A diplomatic dispute between the U.S. and Mexico has ensnared the Delta-Aeromexico joint venture and prevented a proposed antitrust alliance between discount carriers Allegiant and Viva Aerobus.

Some analysts are joining the affected airlines in questioning the tactic adopted by the U.S. Department of Transportation and suggesting it could hurt consumers.

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“I don’t know, frankly, what the U.S. government expects to signal with this,” said Carlos Ozores, vice president of ICF, a global aviation consultancy.

The Department of Transportation issued an interim order in January denying Delta and Aeromexico’s request for an extension of antitrust immunity, which allows carriers to jointly schedule, market and operate flights between the U.S. and Mexico. If the decision stands, carriers will have to end the alliance by the end of October. Both airlines have filed a formal objection and are awaiting a final order.

As of last July, the Ministry of Transport also suspended consideration of the application for antitrust immunity for Allegiant and Viva Aerobus.

The two decisions of the Ministry of Transport are motivated by the measures taken by the Mexican government under the presidency of Andres Manuel Lopez Obrador regarding commercial aviation in Mexico City.

In 2022, the Mexican government reduced the number of hourly flight operations allowed at the city’s main airport, Benito Juarez, from 61 to 52 and further reduced it to 43 in early January.

The actions are part of the Lopez Obrador administration’s drive to increase services at the new, military-run Felipe Angeles Airport, which the president commissioned after halting construction of what was supposed to be a $13 billion Mexico City airport, shortly after taking office in 2018.

The Department of Transportation said in its January order that capacity reductions at Benito Juarez violated the U.S.-Mexico open-air air transport agreement. Compliance with the agreement is a necessary condition for any partnership between a U.S. and Mexican airline to enjoy antitrust immunity, the ministry said.

In their official responses, Delta, Aeromexico, Allegiant, and Viva Aerobus stated that DOT’s actions constituted an excess that was detrimental to consumers. Delta urged the Ministry of Transportation to continue consultations with Mexico and consider measures that specifically punish Mexico, such as restricting Mexican airlines’ operations to and from the United States.

What’s at stake for flyers?

Allegiant and Viva Aerobus, meanwhile, say Benito Juarez would be involved in just 6 percent of the alliance’s 92 routes that carriers plan to launch in the first two years of their partnership.

In a regulatory filing, the carriers wrote that not proposing an alliance, which “met the public interest test and promises innovation and increased price competition, represents a step backwards from DOT’s historical encouragement of such developments.” The carriers added that doing so on a single airport dispute “is not only disproportionate, but probably unprecedented in the context of a market that already benefits from open access.”

Ozores, along with Brett Snyder, author of the blog Cranky Flier, agreed that the Allegiant-Viva Aerobus joint venture would have clear benefits for consumers: Allegiant doesn’t fly to Mexico, so the partnership wouldn’t eliminate them as competitors on any route. And by combining services, carriers could deploy their combined fleet to offer low-cost alternatives to larger competitors.

The overall benefits of the Delta-Aeromexico partnership for consumers are less clear.

Delta stated that the elimination of the joint venture would jeopardize 23 daily cross-border frequencies. But the partnership has not resulted in a substantial increase in capacity between the U.S. and Mexico for both carriers since its launch in 2017. Since 2015, airlines have increased their combined number of cross-border seats by just 3 percent, compared to a 42 percent increase market-wide, according to an Ozores analysis of OAG’s flight schedule data.

Still, there would be some impact. Snyder cited Aeromexico’s service between Boston and Mexico City, which is scheduled to launch on March 21, as an example of a route that could be affected if the DOT terminates the Delta-Aeromexico joint venture. The Mexican carrier is reportedly relying heavily on Delta, which has a hub in Boston, to sell the flight. In the absence of a share of the company’s profits, Delta would have less incentive to do so, even if it continues to share codes on the road.

“I think they’re really trying to push Mexico to deliver on its promises,” Snyder said of DOT. “But I don’t think Mexico will give in.”

Ending the alliance, he added, won’t help U.S. consumers. Ozores agreed, saying that strengthening the joint venture will not hurt Lopez Obrador. “But I don’t endorse any kind of punishment,” he added, “because I think at the end of the day, you’re really hurting consumers.”

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