US opens Delta/Aeromexico New York and Mexico City remedy slot reallocation process

The US Department of Transportation (DOT) has formally instituted a Slot Assignment Proceeding to allocate the 28 slot pairs at New York’s John F Kennedy International Airport and Mexico City’s Aeropuerto Internacional Benito Juárez which it has required Delta Air Lines and Aeromexico to relinquish as part of the antitrust immunity conditions set forth for their transborder business joint venture.

These, it says in formal documentation, will be provided exclusively to low-cost carriers as it acknowledges that these operators exert the greatest competitive impact when entering slot-constrained markets. As such the likes of Alaska Airlines, Allegiant Air, Frontier Airlines, Hawaiian Airlines, Southwest Airlines, Spirit Airlines, Sun Country Airlines, Virgin America, VivaAerobus and Volaris will be eligible for the slots, with JetBlue also permitted rights in Mexico City and Interjet in New York.

In December 2016, the US DOT granted conditional antitrust immunity to the proposed alliance agreement between Delta and Aeromexico subject to the two carriers agreeing to meet stringent conditions for DOT approval. The antitrust immunity allows Delta and Aeromexico to essentially operate as one company on cross-border flights by jointly setting fares, sharing revenues, and aligning flight schedules to ensure more travellers can make flight connections. The antitrust immunity is for a five-year term only, although subject to application for renewal.

However, in order to maintain level competition, the DOT’s order requires Delta and Aeromexico to give up 24 slot pairs in Mexico City and four slot pairs in New York. Under its divestiture timetable these slots will be allocated under a two phase process.

The first will make 14 Mexico City and two New York slot pairs available and “transferred as soon as practicable” for operation during the summer 2017 schedule. The second tranche of ten Mexico City and two New York slots will be allocated once LCCs have demonstrate that they have exhausted reasonable efforts to obtain slots through Mexico City’s own slot allocation procedures. This will all be completed ahead of summer 2018.

The DOT also noted that it would give preference for the four relinquished New York slots to any LCC applications to serve Mexico City directly, while its own remedy process will meet the ruling from Mexico’s Anti-monopoly Commission (COFECE), for Delta and Aeromexico to divest eight slots at Mexico City. Additionally, in order to mitigate the impact on the alliance partners, only two out of the four slots at New York will be divested during the peak hours between 15:00 and 20:59.

The applicants have until January 23, 2017 to submit proposals to the DOT including details such as: business plans for the transborder routes, how many slots they are requesting, at which times they want to offer the service, when and how often they plan to offer the service, and which kind of aircraft they will use on the route. The DOT says it will then rule on the applications by May 17, 2017.

“In selecting among the proposals, the Department will consider which applicant or applicants will be most likely to offer and maintain service that will best meet the objective of the divestiture. This will include introducing competition and price discipline in the US – Mexico City and New York –Mexico City markets,” the DOT said in its formal correspondence.

Analysis of schedule data from intelligence provider OAG shows that Aeromexico and Delta had a combined 27.8 per cent share of seat capacity out of John F Kennedy International Airport last summer and a 42.2 per cent share at Aeropuerto Internacional Benito Juárez. The two airlines are the largest individual operators at the airports in their home markets.