DALLAS - Mexican President Andrés Manuel López Obrador (AMLO) stated on Tuesday that he wanted to allow foreign airlines to serve domestic routes in Mexico to increase competition and lower prices.

Mexican law currently prohibits foreign airlines from operating solely domestic flights. For example, an American airline can currently fly from New York to Cancun, but not from Cancun to Mexico City.

If the plan goes through, the most powerful airlines in the world, especially those north of the border, stand to benefit from this opportunity. Mexican cities are among the top destinations for U.S. citizens, with many moving to the neighboring country.

Cabotage Advantage

"We open the country to competition...that is a democracy," Obrador said. The president's plan is therefore to allow cabotage—the right to operate sea, air, or other transport services within a particular territory—so that airfare prices fall as competition increases.

However, an international airline that is currently prohibited from collecting passengers at a Mexican airport and transporting them to another domestic airport could establish internal routes, competing with domestic airlines.

“Let foreign airlines come in, from Europe and the United States, so that they can operate flights inside the country.”

AMLO

The news comes on the heels of Grupo Aeromexico, the parent of Mexican carrier Aeromexico (AM), announcing a return to profitability in the third quarter of 2022. According to AM, around 47% of its quarterly revenue came from international passenger tickets. Approximately 32% came from domestic operations.

The president also stated that he wanted more planes to fly into the new airport he decided to build 30 miles away from the capital shortly after taking office.

Felipe Angeles International Airport

Mexico City's new international hub, Felipe Angeles International Airport (NLU), is located in Santa Lucia, in the municipality of Zumpango, State of Mexico. The airport has been tasked with relieving pressure on the nearby Mexico City International Airport (MEX).

There are 28 contact points with direct dialing, 5 contact points with platform dialing, and 12 remote contact points. making a total of 45 boarding positions. It currently has two civil runways for takeoff and landing (2L/22R and 4C/22C).

The new airport may indeed host a number of flights that were originally scheduled to land at the other airport, with Mexican carriers among the first to announce the changes.

It is the largest airport in the state and the second-largest airport in the country after Cancun International Airport (CUN).

Likewise, he now wishes to establish a traditional Mexican airline managed by the military. According to AMLO, the military-run commercial airline could take off in about a year and operate a fleet of 10 leased aircraft, including the presidential Boeing 787 jet.

Competition vs Alliances

Last week, the Federal Economic Competition Commission of Mexico (COFECE) unconditionally authorized the Commercial Alliance Agreement between Allegiant Air (G4) and VivaAerobús (VB).

The agreement is the first of its kind between two ultra-low-cost carriers (ULCC) in the Americas. The alliance is set to provide air transportation between the U.S. and Mexico and will focus on destinations that do not offer nonstop service.

The commercial alliance will also allow the carriers to establish cross-functionality with respect to their loyalty programs, code sharing, sales systems, and route networks.

How AMLO's intentions fit into the ULCCs' plans is yet to be seen, but it all makes for an interesting conversation as to what the future holds for the traditional aviation market in the country.

Sarah Hanan, Commercial Director from airline connectivity tech provider Dohop, comments, “The last week of September saw 1.4m weekly air seats scheduled in the domestic market as per OAG schedules and 97% of that was in the hands of three carriers – with Mexico City featuring in 13 of the top 20 routes. Competition lowers prices, shakes up monopoly or duopoly on routes, and generally improves service levels and punctuality."

The director added, "We would expect the likes of Spirit, Jet Blue, and Southwest to further develop their footprint in Mexico and that this extra capacity would create more connectivity opportunities to/from Mexico by connecting secondary cities in Mexico to the rest of the world – again good news for Mexican travelers, those wishing to visit Mexico, and indeed Mexico’s quite mature tourism economy."

Mexican Market

Mexico's commercial aviation market is dominated by two LCCs, Volaris (Y4) and V4, as well as the aforementioned Grupo Aeromexico, the country's sole full-service carrier.

During the pandemic, Y4 and G4 were expected to grow in 2021, while Grupo Aeromexico was expected to recover. According to Mexico's Federal Agency of Civil Aviation (AFAC), these airlines are the country's main competitors, carrying a total of 54 million passengers in 2021.

Meanwhile, smaller competitors Aeromar (VW), Magnicharters (UJ), Transportes Aéreos Regionales, and Aéreo Calafia (A7) have niche markets and only operate within the country. According to the AFAC, these airlines carried 1.4 million passengers in 2021.

Would this international opening of Mexican airspace benefit customers and domestic airlines alike? Would more domestic competition bring more agreements similar to the G4-VB alliance?

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Featured image: Cancun International Airport via Facebook. Photo: Michal Mendyk/Airways