Plans for Open North American Aviation Market Inch Forward

By Andrzej Zwaniecki
USINFO Staff Writer

Washington – Sometime over the next the decade – but likely not in 2007 or 2008 - Air Canada could be competing with U.S. carriers on the New York-Paris route and Aeromexico might be launching flights between Los Angeles and Toronto.

This vision for an open North American aviation market inched a bit closer in April when the United States, Canada and Mexico announced a plan to work toward establishing a trilateral open skies agreement, according to U.S. officials.

“We have an opportunity to set a new global standard for free and open transborder air travel, and bring greater convenience and lower prices to shippers and travelers who want to reach places like Tucson, Toronto or Torreon,” U.S. Transportation Secretary Mary Peters said after meeting her counterparts from Canada and Mexico in Arizona where the announcement was made. (See full text.)

A U.S. Department of Transportation (DOT) official told USINFO that the process leading to a trilateral deal will be challenging but the potential rewards are substantial.  The declaration signed at the trilateral meeting calls for expanding aviation relationships over the next 10 years.

“The most significant piece of this document, in my opinion, is the vision for reaching a Trilateral Open Skies agreement between our three countries within the next 10 years,” said Peters.

The three countries hope that an open regional aviation market will help them accommodate the expansion of trilateral trade and tourism accelerated by the North American Free Trade Agreement (NAFTA).

 Negotiating civil aviation agreements is a complex effort, experts say.  Even bilateral aviation deals are difficult to reach because of competing interests of each country’s airlines, national security considerations and other issues. For example, the United States and the European Union signed an open skies agreement in March 2007 only after several earlier attempts to liberalize the trans-Atlantic aviation market had failed. (See related article.)

The differences among the three governments’ respective aviation policies might make future negotiations to open the aviation market in North America particularly difficult.  It is anticipated that the first step toward a trilateral agreement will be for the U.S. and Canadian governments to negotiate separate bilateral aviation liberalization deals with the government of Mexico. The United States and Canada concluded an open skies agreement in November 2005. (See related article.)

Negotiations involving all three countries would have to address a number of important issues such as routes, user charges and fees, pricing, advertising and sales, and a uniform dispute resolution mechanism, according to the DOT. 

A bilateral open skies agreement gives airlines in both countries the right to operate air services from any point in their country to any point in the other, as well as to connect those flights to points in third countries. A trilateral deal would make it much easier for Canadian, Mexican and U.S. airlines to provide service to any of the three countries and to connect that service to different destinations from any point in North America. 

The three aviation markets are quite different, according to experts. The United States, with many airlines, is a large, mature and competitive market. The similarly mature Canadian aviation sector is smaller and dominated by one large carrier – Air Canada. The Mexican market, where far more passengers travel by buses than by planes, is dominated by two airlines, one still state-owned.

U.S. carriers are eager to fly more people to popular tourist destinations in Mexico, according to experts. Under an existing but narrowly focused bilateral agreement, only three airlines from each country can serve routes between any U.S. city and 14 Mexican destinations. So the competition among U.S. airlines for Mexican routes is fierce and pressure to open the Mexican market strong, experts say.

But, says David Bond, a staff writer for Aviation Week and Space Technology magazine, in the near future, that government would have a difficult time persuading Mexican carriers to support any international market liberalization scheme.

Few Mexican carriers have any international experience and most focus solely on the domestic market, Bond told USINFO.

They don’t “feel any urge for open skies,” he said.

In 2005, the Mexico’s government decided to privatize two state-owned airlines - Aeromexico and Mexicana - and allow several budget airlines to enter the market. In November 2005, the hotel chain Grupo Posadas purchased Mexicana.  Since then, some budget carriers have experienced strong growth creating uncertainty about how to proceed with the privatization of Aeromexico, according to experts.

It may take time before the shake-up produces more competition, the DOT official told USINFO.

But once it happens, Mexico’s government might be more willing to move forward on an open skies deal, experts say.