by Josh Lew
Last updated: 11:30 AM ET, Wed December 23, 2015
Photo courtesy of Thinkstock
Flights between the U.S. and Mexico should be getting much cheaper in the near future. The Transportation Ministers from both countries recently signed an air service treaty that will help liberalize the marketplace and increase price competition among carriers. The treaty still needs to be approved by both Washington and Mexico City. Most consider this a foregone conclusion.
A win for both the U.S. and Mexico
U.S. Transportation Secretary Anthony Foxx said the treaty is an economic win for both countries. "This agreement is the result of the commitment on both sides of the border to strengthen the strong bonds of trade and tourism between our two countries, and demonstrate our shared commitment to a competitive, market-based international economic system."
The more-competitive marketplace should lead to lower fares for travel between the U.S. and Mexico. This will undoubtedly help the Mexican tourism industry, which relies heavily on American tourists.
Smaller carriers and cargo airlines could benefit the most
Before the treaty, each country protected its airlines by limiting the number of carriers from the other country that could fly in its airspace and limiting the number of flights that these foreign airlines could operate. The treaty simply does away with these limits.
This could benefit all airlines, but it could be especially good for smaller carriers because they can focus on the U.S.-Mexico routes that are the most profitable for them. They would not have to worry about having the number of flights capped.
The agreement also includes cargo service. Goods can be flown more easily between the two countries, so manufacturing businesses may be able to benefit from an increase in competition, which should lead to lower shipping rates.
Unlimited access
Basically, the treaty will allow any Mexican or U.S. airline unlimited access to any route between the two countries. Obviously, this could lead to carriers lowering fares as much as possible to beat their new competitors. It could also lead to more cooperation between U.S. and Mexican airlines. The treaty could inspire new code-sharing agreements, allowing airlines to have a little bit more control over fares. It would keep carriers from entering a bidding-war-type scenario where competitors try to price each other out of the market on a particular route.
Who will benefit the most?
Major airlines like JetBlue and Delta should also be happy with the treaty. Yes, a more competitive marketplace could hurt these carriers in the short term because they will have to lower fares if they want to stay relevant on certain routes. However, the increase in access to the Mexican marketplace could be hugely profitable in the long run as these big players open up new routes and sign code-sharing agreements with their Mexican peers.
Because of the popularity of routes between the U.S. and Mexico, the effects of the treaty should be felt quite quickly. Airlines will want to position themselves to take advantage of the new access once the treaty is ratified in Washington and Mexico City. Everyone stands to gain from the liberalization, but, ideally, fliers will get the best deal of all because of the increase in options and lower fares.
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