Open skies, benefits for all?

The Executive has announced its intention to proceed with the air opening, through the application of the so-called ninth freedom of the skies, in which airlines from other countries are allowed to provide cabotage service in national territory, that is, to transfer passengers between two points in Mexico. This situation rarely occurs in other countries. Probably the only case is that of the European Union, which allows airlines from member countries to transfer passengers between two different countries to the country of origin of the airline. The official proposal’s underlying reason is to put pressure on the national airlines that have resisted using the Felipe Ángeles International Airport (AIFA) more quickly.

Curiously, on the other side of the political and ideological spectrum, there are self-styled liberal positions that support this openness measure. They do so arguing benefits to consumers, coming from increased competition. These positions, rather than being supported by a technical analysis, seem to be based on the postulate of Dr. Johnson, who in the 18th century professed that patriotism is the last refuge of scoundrels.

The official and liberal positions indicated coincide in their lack of analysis of the economic aspects of the operation of the passenger air transport industry. In this industry there are two main business models, from which combinations are derived. On the one hand, there are airlines that operate under the traditional model, called hub, in which airlines configure their operations around hubs or traffic concentrating airports, in which a significant percentage of the passengers served get off a plane. to take another flight that takes them to a next destination. On the other hand, there are airlines that operate low-cost models, in which operations take place from point to point and operations occur, preferably, at alternative airports, which are cheaper.

Both models have different implications for the generation of network economies. In the first case, adding service points exponentially expands service possibilities, which increases the value of the network for consumers. In the second case, network economies are non-existent, as travelers seek to satisfy a transfer need that is exhausted on the direct route.

The International Airport of Mexico City or AICM (and the canceled Texcoco project), has a hub vocation. AIFA, due to its location, capacity and communication routes with the main market, which is Mexico City, can be an alternative airport, interesting for a certain group of travelers, located in the north of Mexico City, but hardly it will have a hub vocation. For this reason, it is disproportionate to expect Mexican airlines to migrate their operations from one airport to another. This would mean radically changing their business models and would be extremely costly, if not ruinous.

On the other hand, it is true that the opening of skies could bring more competition on some routes. However, I am not sure that the large international airlines that could offer cabotage services are interested in serving all markets. These airlines would surely concentrate their activities on feeder routes for their international services. In doing so, they would reduce the scale and diversity of the operations of the national airlines, which would weaken them. Paradoxically, we could have a scenario of greater competition on some routes, but less competition and higher prices and costs on others.

I do not believe that an indiscriminate opening scenario will result in general benefits for consumers and the industry. I believe that we have a responsibility to promote a technical discussion that goes beyond ideological positions and that examines and supports the possible economic effects.

@javiernunezmel