Background on Aeroméxico-Delta Partnership
The US Department of Transportation (DOT) recently decided to terminate the antitrust immunity enjoyed by the Aeroméxico-Delta alliance within the United States. This partnership was previously examined by Mexico’s Federal Competition Commission (Cofece) in 2016 as a joint coordination agreement for the comprehensive integration of air transport operations between Mexican and US airlines (case number CNT-050-2015).
Key Aspects of the Aeroméxico-Delta Agreement
- Revenue and cost-sharing scheme
- Joint route, frequency, schedule, and capacity planning
- Coordinated pricing on transboundary routes
- Integrated marketing strategies
- Airport slot management, particularly relevant at Mexico City International Airport (AICM) which has been saturated for years
- Integration of loyalty programs for mill interchangeability and cross-benefit management
- Restrictions on independent competition in protected markets and unilateral decisions on pricing, routes, or capacity
Cofece’s Conditions for Approval
The Mexican competition authority approved the merger, subject to several remedies aimed at addressing concerns and preserving competition. These included:
- Permanent and irrevocable waiver of specific pairs of slots at AICM during peak hours
- Elimination of duplicate route designations for transboundary operations
DOT’s Reasons for Termination
- Mexican Government’s Distortion of Competition: The DOT identified that the Mexican government has systematically distorted competition, violating the existing bilateral air transport agreement since 2015. Specifically, the government has:
- Arbitrarily confiscated US airline slots at AICM
- Prohibited exclusive cargo operations in the same airport
- Implemented a slot allocation regime that fails to meet international standards
- Demonstrated the ability to alter aeronautical operations and long-term commercial planning through arbitrary actions
- Exacerbation of Anticompetitive Effects: The airline agreement would have amplified the anticompetitive consequences of the Mexican government’s actions, creating unfair competitive advantages; harming related parties including consumers; and potentially affecting markets beyond those involving AICM.
- Market Concentration, Barriers to Entry, Reduced Connectivity, and Focus on High-Value Direct Traffic Markets: The DOT concluded that there are market circumstances unfavorable to competition, thus rendering the agreement’s continuation unjustified.
Implications of the DOT Decision
The termination of antitrust immunity does not prevent airlines from maintaining certain collaboration schemes in code-share agreements, frequent traveler programs, and promotional activities. Moreover, Delta’s equity stake in Aeroméxico remains unaffected. However, airlines now face challenges in adjusting operations and disentangling operational ties within a tight 4-month window.
This regulatory response by the US DOT reflects on Mexico’s recent aviation policy and serves as a reminder that antitrust immunities in US transportation are temporary privileges subject to scrutiny, contingent on maintaining competitive markets. These conditions can impact Mexican markets.
Key Questions and Answers
- What was the Aeroméxico-Delta alliance? It was a partnership between Mexican airline Aeroméxico and US-based Delta, which allowed for comprehensive integration of air transport operations between the two countries.
- Why did the DOT terminate the alliance? The DOT identified that the Mexican government’s actions have systematically distorted competition, violating existing air transport agreements. The alliance would have further exacerbated these anticompetitive effects.
- What does the termination mean for airlines? Airlines can still collaborate through code-share agreements, frequent traveler programs, and promotional activities. However, they must now adapt to new operational realities within a short timeframe.
- How does this decision impact Mexican markets? The termination serves as a reminder that antitrust immunities in transportation are temporary privileges subject to scrutiny, contingent on maintaining competitive markets. These conditions can impact Mexican markets.
