Delta, Aeromexico form joint venture to serve Mexico

Delta Air Lines and Grupo Aeromexico are seeking regulatory permission for a new joint venture for flights between the United States and Mexico.

The May 31 announcement that the airlines had filed of the application with the U.S. Department of Transportation seeking antitrust immunity marks a significant step in the creation of a $1.5 billion joint venture that will allow Delta (NYSE: DAL) and Aeromexico (Mexico: AEROMEX.MX) 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," Ed Bastian, Delta's president, said in a statement announcing the filing. "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."

"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," Andres Conesa, CEO of Grupo Aeromexico, added.

The request also will be submitted for approval to the Mexican antitrust authorities, the Comision Federal de Competencia Economica Mexico (Federal Economic Competition Commission). Upon receipt of the required governmental approvals, Delta and Aeromexico will seek to expand opportunities to co-locate and invest in airport facilities by improving gates, lounges and the overall connecting experience. The airlines will also increase joint sales and marketing initiatives.

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 (MEX), Monterrey (MTY), Guadalajara (GDL) and Hermosillo (HMO) – 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 (ATL), Detroit (DET), Los Angeles (LAX), Minneapolis (MSP), New York, Salt Lake City (SLC) and Seattle (SEA), and a strong marketing presence throughout the U.S.

Delta and Aeromexico launched their first codeshare in 1994 and both became founding airlines of SkyTeam in 2000. In 2011, Delta entered into an enhanced commercial agreement with Aeromexico, and in 2012, Delta invested $65 million in shares of Grupo Aeromexico, the parent company of Aeromexico. Currently Delta and Aeromexico offer more than 4,000 weekly codeshare flights, representing more than 80 daily transborder round-trip flights. A year ago, Delta and Aeromexico opened a joint maintenance, repair and overhaul facility in Queretaro.

News of the filing comes hot on the heels of Seattle-based Alaska Airlines (NYSE:ALK) announcement of a fare special to mark commencement of its new non-stop service  from Orange County, California’s John Wayne Airport (SNA) in Orange County, California and Los Cabos (SJD) and Puerto Vallarta, Mexico (PVR).

Delta has been expanding aggressively in the Pacific Northwest and, with the commencement of non-stop service to Hong Kong (HKG) in June 2014, declared Seattle-Tacoma International Airport (SEA) its “newest hub.”

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