Earlier this week, Mexican President Andrés Manuel López Obrador said he wants to allow foreign airlines to operate domestic services between Mexican cities. The objective of this measure would be to drive prices down, and while it remains just an outspoken thought by the President, it has created controversy in the domestic airline industry. Should this be allowed?
What did the Mexican president say?
On Tuesday, Mr. López Obrador said that the country should open up aviation, open up the competition, and allow foreign airlines to enter Mexico and operate domestic flights. He added, “that’s democracy. Let foreign airlines come in from Europe and the United States so that they can operate flights inside the country.”
Cabotage rights in the airline industry are quite rare worldwide. Most countries don’t allow international airlines to operate domestic services within their territories to protect their domestic carriers. There are only a handful of cabotage rights in passenger aviation, including the European Union (with some limitations) and Chile.
Mr. López Obrador did not provide more details concerning the grant of cabotage rights. His objective is to lower domestic airfares and bring service to smaller cities that currently lack flights.
Photo: Getty Images.
What are cabotage rights?
Cabotage rights are a tricky topic. First of all, let’s define what cabotage is. There is consecutive cabotage and “stand-alone” cabotage. These two are also known as the eighth and ninth freedoms of the air, respectively. The International Civil Aviation Organization (ICAO) defines these two freedoms:
“Eighth Freedom of The Air – the right or privilege, in respect of scheduled international air services, of transporting cabotage traffic between two points in the territory of the granting State on a service which originates or terminates in the home country of the foreign carrier or (in connection with the so-called Seventh Freedom of the Air) outside the territory of the granting State (also known as an Eighth Freedom Right or “consecutive cabotage”).Ninth Freedom of The Air – the right or privilege of transporting cabotage traffic of the granting State on a service performed entirely within the territory of the granting State (also known as a Ninth Freedom Right or “stand-alone” cabotage).”
Photo: Getty Images.
The Chicago Convention prohibits member states from granting cabotage on an exclusive basis. So, for instance, the European Union allows “consecutive cabotage” with certain rules to any European airline (that’s why we see, for example, Ryanair having bases throughout Europe). In the case of Chile, the country fully grants ninth freedom rights. The Chilean government states that cabotage increases competition, and it is open to all companies in the world.
So, let’s make a wild example: if American Airlines wanted, it could operate flights between Santiago de Chile and any other Chilean destination. So, why are there no foreign airlines in Chile? Because the Chilean government demands reciprocity. That means that if American Airlines was given the authorization to operate “stand-alone cabotage,” LATAM, Sky Airline, or JetSMART should also be authorized to do the same in the United States.
Photo: Guillermo Quiroz Martínez via @gquimar .
Should this be allowed in Mexico?
The only way cabotage should even be in the conversation within the Mexican authorities is if they replicate the Chilean model. Granting rights without demanding reciprocity would be a terrible idea.
Still, Mexico should allow its domestic airlines to keep growing. The country currently has six carriers, including three that are performing above pre-COVID-19 levels. These are Aeromexico, Viva Aerobus, and Volaris. There are also regional airlines, such as Aeromar and Aéreo Calafia, that, while they face economic uncertainty, bring connectivity. Instead of allowing international airlines to enter, the Mexican government should incentivize and improve the domestic aviation industry.
In the end, these statements by the Mexican president should not be taken too seriously (as of now). There’s no actual project going on that would allow cabotage in the country. And if there is, we should expect a backlash from the local companies.
Do you think Mexico should grant cabotage rights to foreign airlines? Let us know in the comments below.