Delta / Aeromexico Joint Venture Deal Dead? DOT Concessions “Too High”

Back at the beginning of the month, the US DOT tentatively approved the joint venture between Delta and Aeromexico, allowing the carriers to coordinate pricing and schedules on flights between the US and Mexico. Approval did not come without some stipulations, including the proposed divestiture of 6 slots at JFK and 24 slots at Mexico City.

From a competitive perspective, the new JV market share isn’t that much larger than AA and UA. Aeromexico (13.5%) is the #3 US-Mexico carrier behind both American and United, while Delta is the #4 carrier (11.9%). The JV would account for 25.4% share with AA and UA each maintaining more than a 20% share.

It’s the airport slots however that appear to be the sticking point – Delta and Aeromexico together would account for almost 50% of the slots at Mexico City (MEX), preventing low-cost carriers in the US and Mexico from entering the airport with cheaper fares. The Motley Fool remarks on why the DOT terms are especially painful for the airlines:

Contrary to other recent slot divestitures, Delta and Aeromexico wouldn’t be compensated for giving up slots, because slots cannot be bought or sold at Mexico City’s airport. Mexican regulators would have allowed Delta and Aeromexico to give the eight slots to any other airline (or combination of airlines), the DOT wants to supervise the allocation of any slots they divest.

Obviously, if this occurred, it would be very beneficial for JetBlue and Volaris. Both carriers would be eligible to request slots in Mexico City, and Volaris would also be eligible to request slots at JFK Airport. Furthermore, both have expressed strong interest in adding flights between the U.S. and Mexico City if they can get more slots at reasonable times.

Even with the above stipulations, the DOT will only approve antitrust immunity for a period of five years. The airlines think the combined terms are “excessive and unprecedented”. Where do they go from here? The airlines will likely try to negotiate better terms or perhaps simply let the deal fall through and wait for a change in the political or competitive environment.

Full article from The Motley Fool here.

Delta-Aeromexico

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