Airport Status: Canceled – Pulling the plug in Mexico City

The new Mexico City airport is dead. Fulfilling a campaign promise, incoming President Andres Manuel Lopez Obrador announced that construction on the project would be halted once he takes office. The move came after the results of a national referendum on the project showed 70% of voters opposed to the new airport. That only one million people voted (of ~90mm registered) in the theoretically non-binding poll seems to not matter. The president intends to scrap the efforts.

The new airport is an incredibly expensive proposition. The price tag of $13 billion makes it one of the largest infrastructure projects in the country. And work was already a third complete. The country must now manage the $6bn in bonds issued to fund the project and the accelerated repayment that scrapping the project will entail. The country must also come up with a solution to handle the overwhelmed Benito Juarez International Airport (MEX) if the economy is to stand any chance of continued growth.

The current airport offers no room for expansion. Situated to the east of the city, the facility is hemmed in by neighborhoods and operates at capacity today. Ne entrants struggle to obtain landing slots and when the do become available they are often poorly timed. Earlier this month Lopez Obrador indicated that he might endorse a public-private partnership model for the new airport, allowing a large portion of the debt to shift to wealthy private investors. That option is no longer viable. Rather, the new president believes in a multi-airport strategy to deliver growth.

The revised plan calls for conversion of a military field on the north side of the city, much further away from the downtown core. It will also see improvements at Toluca airport to the west of the city. InterJet runs the bulk of its Mexico City operations at the Toluca hub, owing to the difficulties in accessing the main airport.

Distributing the load can help reduce dependence on any one airport but also reduces the efficiency of operations. Connectivity is reduced and costs to airlines increase as their operations are more widely distributed. Quite simply, airlines do not want to do it and several expressed that they will not if they can at all avoid it. Copa and Avianca explicitly called it out as a bad option at the ALTA Conference hosted in Panama City this week.

IATA’s recent growth forecasts for the region predict a strong 4.2% annual growth rate for the domestic Mexican market through 2037 and 3% annual growth in transborder traffic to the United States. Without the new airport facility those numbers are now expected to be significantly lower. IATA’s CEO Alexandre de Juniac described the move as “extremely disappointing…a setback for the airline industry and the Mexican economy.” IATA predicts the new airport would handle as many as 20 million new passengers by 2035, contributing $20 billion to the future GDP.

That economic growth comes at a cost, of course, but not growing also carries a cost, one that is far harder to overcome. Giving up on infrastructure investment rarely delivers on long-term economic growth. Mexico appears willing to learn that lesson anew.