DL and Aeromexico file ATI/JV application

[WorldTraveler]

http://finance.yahoo.com/news/aeromexico-delta-file-antitrust-immunity-215300283.html

"The application marks a significant step in the creation of a $1.5 billion joint venture that, if approved, will allow Delta and Aeromexico to operate more effectively on routes between the U.S. and Mexico for the benefit of its customers. Also, Delta and Aeromexico will seek to expand opportunities to collocate and invest in airport facilities by improving gates and lounges. Additionally the airlines will increase joint sales and marketing initiatives.


- I believe the future will reveal this will be one the most significant JV that has been formed among US airlines.

 

[FrugalFlyerv2.0]

- I believe the future will reveal this will be one the most significant JV that has been formed among US airlines.

 
Why do you think this JV is more significant than DL's JV with AFKL and/or DL's ownership of VS?

 

[WorldTraveler]

purely because of the size of the US-Mexico market in passengers compared to other JVs.

The US is the largest foreign destination for Mexico and the 2nd largest destination from the US (behind Canada).

however, Canada offers few opportunities to carry beyond traffic because of the highly concentrated.

The US-Mexico market is more than 1.5 times larger than the US-UK market.

obviously other JVs involve more revenue but AM-DL has the potential to connect networks better than other JVs on top of large local markets.

The AM-DL application to the DOT is here.
http://www.regulations.gov/#!documentDetail;D=DOT-OST-2015-0070-0001

several interesting notes....

DL calls the AM-DL agreement a JCA (joint comprehensive agreement) instead of a joint venture.... part of the reason appears to be that each carrier will share the incremental revenues that the JCA creates but will not share all transborder revenues.

DL says it will focus on colocation at JFK and LAX and create a hub at LAX.

DL indicates the JCA will be a larger force in Texas and could start flying regional jets between Texas and secondary markets in Mexico.

AM and DL will restructure their network as soon 90 days after the agreement is approved with aircraft upgrades at key hubs.

AM has a lower percentage of slots at MEX than other foreign carriers (mostly in Europe) have at their hubs even those European carriers have JVs with US carriers.

 

[eolesen]

Why do you think this JV is more significant than DL's JV with AFKL and/or DL's ownership of VS?

I'd say geography. There's going to be significantly more volume because it's neighboring countries. It's a good preemptive strike to WN's presumed assault on Mexico.

The only thing I wonder about here is AM's long term stability. They were quite unwell cost-wise up until MX ceased operations, since they had essentially the same labor contracts and cost disadvantages MX did. I've never heard if AM's contracts were eventually restructured to be more competitive with Volaris and Interjet or if they just got dodged a bullet because their largest competitor ceased operations.

If they just dodged a bullet, it could get interesting once they're exposed to meaningful competition. VivaA, Volaris, and Interjet have nibbled at the edges, but AM hasn't really faced as much direct competition as they did while MX was still in business.

 

[WorldTraveler]

DL said nothing in its ATI/JCA application about WN.

DL's competitive focus based on their application involves AA and UA.

DL mentioned the Texas hubs which give AA and UA advantages to Mexico including the ability to use RJs.

The new US-Mexico air services treaty was heavily supported by AM and the reason it didn't happen sooner is because AM saw little value in an Open Skies agreement - or even a liberalized agreement - until AM got more out of the deal.

A JCA will provide benefits to both AM and DL and both support the JCA because of those opportunities.

 

[topDawg]

Yet another chance for DALPA to screw up JV scope. (duck) 

 

[eolesen]

Yet another chance for DALPA to screw up JV scope. (duck)

Maybe, but there's also the chance DL metal might be a cheaper alternative than AM metal.

 

[FrugalFlyerv2.0]

DL said nothing in its ATI/JCA application about WN.

DL's competitive focus based on their application involves AA and UA.

DL mentioned the Texas hubs which give AA and UA advantages to Mexico including the ability to use RJs.

The new US-Mexico air services treaty was heavily supported by AM and the reason it didn't happen sooner is because AM saw little value in an Open Skies agreement - or even a liberalized agreement - until AM got more out of the deal.

A JCA will provide benefits to both AM and DL and both support the JCA because of those opportunities.

 
Did you expect DL/AM to state in their application that they need this JV approved because the LCCs (American and Mexican) could potentially be their biggest threat?  It isn't nice to diss LCC's while on the other hand trashing legacy carriers is still in style.
 
It'll be interesting to see how this JCA works out financially. IMHO, by far the larger benefit of the JCA belongs to AM.  DL might have been better to have purchased a stake in AM, if it ever was for sale, and kind of treat it as a DL Connection carrier. 

