U.S.-Mexico dispute creates headache for Delta

Joint venture between Atlanta-based airline, Aeromexico in doubt.

A beef between the U.S. government and Mexico over actions the Mexican government has taken with its airports has turned into a major headache for Atlanta-based Delta Air Lines.

In recent days, the U.S. Department of Transportation has thrown into doubt an antitrust-immune joint venture between Delta and partner airline Aeromexico, not because of anything Delta did, but because of heartburn U.S. officials have over actions taken by their Mexican aviation counterparts.

The DOT granted antitrust immunity for the Delta-Aeromexico alliance in 2016, to allow the airlines to coordinate on planning flights, pricing and sales for five years, along with frequent flier program partnerships. The time period was extended, and the joint venture has continued as Delta and Aeromexico’s application for renewal has been pending.

These cross-border tie-ups are more powerful than so-called code sharing agreements that many airlines, including Delta, have with one another. They allow airlines to work together to plan flight schedules and prices, with the goal of offering more connections for passengers to connect to more destinations.

Last October, Delta and Aeromexico announced plans for new routes between the U.S. and Mexico in 2024, including Aeromexico flights from Atlanta to Monterrey, Bajio, Queretaro, Merida and Guadalajara.

But on Jan. 26, the DOT issued an order tentatively dismissing the application by Delta and Aeromexico to renew the antitrust immunity for their joint venture.

Delta and Aeromexico can continue as code-share partners, but if DOT forces the airlines to end their antitrust-immunized joint venture, it would reduce the level of cooperation and potentially limit the growth of the two carriers in the U.S.-Mexico market.

Delta called it an “unprecedented regulatory overreach,” and said its joint venture with Aeromexico “has been critical to connecting communities and businesses in both countries.”

Airport changes

The idea behind a joint venture with antitrust immunity is that allowing two partner airlines to cooperate can improve service offerings for travelers. It is generally permitted in international markets only when there are so-called “Open Skies” agreements that liberalize restrictions on service between the countries to deregulate airline competition.

Delta has similar arrangements with Air France-KLM and Virgin Atlantic, as well as Korean Air and LATAM.

The DOT said a fully liberalized aviation agreement is a “necessary precondition” for the continuation of a joint venture with antitrust immunity. It said “recent actions taken by the Government of Mexico have in effect removed the necessary precondition.”

Some problems date to 2021 when the FAA downgraded Mexico’s aviation safety rating, saying the country did not meet international aviation safety standards. That prohibited Mexican airlines from adding more service or routes to the United States. It also prohibited U.S. airlines from marketing and selling tickets on Mexican-operated flights, requiring Delta to remove its code from Aeromexico flights.

More than two years later, in September 2023, the FAA reinstated Mexico’s safety rating.

The Associated Press reported last year Mexico’s armed forces were taking control of Mexico City Benito Juarez International Airport (MEX), after building an airport run by the military outside Mexico City, among other moves. In December, Mexican President Andres Manuel Lopez Obrador launched a state-run airline led by the military.

The DOT in its order voiced “uncertainty of how the market would transform under the new regime” and concerns about a lack of transparency in how flying rights are allocated.

DOT raised other concerns, including about the prohibition of cargo flights to Mexico City International and the shift of such operations to other airports. U.S. regulators also said flight capacity at Mexico City International has been reduced “to the detriment of both current air carriers and potential new entrants.”

The DOT said the Mexican government reduced flight capacity based on the need to renovate Mexico City Airport, yet “recently conceded that no such construction plans exist.”

“Actions taken by the Mexican government regarding operations at MEX have been raised by the U.S. Government with counterparts at the highest levels within the Government of Mexico in formal consultations as being fundamentally out of compliance with the existing bilateral air service agreement and international norms governing capacity management at airports,” the DOT said.

‘Deeply disappointed’

The Delta-Aeromexico decision is tentative, meaning objections and comments are allowed before a final order is issued. And, the DOT proposes to end the antitrust immunity Oct. 26, to “allow for an orderly wind down of the immunized joint venture.”

Delta said it is “deeply disappointed” by DOT’s effort to end its joint venture with Aeromexico.

“This unprecedented, regulatory overreach by the DOT will cause significant harm to consumers traveling between the U.S. and Mexico,” Delta said. “Delta will take all necessary steps to protect the millions of consumers that have benefited from its strategic partnership to ensure the continued delivery of important benefits to consumers in the U.S.-Mexico market.”

On Monday, Delta and Aeromexico filed a motion requesting an extension of time to respond to the DOT’s tentative order in the coming weeks.

MARCO UGARTE/AP 2022 A venture between Aeromexico and Delta is in doubt because the U.S. Department of Transportation has voiced concerns about changes in Mexican aviation under its new state regime. Delta called it regulatory overreach, and with Aeromexico, requested an extension.