Delta & Aeromexico File For Joint Venture

While the impact won’t be immediate for customers, Delta and Aeromexico have filed an application with the US Department of Transportation requesting antitrust immunity for a new joint venture on flights between the US and Mexico.

Delta

Via the Delta press release:

The application marks a significant step in the creation of a $1.5 billion joint venture that will allow Delta and Aeromexico to compete more effectively on routes between the U.S. and Mexico. The joint venture will provide more options for travelers in both countries, while enabling joint investments by the two airlines, further improving the customer experience.

Mexico is the most popular international destination for Delta customers, and our proposed joint venture will offer our customers more schedule and destination choices, whether traveling for business or pleasure,” said Ed Bastian, Delta’s President. “Approval of antitrust immunity will allow travelers to fully benefit from all the aspects of a future Delta-Aeromexico joint venture, including the combination of two complementary networks.”

“We are thrilled at this opportunity to further deepen our relationship with Delta. The potential to align our networks and scheduling means that we will be able to offer greater customer choice than we would have been able to offer individually,” said Andres Conesa, CEO of Grupo Aeromexico.

This is sort of brilliant, at least from the airlines’ perspectives. Joint ventures are always a double edged sword for consumers. On one hand they do “streamline” the experience somewhat in terms of reciprocal benefits, scheduling, etc. On the other hand, joint ventures ultimately reduce competition, which typically drives up fares.

In practice what will this joint venture look like? Delta claims:

Through the proposed joint venture, the airlines will offer an expanded network within Mexico and connections to U.S. business centers in Los Angeles and New York.  Aeromexico’s hubs – Mexico City, Monterrey, Guadalajara and Hermosillo – will give Delta customers greater access to cities throughout Mexico. Delta will provide Aeromexico with a broad North American network via Delta’s key hubs, including Atlanta, Detroit, Los Angeles, Minneapolis, New York, Salt Lake City and Seattle, and a strong marketing presence throughout the U.S.

This makes it sound as if the goal is simply to increase connectivity between the US and Mexico. While that’s perhaps the short term goal, something tells me there’s a lot more to this long term.

In my opinion Delta is the most “global” US legacy carrier, and in many ways American and United can’t really compete with their route network.

One area where Delta is quite weak is in Latin America, where American has a strong-hold. My guess is that long term this is part of a larger effort to ramp up operations in Latin America, as opposed to simply increasing connectivity between the US and Mexico.

Bottom line

While I’ve often criticized Delta SkyMiles (though I’d like to think I’m fair with them), operationally I have nothing but good things to say about the airline. Delta runs a better operation and has a better network strategy than American or United. I’m very curious to see what their strategy is with this joint venture.

What do you make of the potential joint venture between Aeromexico and Delta?

(Tip of the hat to John DELTA)

Comments

  1. The headline should read “Enjoy crappy AeroMexico service while earning worthless Delta SkyMiles!”

  2. You can’t say Delta wasn’t listening to it’s customers — We’ve been calling them SkyPesos for years. I guess they figured they might as well make good on the name.

  3. @Alex, Haha.

    Sounds like another stab at Alaska and their service to Mexican resort destinations.

  4. LOL glad someone made the SkyPesos joke 🙂 ok but seriously, they’d better not mess with the AM’s lie-flat 787 service between JFK and MEX!

  5. So Delta’s overpaid CEO’s strategy is to copy Etihad’s game plan. I hope the stockholders at DL feel happy with the leading from behind strategy. Copa has expanded in Latin America to the point all other carriers are running for cover. Hope Aeromexico convinces DL to redo their menus with a strong Mexican cuisine selection. It would be refreshing to experience the dozens of regional moles sauces, hand made tortillas, huevos rancheros, tequilas, and other staples to compete against the Indian centric menus of the ME3.

  6. @JoeMart, huh? What part of this is Delta copying from the ME3? Delta has been using joint ventures for pretty much as long as they’ve been allowed for airlines operating in the US.

  7. Lucky, you’ve said it repeatedly, but could you elaborate further on your assertion that Delta the best network? I suppose its a matter of personal utility, of course. But I would argue that leaving operational issues aside, United leads in Asia and has better hubs (Washington, Chicago, and Houston being larger business centers than Detroit and Minneapolis). Meanwhile, AA owns Latin America and now thanks to US Air has a lot of flights to Europe connecting in Philly, which is cheaper and has fewer traffic problems (and slot and perimeter restrictions) than NYC area airports. Finally, a somewhat separate point- oneworld and star alliance have larger and more high quality airlines than skyteam. I’m just curious where you’re coming from on this…

  8. Sunny, the last thing I want to do is defend Delta, but did you mistakenly leave out ATL when comparing United v Delta hubs? That’s quite an omission.

    I fly UA, AA and even som SW, but mostly Delta. If being operationally superior means getting me and my bags from point A to point B in a timely manner, then, in my humble opinion, Delta is far and away the best.

  9. @JoeMart: “…strong Mexican cuisine selection…” on an airplane? That’s a rather confined space to be eating Mexican food. At the very least, there should be no fuel surcharges on those flights. Plenty of methane to go around.

  10. @JoeMart: Copa has a very specific (and successful) business model based on short to mid-haul connecting flights, but not one that will in any way substantively compete with Delta+Aeromexico, which is focused on much longer point-to-point routes.

    @Sunny: I think where you fall into AA and UA’s (inferior) strategy is where you say that Chicago, Washington and Houston are “better” hubs because they are bigger business centers. DL views their hubs as connecting points, and more or less their DTW, ATL, MSP and SLC hubs are in streamlined airports far less prone to delays. To me, a superior hub is one where I can connect easily, comfortably and reliably, not one that serves an ostensibly bigger city. Can you imagine using JFK as a domestic connecting hub, for instance!?

    You also try to dispute Ben’s argument with the caveat, “leaving operational issues aside…” which is sort of the whole point of Ben’s thesis to begin with – Delta (leaving mileage programs aside) is a better operation than UA and AA.

  11. No improvements can make up for the reduced competition and higher prices that will surely result. We have a lot of evidence what happens to prices when these types of things are approved. It’s so anti-consumer that I am positive that it will meet with swift approval.

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