Mexico's federal competition commission (CFC) is leaving the door open to a possible merger of the country's two largest airlines, even though it blocked Mexicana last October from bidding to buy Aeromexico.
The debate over whether to keep Aeromexico and Mexicana separate, which has been raging for almost 20 years, rumbles on. At the moment the two airlines are separate, but Mexicana keeps pushing for the right to acquire its perennial rival.
Manuel Borja, Mexicana's managing director, released a trial balloon recently when he declared that high fuel costs, overcapacity and the prospect of a $500 million loss for Mexico's carriers justified restudying the possibility of a merger with Aeromexico. Citing the worldwide push for airline consolidation, Borja recently said it was time for competition authorities to recognise that an Aeromexico-Mexicana merger is "a good idea".
Gilberto Lopez, Mexico's director general of civil aviation, predicts that a merger could come before the end of this year. The last time that Mexicana and Aeromexico tried to merge, says Lopez, "conditions in the industry were totally different". Today, low-cost carriers control 35% of the domestic market in Mexico. "For this reason, consolidation of these companies is very probable," adds Lopez.
The president of Mexican airline association Canaero has predicted that a move in this direction could come as early as September.
Officials from Mexico's ministry of communications and transport (SCT) have met with lawmakers to discuss the prospects of an Aeromexico-Mexicana merger. The SCT has taken no public position, but several lawmakers have questioned why a merger was not allowed a year ago when the government could have earned more by selling Mexicana and Aeromexico together.
With pressure mounting to revisit the question, CFC director Pérez Motta used the release of its annual report to clarify his agency's position on Aeromexico and Mexicana. The CFC, Motta said, has not closed the door to a possible merger between the two airlines. He agrees with Mexicana's Borja that conditions in the airline industry have changed, and "it is clear that the CFC can approve a merger".
But the way to address this, in Motta's view, is for airlines to consult with the CFC or formally apply for approval. "Neither case has occurred," he says. "No company has made a solicitation." In a swipe at the SCT for discussing merger prospects with lawmakers, Motta adds: "It is a proposal that the companies must make, not the government."
Motta defended last year's decision to block Mexicana's bid for Aeromexico. He says that, at that time, the two airlines competed on 24 important domestic routes.
Allowing them to merge "would have considerably affected the structure of the market".
Even though he seems aware of how fuel costs and growth in the low-cost sector are changing the market and prompting Mexicana, for instance, to shift more capacity to international routes, Motta insists that these facts alone do not justify departing from the CFC's normal criteria for assessing a merger.
"It is vital that any possible merger maintains competition in the air industry," he says, and the only way to judge this is on a route-by-route basis.
Raising the prospect that the CFC might impose carve-outs as a condition of any approval, Motta warns that if the CFC found excess concentration on some routes or high barriers to entry, it might require some cutbacks, including frequencies or the release of slots at Mexico City's congested international airport.
The big assumption in everything is that the CFC will continue to set competition policy in Mexico's skies. No one has challenged this, and in light of past skirmishes between the CFC and SCT, no one apparently will.
Historically the SCT has favoured a merger or close ties between Aeromexico and Mexicana, but the CFC has prevailed with its insistence on protecting competition. This fits the pattern elsewhere in Latin America. As Patricio Sepulveda, director of IATA's Latin American office, observes: "The key decision-makers for aviation in our region are not in aviation, but in the political and economic sphere."
This is certainly true in Mexico. The door may be open to an Aeromexico-Mexicana merger, but it will not happen unless the CFC approves it.
Source: Airline Business