 

[topDawg]

 
Did you expect DL/AM to state in their application that they need this JV approved because the LCCs (American and Mexican) could potentially be their biggest threat?  It isn't nice to diss LCC's while on the other hand trashing legacy carriers is still in style.
 
It'll be interesting to see how this JCA works out financially. IMHO, by far the larger benefit of the JCA belongs to AM.  DL might have been better to have purchased a stake in AM, if it ever was for sale, and kind of treat it as a DL Connection carrier. 

Delta does own 4% of AM. 
And a part of Delta (Employee care fun? Pension?) owns another 5.1% 
 
 
Delta also owns some of GOL. 

 

[eolesen]

DL did purchase a stake in AM... back in 2012 or so. It's low to mid single digits, presumably because that's what Mexican law allows a single foreign entity to hold.

Maybe that cap will go up once Open Skies is in place, but that lack of ability to exert foreign control was likely one of the reasons AMR didn't try to inject cash into MX, and why they never were able to find investors in the estate afterward.

WN may not be in DL's application, but that's because WN hasn't really tipped their hand as to what they plan to be operating once the FIS at HOU is up and running.

I'd also expect to see either Interjet or Volaris announcing in some form of codewhoring or other partnership before 2016.

All in due time, I'm sure...

 

[WorldTraveler]

DL owns far less than what the US and Mexico allow.

there was talk that Citibank was going to sell its equity in AM to DL but I haven't heard if that happened.

Further, DL has a seat on the board of AM and G3 and VS so a huge equity stake is not necessary because DL is not out to control its partners but to devise strategies that benefit both airlines.

WN is simply not a large enough player in the US-Mexico market to focus on in a US government document.

DL can talk about WN's Mexico routes internally but it makes no sense to try to and forecast what other carriers will do, although DL did note that it is certain that AA will file for JFK-MEX service.

It is also very likely that the reason why DL hasn't mentioned WN is because DL and AM have every intention of being one of the carriers that use the HOU FIS.

LCCs or not is not the basis of the JCA.

the JCA is based on creating sufficient mass to compete with the two largest players - AA and UA.
 

Did you expect DL/AM to state in their application that they need this JV approved because the LCCs (American and Mexican) could potentially be their biggest threat? It isn't nice to diss LCC's while on the other hand trashing legacy carriers is still in style.

It'll be interesting to see how this JCA works out financially. IMHO, by far the larger benefit of the JCA belongs to AM. DL might have been better to have purchased a stake in AM, if it ever was for sale, and kind of treat it as a DL Connection carrier.

the general financial highlights of the JCA are highlighted in the application. It is not the same type of arrangement as with DL/VS or DL/AF/KL/AZ.

 

Yet another chance for DALPA to screw up JV scope. (duck)

 
AM is already a larger carrier than DL in the US-Mexico market so the ALPA protections will have to based on growth above the baseline, the same basis as the financial arrangements.

 

[700UW]

purely because of the size of the US-Mexico market in passengers compared to other JVs.

The US is the largest foreign destination for Mexico and the 2nd largest destination from the US (behind Canada).

however, Canada offers few opportunities to carry beyond traffic because of the highly concentrated.

The US-Mexico market is more than 1.5 times larger than the US-UK market.

obviously other JVs involve more revenue but AM-DL has the potential to connect networks better than other JVs on top of large local markets.

The AM-DL application to the DOT is here.
http://www.regulations.gov/#!documentDetail;D=DOT-OST-2015-0070-0001

several interesting notes....

DL calls the AM-DL agreement a JCA (joint comprehensive agreement) instead of a joint venture.... part of the reason appears to be that each carrier will share the incremental revenues that the JCA creates but will not share all transborder revenues.

DL says it will focus on colocation at JFK and LAX and create a hub at LAX.

DL indicates the JCA will be a larger force in Texas and could start flying regional jets between Texas and secondary markets in Mexico.

AM and DL will restructure their network as soon 90 days after the agreement is approved with aircraft upgrades at key hubs.

AM has a lower percentage of slots at MEX than other foreign carriers (mostly in Europe) have at their hubs even those European carriers have JVs with US carriers.

Sure doesnt look like an LAX Hub to me:
 

 

[WorldTraveler]

probably because you don't see what they will build.

They don't have to reveal every route that they will open.

 

[topDawg]

Sure doesnt look like an LAX Hub to me:
 

I guess you don't see all those lines coming from the dot that says "Los Angeles" 

 

[700UW]

Five lines doesnt make a hub.