Canada to depart from Shannon on the west coast of Ireland, rather than Dublin, where most people wanted to go.

      This was a very crude form of forcing economic development. It made no sense whatsoever, and meant that Aer Lingus had no chance to develop Dublin airport as a transAtlantic gateway. If you want to develop western Ireland, then spend the money to develop western Ireland, don’t force all transAtlantic visitors to Ireland to transit Shannon.

      It was finally relaxed in stages over the 1990s and 2000s – open skies between the US and EU meant that it had to go away.

      It never made a lick of sense, but it was a political sacred cow.

      1. There was zero evidence of corruption with the Texcoco airport project.

        Now Felipe Angeles on the other hand…

    2. I would start by checking his background before he ran for president. Something tells me the answer lies in that as corruption is quite rampant in Mexico. Americans think they know what political corruption is, but if they were to go to other countries, they would learn what it really looks like.

    3. Because Felipe Angeles is his project. Texcoco was the project of the Pena Nieto administration and was ideologically unacceptable to AMLO and his supporters. AMLO was elected on a platform of Total Change for Mexico, especially in terms of corruption. All he had to do was position Texcoco as a product of the previous administration’s rampant corruption and he gained acceptability for NLU.

    4. SEASFO – I agree with all the comments, but to make things worse, he made this a central theme in his campaign. It was held up as the prime example of how bad the previous regime was, so even when it became painfully clear that sticking with the new airport was by far the best option in every way, he just wouldn?t do it.

  3. Mexico is by no means the only place where politics trumps good sense in aviation policy.



    London protesters blocking a new runway at Heathrow

    Love Field


    Orange County

    Just to name a few.

    1. Did it suck that El Toro never became a thing? Yes

      Does it stuck the LaGuardia still exists or has a perimeter rule? Yes

      Is it annoying that Love Field still exists with an artificial gate cap? Yes

      Are the British idiots for not recognising the economic impact of aviation? Yes

      AMS flight caps and curfew suck too but with the CPH hub it isn’t a deal breaker.

      Now Mexico on the other hand, is just very infuriating. They had the chance to build a big new airport with all the huge positive economic benefits, but they blew it. They wasted billions on shutting down a new airport, then wasted billion on a new airport 3 hours away by car that no one wants to go to.

      Oh yeah and the current airport is still heavily congested. What a frustrating situation

  4. Good summary and analysis, CF. As you note, the US is pretty demanding about airport access in order to grant Open Skies. Japan, specifically HND, is a glaring exception.
    All of the list of domestic airports where there isn’t really equal and open access is a different issue because US carriers cannot cooperate with each other via JVs.

    And the real bottom line is that economics overcome political interference in business and that is true w/ aviation. Just as LGW become much less attractive to US airlines as LHR was opened to all airlines, US-HND flights continue to siphon off the best local Tokyo revenue – and UA confirmed that in its attempt first to move its IAH-NRT flight to HND and more recently to take HA’s nighttime HND slot and use it for GUM as a replacement for a NRT flight. The value of connecting traffic via Tokyo is diminished because of relatively recent US carrier access to HND.

    The same thing will happen in Mexico City. AM’s hub will become less attractive for connections and thus the AM-DL JV will be less valuable since JVs gain a great deal of their value from cooperating on connecting itineraries.

    The loss to DL might not be as great since they lived for months with being unable to put their code on AM’s flights so had to operate their own flights to MEX and could not connect passengers beyond MEX on AM-operated flights. AM and DL might have swapped some slots which may not be available this time but both will focus on their own networks and serving the local market and simple codesharing for connections.
    And it is possible that the Mexican election will change things but AM, DL and everyone else has to assume this will be the new normal.

    Finally, the DL-Latam JV is newer and is proving to provide much more potential than AM-DL in large part because AM-DL is becoming less about international connections beyond MEX because DL can either carry that traffic on its own metal to Central America (not part of the DL-LA JV) or to most of S. America on DL or LA metal as part of the JV.

    As for the whole idea of the AM-DL relationship harming consumers because it restricts competition, that ship sailed a long time ago as the US agreed to joint ventures and each of the big 3 operate multiple of them.

  5. On HND, most people don’t realize that one of the causes of the slots issue is the control of much of the airspace in that area by the presence of US Military base. In fact, the majority of the airspace in Tokyo is controlled by the US as a legacy of WW2. Hence why it is an exception to the open skies agreement – its actually the US, not Japan, too blame (and Japanese airlines also face the same slot limitations)

    1. While that is true, the Japanese make the decision about the percentage of slots that are allocated for international vs. domestic flights.
      Granted, Japanese airlines use some of the most dense widebody aircraft on its domestic flights but the US doesn’t tell the Japanese how to run their civil aviation.
      and given who their neighbors are, I am strongly betting the Japanese are not about to ask for smaller military air corridors around Tokyo

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