Friday, December 18, 2015

U.S. and Mexico Agree to Liberal Air-Service Treaty: Deal still requires ratification by Mexican Senate

The Wall Street Journal
Updated Dec. 18, 2015 6:53 p.m. ET

The U.S. and Mexico reached a liberal air treaty that would clear the way for airlines on both sides of the border to set their own prices and fly any routes they choose between the two nations with unlimited frequency.

The treaty, signed Friday by Transportation ministers from the two countries after two years of negotiations, still must be ratified by the Mexican senate. Officials from both nations said that if implemented it would increase traffic and enhance competition, benefitting fliers.

The accord “lays the groundwork to take advantage to the maximum of the boom in the airline industry happening in both countries,” said Gerardo Ruiz Esparza, Mexico’s transportation and communications minister. The treaty encourages code-sharing among U.S. and Mexican carriers and would boost the overall number of fliers between the nations, Mr. Ruiz Esparza said.

Thomas Engle, U.S. State Department deputy assistant secretary for transportation affairs, said the agreement eliminates rules that limited service to just two or three airlines from each country on about 30 cross-border routes. The enhanced competition “should help keep fares affordable,” Mr. Engle said.

Mexico was one of the largest countries with which the U.S. lacked a modernized air accord. Others include Russia and China. The U.S. currently has 118 so-called “Open Skies” air treaties with foreign governments. Although U.S. officials said the Mexico accord doesn’t follow that model, they said it removes all the barriers in the current, restrictive U.S.-Mexico agreement.

The treaty wouldn’t eliminate all hurdles. The main airport in Mexico City, Benito Ju├írez International Airport, is congested and airlines must have slots—take-off and landing appointments—to access that facility. Mr. Engle said the rights in the new treaty allow an unlimited number of carriers to apply to serve routes, but he acknowledged that airport requires slots, as do a few in the U.S., making them difficult to breach for new entrants.

Still, U.S. carriers that serve Mexico, including United Continental Holdings Inc. and JetBlue Airways Corp., applauded the tentative treaty. American Airlines Group Inc., the leading U.S. carrier to Latin America, said it anticipates improving service to Mexico once the new accord is in place.

Delta Air Lines Inc. said it expects expanded opportunities along with its partner Grupo Aeromexico SAB, Mexico’s flag airline. Delta, which has had a code-sharing agreement with Aeromexico since 1994, currently owns or has options for about 17% of the Mexican carrier, and last month said it intends to increase that stake to 49%.

Delta and Aeromexico in March applied for U.S. government permission for antitrust immunity so they could operate a tight joint venture in which they would share revenue and jointly set schedules and prices. That application is still being reviewed, said Susan Kurland, the U.S. Transportation Department’s assistant secretary for aviation and international affairs.

Top executives from major Mexican airlines attended the signing ceremony at the Mexican Embassy in Washington, D.C.

Volaris Chief Executive Enrique Beltranena said in an interview that he expects the Mexican Senate to ratify the agreement when legislators take up the matter in February. He said the treaty opens up two interesting routes that Volaris will take a look at: Mexico City to New York and Mexico City to Houston. Volaris currently has 21 U.S. destinations.

Aeromexico praised the agreement in newspaper ads Friday, saying it would allow Mexican airlines to form alliances with U.S. counterparts like its proposed one with Delta that would “improve service and lower prices.”

Aeromexico flies to 17 U.S. cities. Together with Delta, it claimed nearly a quarter of U.S.-Mexico air passengers in the year’s first eight months, according to Mexico’s civil aviation agency.

Rivals complained this fall that a deeper Aeromexico-Delta alliance would seal the Mexican carrier’s dominance in the cross border market. One carrier, Interjet, pulled out of the national airlines chamber in October to protest its supposed bias in favor Aeromexico.

Interjet said it considers the accord “very positive and necessary given the transformations and needs of the current market.”

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