Mexican Airlines Prepare for Possible US Sanctions Over Blue Sky Agreement Violations

Mexican airlines, including Volaris, are preparing for potential actions from the US Department of Transportation due to alleged violations of the Open Skies agreement. Volaris' stock initially rose but has since given up gains. The US Department of Transportation may take action against Mexican airlines for violating the agreement.

Mexican airlines, including Volaris (VLRS), are preparing for potential actions from the U.S. Department of Transportation (DOT) due to alleged violations of the Open Skies agreement. Volaris' stock initially rose but has since given up gains as the U.S. DOT deliberates on actions regarding alleged violations by Mexico. The U.S. claims Mexico has restricted U.S. flights to Mexico City, contravening the 2015 agreement.

Analysts predict substantial upside potential for VLRS shares, with an average price target of $7.02. GuruFocus estimates a significant 92.99% upside, highlighting VLRS as potentially undervalued. Despite regulatory concerns, analysts remain optimistic about the airline's prospects [1].

The U.S. DOT has announced a slate of "America First" actions to combat Mexico's disregard of the 2015 U.S.-Mexico Air Transport Agreement. These actions include requiring Mexican airlines to file schedules with the DOT for all their U.S. operations, mandating prior DOT approval for large passenger or cargo aircraft charter flights, and proposing the withdrawal of the Delta/Aeromexico joint venture’s antitrust immunity (ATI) [2].

The forced relocation of cargo flights from Benito Juárez International Airport (MEX) to Felipe Ángeles International Airport (AIFA) has been a significant point of contention. Mexico's decision to relocate cargo flights has disrupted the market and left American businesses holding the bag for millions in increased costs [3].

The Cargo Airline Association (CAA) has applauded the U.S. government's announcement, stating that the actions send a clear message against unfair, anti-competitive behavior. If Mexico fails to address U.S. concerns, the DOT could reject flight requests from Mexico or withdraw antitrust immunity from Delta's joint venture with Aeromexico.

Investors should closely monitor the situation as it may impact the financial performance of Mexican airlines. Volaris, in particular, faces potential risks to its operations due to the U.S. DOT's actions. However, analysts remain optimistic about the airline's long-term prospects, predicting an impressive upside from the current trading price.

References:
[1] https://www.gurufocus.com/news/2991338/volaris-vlrs-faces-uncertainty-amid-us-open-skies-dispute
[2] https://www.transportation.gov/briefing-room/trumps-transportation-secretary-sean-p-duffy-announces-slate-america-first-actions
[3] https://mexiconewsdaily.com/travel/us-announces-restrictions-on-mexican-airlines/