Friday, July 13, 2007

'Trilateral Open Skies Agreement' being worked out between the U.S., Mexico and Canada

NAFTA Aviation Market Plans Advance

Tri-lateral policy differences make reaching comprehensive deal called "challenging"


The CalTrade Report
Copyright 2007

WASHINGTON, DC – The vision for an open North American commercial aviation market has inched a bit closer with the announcement that the US, Canada, and Mexico have worked out a plan to work toward establishing a trilateral open skies agreement.

What that means is that, sometime over the next the decade, Air Canada could be competing with US air carriers on the New York-Paris route and Aeromexico might be launching flights between Los Angeles and Toronto.

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,” said US Transportation Secretary Mary Peters said after meeting her counterparts from Canada and Mexico in Arizona where the announcement was made.

According to a Peters, 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 – but likely not this year or next.

“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,” she said.

The three countries, said another high-level DOT official, “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, at best, a complex and tricky 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 US and the European Union (EU) signed an open skies agreement in March only after numerous earlier attempts to liberalize the transatlantic aviation market had failed.

The differences among the three governments’ respective aviation policies might make future negotiations to open the aviation market in North America particularly difficult.

Observers anticipate that the first step toward a trilateral agreement will be for the US and Canadian governments to negotiate separate bilateral aviation liberalization deals with the government of Mexico.

The US and Canada concluded an open skies agreement in November 2005.

Talks 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 US 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 US, 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.

On the other hand, the Mexican market, where far more passengers travel domestically by bus than by plane, is dominated by two airlines – Mexicana and Aeromexico.

US 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 city in the US and 14 Mexican destinations. So the competition among US 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.

Only Mexicana and Aeromexico have any international experience. Together the two Mexican carriers connect 99 cities in the Americas and Europe. Both are members of global airline alliances, allowing AeroMexico share flights with Delta Airlines (DAL) and Mexicana to partner with United Airlines.

On the other hand, all of the country’s smaller carriers focus solely on the domestic market, said Bond, adding “they don’t “feel any urge for open skies.”

In 2005, the Mexican government decided to privatize both Aeromexico and Mexicana and allowed several budget airlines to enter the market.

In November 2005, the hotel chain Grupo Posadas purchased Mexicana. Since then, though, 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 said. “But once it happens, Mexico’s government might be more willing to move forward on an open skies deal.”

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