Mexican carriers battle aviation liberalization

Mexican air carriers have expressed their opposition to the government’s market liberalization plans for Mexican air services. Industry groups argue that “grave and historic” damage could result if the Mexican government liberalizes access to the domestic aviation market.

Historically, cabotage regulations have been enacted to protect domestic industries, but globalization has led some countries and regions to reconsider this practice and allow foreign companies to compete in carrying domestic passengers and cargo. With six air carriers and more than 200 destinations, the National Chamber for Air Transport (Canaero) does not believe that additional competition is warranted in the Mexican domestic market.

The successful liberalization of domestic markets in Europe and Australia/New Zealand has been used to support the project in Mexico, along with a detailed study conducted in partnership with the Mexican government and industry.

Foreign competition

Industry representatives argue that if foreign carriers were to enter the Mexican market, they would likely undercut Mexican carriers, initially, and then raise rates once they have established market share. Concerns have been raised that there are a limited number of routes in the Mexican domestic market that are profitable, and foreign competition could negatively impact domestic carriers' profitability on these routes, increasing the risk of bankruptcy.

Mexico’s domestic air capacity is highly concentrated in large cities, such as Mexico City and Guadalajara, as well as popular vacation destinations like Cancun and Puerto Vallarta. If market liberalization regulations are enacted, these cities will likely be most affected.

In May 2021, Mexico was downgraded by the Federal Aviation Administration (FAA) to Category 2 due to audits indicating non-compliance with ICAO (International Civil Aviation Organization) safety guidelines. There is still no time frame for reinstating Mexico to a Category 1 position.

However, new flights by AeroMexico have begun operating from Mexico City’s Felipe Angeles Airport into Houston. The FAA has stated that these flights do not reflect in any way on the process of reinstating Mexico to Category 1, and Canaero, the Mexican aviation industry group, has also stated that the two issues are not related.

Mexico has faced numerous safety problems, most recently in 2022 when fiber optic cable theft caused disturbances at Mexico City International Airport, aka Benito Juarez International Airport (MEX), along with other incidents, including runway incursions and cyberthreats. The FAA has stated that it will continue to work with Mexican authorities to develop a pathway toward improving safety and reinstating Category 1 status.

Reciprocity needed for liberalization

MEX has suffered from capacity restrictions due to limited opportunities for expansion in addition to structural problems with terminals. Meanwhile, Felipe Angeles Airport (NLU) started as a project to help alleviate congestion at MEX for cargo and low-cost carriers. It has been a focal point of President Andres Manuel Lopez Obrador ’s administration, and the effort to open domestic markets is seen as an effort to boost traffic to the new facility.

It is not clear how the liberalization of domestic routes in Mexico would impact cargo markets. Mexican airlines stress that reciprocity would be needed in the event of liberalization.

The transfer of freighter operations from (MEX) to the designated freighter airport, NLU, has begun. DHL and China Southern Airlines are among the first operators to offer services at AIFA. The move comes after the Mexican government issued a decree that all freighter operations must shift from MEX due to congestion.

The deadline for migration is July 7. While some airlines, such as Lufthansa Cargo , are still considering the move, others have been reluctant due to AIFA's lack of connectivity on the passenger side.

Examining MEX’s capacity for the month of May 2023 supports industry concerns about the limited number of profitable domestic routes in Mexico. The prime destination from MEX is Guadalajara (GDL) at 94% of capacity. Mexican cargo airlines or carriers with cargo operations, such as AeroUnion and AeroMexico would face additional competition for this domestic route (see Figure 1 ).

It wouldn’t only be Mexican carriers facing competition, but other foreign operators, such as Lufthansa, Cathay Pacific and Air Canada, would face additional competition for the Mexico City to Guadalajara route. Figure 1 - Scheduled Domestic Cargo Capacity with origin in MEX (May 2023) Source: Cargo Facts Consulting Analysis of CH aviation Fleet & Schedule Database

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