Will Mexico’s New Plans for Airport Competition fly?

Implications: See details of the proposal issued on October 1 by the Mexican antitrust commission to improve competitivenes in the Mexico City and four surrounding cities' airports, including the sale of government holdings. 

Analysis: After a thorough analysis that lasted for more than a year, on October 1 the Mexican antitrust commission (Cofeco) issued an opinion on airport competition.

For Mexico to compete successfully in air transportation, the first and foremost condition is to have competitive airports. Its inefficient regulations in airport operation translate into higher airport tariffs, to the detriment of users who pay them as part of the cost of airfares. Prices of airport services are also high. In a list of the 50 most expensive international airports, the Guadalajara, Cancun and Monterrey airports, rank on 11th place, while the Mexico City airport occupies the 19th place.

To improve competitiveness, the antitrust commission, Cofeco, asks for the sale of state holdings in the International Airport of Mexico City and in four airports of surrounding cities. It also recommends the opening of fuel distribution to private companies to promote competition and help reduce airfares.

Other recommendations included in Cofeco’s opinion are:

1.To promote competition between nearby airports. Some regions in Mexico have the market potential to make more than one airport viable. Cofeco wants these airports to compete against each other, so that airlines and consumers can choose the best option in terms of quality and price. The agency seeks to have a say on new airport permits to ensure competition in areas that may be served by more than one airport.

2.To improve tariff regulation. Airport tariffs are set by the federal government based on a formula included in the airport concession titles. For existing airports, Cofeco proposes to give this task to an independent regulator who would apply the existing formula with the intent of reducing tariffs to the extent possible. For any new airport, it recommends to set a tariff based on the lowest price for the user and the tax goal of the government.

3.To increase competition in airport services. Users should have access to the largest number of options both in terms of airlines and providers of other services. Also, revenue obtained by airport operators from restaurants and other retail businesses would be included when considering the fees they can charge airlines and passengers.

The assignment of landing and take-off slots is an essential element of access of airlines to airports. The existing mechanism of slot auction in saturated airports should be more efficient in order to guarantee that all airlines have access to these airports in competitive conditions. In the case of land transportation service to and from airports, Cofeco wants to open this service to local permit holders of public transportation, guaranteeing the necessary safety measures.

If applied, these proposals can have far reaching consequences for airport operators as they will reduce the amount they can charge for services. Mexican airport companies such as Grupo Aeroportuario del Sureste SAB operate 34 facilities in the country. Local and federal governments control the remaining airports. Also, opening fuel distribution to competition would reduce prices and prevent practices that discriminate against some airlines.

It is clear that regulators are looking to set better conditions of price and quality at airports, in favor of users of air transportation. But it is still unclear whether Congress and the federal government will incorporate Cofeco’s proposals in the law and the regulation that rule this important sector.