Background on Key Players and Relevance
The recent fluctuations in US airline stocks on Wall Street are due to the Department of Transportation (DOT) threatening Mexico over flight restrictions. This situation has significant implications for airlines on both sides of the border, particularly Aeroméxico and Delta Air Lines.
Aeroméxico, Mexico’s second-largest airline, and Delta Air Lines have enjoyed antitrust immunity since 2015. This privilege allows them to coordinate routes and pricing, as well as share revenues and profits on joint venture flights between the two countries. However, this immunity is set to expire on October 25, as the DOT accuses Mexico of violating the 2015 Air Transport Agreement.
DOT’s Concerns and Actions
Sean Duffy, the US Transportation Secretary, has accused Mexico of not adhering to the 2015 Air Transport Agreement. He claims that Mexican practices, such as reducing airport slots at the Benito Juárez International Airport (AICM) in Mexico City and pressuring cargo airlines to move operations to the Felipe Ángeles International Airport (AIFA), have negatively affected US airlines.
Impact on Airline Stocks
On Monday, major US airlines experienced mixed stock performance following the DOT’s announcement:
- American Airlines: Down 1.52% to $12.32
- JetBlue: Down 1.13% to $4.36
- Republic Airlines: Down 0.35% to $36.88
- Delta Air Lines: Down 0.44% to $56.04
- Volaris (Mexican low-cost airline): Down 1.76% to 8.39 Mexican pesos
Meanwhile, Southwest Airlines and United Airlines saw gains:
- Southwest: Up 0.93% to $38.85
- United Airlines: Up 0.11% to $92.35
Key Questions and Answers
- What is the DOT’s concern regarding Mexican airlines? The DOT claims that Mexico is not adhering to the 2015 Air Transport Agreement by reducing airport slots at AICM and pressuring cargo airlines to move operations to AIFA.
- What will happen to Aeroméxico and Delta’s antitrust immunity? The immunity is set to expire on October 25, which will require Mexican airlines operating in the US to submit flight schedules for approval and cargo/charter operations to obtain prior authorization.
- How will this situation affect airline routes and jobs? If the alliance between Aeroméxico and Delta is broken, more than twenty routes will be affected, along with thousands of jobs and up to $800 million in bilateral economic benefits.
