Delta Fires Back Over DOT’s Aeromexico Rejection and Allegiant Takes Delta’s Side – Cranky Flier

When the Department of Transportation (DOT) announced it would end the antitrust immunity (ATI) given to Delta and Aeromexico for their joint venture due to the Mexican government failing to honor the open skies agreement, it was never a doubt that Delta would angrily counter. The response was filed last week, and — spoiler alert — Delta is pissed off. And — another spoiler alert — Allegiant agrees with Delta.

In its 105-page filing — half of which is an economic analysis of how bad it would be for the joint venture to be disbanded — the airline rakes DOT over the coals, saying that this order if made final would “cause severe harm to consumers, competition, communities, and the economy” using an “arbitrary, misdirected, discriminatory, and ineffectual approach” while also being “fatally flawed.” It’s time to get that popcorn bucket out.

The basic argument laid out by Delta is that ending ATI would punish the airlines, eliminate all of the jobs and economic impact provided by the joint venture, fail to alter the Mexican government’s stance, and undeniably make the border crisis worse. Ok, that last one isn’t true, but that’s what I’d say if I was trying to get the government to overturn itself.

Delta lays out that the DOT’s two main issues are that all cargo service has been forced to leave Mexico City/MEX and slots have been reduced at MEX overall. But these issues “cannot plausibly be ascribed to the [joint venture] or the [joint venture] Partners.” If the slots don’t fit, you must acquit.

Forget that this flies in the face of longstanding DOT policy that a functioning Open Skies agreement is a basic requirement for allowing ATI and joint ventures. Oh wait, no, don’t forget that. American was more than happy to file that argument, presumably just to stick a needle in Delta’s eye. It can’t care all that much, but if it hurts Delta, then that’s a win. So how can Delta really make this argument?

It leans heavily on the dire results that may or may not actually occur. The filing says that if the joint venture is unwound, nearly two dozen routes between the US and Mexico would be “at risk of cancellation and capacity would be reduced, with large narrowbody aircraft to be replaced with smaller aircraft on at least ten other routes.” It also says fares would “certainly increase,” which is a bold stand since airlines really cann’t say anything about future pricing actions with certainty. But hey, Delta is trying to make this sound as bad as possible. And it does a good job.

If this is Delta’s stance, is it suggesting that the US should just let Mexico get away with failing to honor the Open Skies agreement? Sort of. It doesn’t necessarily agree that the agreement is being violated. But it does offer some of what it calls “countermeasures” that DOT should use instead as required by the various agreements:

• engage in continued consultations with Mexico
• begin arbitration with Mexico
• impose schedule filing requirements on all Mexican carriers serving the US and restrict their schedules if needed

Delta says this will be more likely to get Mexico to stop messing around. Just removing ATI from the Delta/Aeromexico deal won’t be nearly as effective.

All of this, however, is just trying to set the table for Delta’s main legal argument,which is that the order is “fatally flawed” under the Administrative Procedure Act (APA). That could be the most boring name of an act ever, but it apparently is Delta’s proposed key to victory.

The APA — not to be confused with American’s pilots union — apparently requires the court to “hold unlawful and set aside agency action, findings, and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Delta says this is being violated, and it goes on a lengthy tirade about just how it’s a problem, saying that the DOT is making up random rules to judge the joint venture without even analyzing the application properly, doesn’t provide any facts on how the Open Skies agreement has been violated, and fails to show that US airlines have been harmed.

Some of it just seems silly. For example, Delta argues that when Mexico forced all cargo carriers to leave MEX and use the new airport in Santa Lucia, DOT failed to show “why this decree is problematic.” In this sense, the airline seems to be arguing more against the contents of the order versus the actual issue. Of course those cargo carriers forced to leave the primary airport have been harmed. But DOT didn’t explain why in the order, so… booo on you DOT. This kind of thing can be cleaned up and hardly seems worth arguing. Much of what Delta says seems to be about administrative procedure and wouldn’t necessarily result in a different outcome, but it can’t hurt to try every defense possible.

There are plenty of other points that make the argument that DOT is reaching the wrong conclusion. Like I said, it’s a 105-page document, so if you want to see Delta’s well-argued reasoning, I’d recommend a read, but it certainly provides something to think about.

Delta has found itself with an unlikely ally in this fight… Allegiant. See, Allegiant has been trying to create a joint venture with Viva Aerobus, but DOT won’t even consider it right now because of the issues with Mexico. So maybe it isn’t all that surprising to hear Allegiant say that Delta and Aeromexico should be able to keep ATI. Allegiant really just wants its own case heard.

Allegiant’s argument will sound very familiar. It says the current agreement “has resulted in open access to the transborder market.” The issues “at a single airport… do not call into question in any material way the actual access enjoyed….”

This, however, is really just Allegiant saying that DOT should rule on this and not kick the can. If DOT delays a decision until later, then Delta/Aeromexico can continue their joint venture. Allegiant and Viva will still be in a holding pattern, and that’s the worst outcome as far as Allegiant is concerned. If they make this order final now and deny ATI, that means Allegiant and Viva are also probably dead, but at least there’s a unified fight to be had. If DOT reverses course and approves ATI for an extended period, that should bolster Allegiant’s case to finally get its Viva deal pushed through.

Now, we wait. Will DOT have a change of heart? I generally assume that no, it won’t. But we will find out soon enough whether this order goes final. Then all we can do is hope that the Mexican government will come to the table and actually do something. I wouldn’t hold my breath.