Las Vegas-based ULCC Allegiant Air and Monterey, Mexico-based ULCC Viva Aerobus have asked authorities in the US and Mexico to approve an antitrust-immunized transborder commercial alliance agreement.
The proposed alliance will capitalize on Allegiant's and Viva's complementary networks and passenger bases and will enable new, competitive transborder service, increasing competition and benefiting consumers by offering lower fares, adding various new transborder nonstop routes and adding capacity on existing city-pairs,” the carriers wrote in a joint filing with the US Transportation Department (DOT).
Allegiant does not currently serve Mexico and Viva largely operates domestic routes in Mexico with a relatively limited transborder offering.
A fully integrated and immunized alliance will afford Allegiant and Viva Aerobus coordination across all areas of airline operations, including codesharing, scheduling, marketing, information systems and loyalty programs, providing seamless access and benefits for customers of both airlines, the airlines said in a statement.
The alliance is anticipated to add new transborder routes and nonstop competition where currently only connecting service is available. More than 250 new potential route opportunities have been identified as part of the DOT application, though specific routes targeted for service will be announced at a later date, following the application’s approval.
The carriers said they expect to be able to implement the alliance and jointly start offering flights in the 2023 first quarter. As part of the alliance agreement, Allegiant will invest $50 million in Viva. In addition to the DOT, the Mexican Federal Economic Competition Commission will have to approve the alliance accord. The carriers have asked that antitrust immunity be granted for a period of at least 15 years.
Allegiant and Viva Aerobus operating together will be a tremendous win for consumers seeking affordable, nonstop travel between the US and Mexico, and will create rippling economic benefits for hospitality-sector business across both nations,” Allegiant CEO Maurice Gallagher said. This groundbreaking alliance should reduce fares, stimulate traffic and ultimately link many new transborder cities with nonstop service. In short, it will bring meaningful ULCC competition to the US-Mexico [transborder] market for the first time in history.”
Viva CEO Juan Carlos Zuazua added: "The US–Mexico market is currently the largest international air travel market in the world. During the pandemic, it has outperformed any other market due to a strong leisure and VFR recovery, where both Viva Aerobus and Allegiant have excelled. This unique ULCC alliance will create new nonstop connectivity.”
In the DOT filing, Allegiant and Viva argued that “coordinated operations under the alliance agreement will not significantly reduce or eliminate competition in any market,” adding: “Moreover, the alliance will achieve important public benefits for the traveling public through new service and low ULCC fares on origin-and-destination (O&D) city-pairs that neither Allegiant nor Viva could provide independently, but also more generally by enhancing growth.”
The carriers said the alliance is critical for Allegiant and Viva to be able to compete on transborder routes with larger airlines, particularly Aeromexico and Delta Air Lines, which already operate across the border on an antitrust-immunized basis.
The airlines noted that Allegiant is primarily focused “on point-to-point carriage of passengers in underserved US cities and, therefore, Allegiant’s passenger base and brand awareness is confined almost entirely to the United States.”
Similarly, “Viva’s passenger base and brand awareness is confined almost entirely to Mexico and to serving VFR (visiting friends and relatives) and leisure traffic within Mexico and from Mexico to the United States,” the carriers wrote in the DOT filing. “Viva’s passengers traveling between Mexico and the United States are overwhelmingly comprised of VFR traffic or Mexican citizens otherwise traveling for leisure to the United States.”
Viva’s current transborder routes are focused on connecting major cities. US airports served by Viva include Chicago O’Hare (ORD), Houston Intercontinental (IAH), Los Angeles (LAX), Miami (MIA), New York (JFK) and Newark (EWR) in New Jersey.
But Viva has not been able to draw traffic from the US to Mexican resort destinations. “Viva’s lack of brand recognition in the United States—especially versus the established US carriers—has led the airline to quickly cancel leisure routes it introduced where most of the passengers were expected to originate in the United States,” according to the carriers’ DOT filing.
The airlines noted that Viva launched flights between IAH and Cancun (CUN) in 2014 and in 2020 “with an eye towards capturing US leisure traffic,” but both times had to cancel the route, which failed to attract US passengers and was loss-making. “Viva lacks brand awareness among US passengers and the cost of mass media advertising to adequately increase awareness would destroy its ULCC model,” the carriers wrote.
The airlines added: “Under a fully immunized and implemented alliance, Allegiant and Viva believe they can compete meaningfully with the much larger carriers operating US-Mexico service. . . . The alliance will enable Allegiant to broaden its ULCC-priced travel offerings from its cities to include new service to additional world-class leisure destinations such as [CUN], Los Cabos [(SJD)] and Puerto Vallarta [(PVR)].”
Allegiant believes the alliance would allow it to “secure at least an indirect foothold in congested and slot-controlled Mexican airports, such as . . . Mexico City (MEX), having substantial traffic flows to US leisure destinations that Allegiant serves.”