DOT limits Delta-Aeromexico venture in tentative nod

An Aeromexico jet

Combined ShapeCaption
An Aeromexico jet

The government indicated Friday it will approve anti-trust immunity for a joint venture between Delta Air Lines and Aeromexico — if the two carriers give up some operating rights at New York’s Kennedy airport and in Mexico City.

Aeromexico is the largest airline in Mexico. In the proposed $1.5 billion joint venture, the two carriers would coordinate their flights, prices and sales for the U.S.-Mexico market, along with a frequent flier program alignment.

In its tentative approval of antitrust immunity on Friday, the U.S. Department of Transportation also said it would limit its approval to five years, after which the carriers could reapply.

Airline ventures involving anti-trust immunity have blossomed among several large global carriers, and Atlanta-based Delta already has such deals with Air France-KLM and Alitalia, Virgin Atlantic and Virgin Australia.

But the link-ups spur concerns about the effect on fares and competition.

The DOT said it examined competitive conditions in the Mexico City-to-JFK market, and proposes the carriers divest slots to low-cost and low-fare carriers for six new daily international flights from JFK and 24 from Mexico City. Slots are landing and takeoff rights awarded to carriers under a system aimed at controlling congestion.

“The Department tentatively finds these conditions are necessary to prevent harm to consumers resulting from the carriers’ dominant positions at [Mexico City’s airport] and JFK, and the inability of new entrant carriers to access slots at the airports,” the DOT said.

Delta said it is reviewing the DOT’s proposal.

DOT is taking comments through Nov. 18. After reviewing comments and replies, it would issue a final decision.

The Mexican Federal Economic Competition Commission earlier this year already said it was conditioning approval on a requirement that the carriers to hand over some slots at Mexico City’s airport to competitors.

Among the concerns were the possibility of reduced competition on cross-border flights “since Delta disciplines Aeromexico’s prices,” and that saturation at Mexico City’s airport limits competing airlines’ access, according to the Mexican government. Combined, that “could generate a price increase on the flights between Mexico and the United States.”

Delta and Aeromexico agreed to the Mexican government’s terms for the deal.

Delta and Aeromexico launched a code-share marketing deal in 1994 and have deepened ties in the past few years. Delta bought a $65 million stake in Aeromexico’s parent company in 2012, and last year announced a deal to boost its stake, along with options to buy more shares for a total of 49 percent of the company.

The two carriers in 2014 opened a jointly-operated maintenance, repair and overhaul center called TechOps Mexico near Queretaro International Airport.

Delta and Aeromexico last year applied for antitrust immunity for the joint venture.