PUBLIC INTEREST AND THE FORMULATION OF INTERNATIONAL AIR TRANSPORT POLICY IN A DEVELOPING NATION: MEXICO VIS-A-VIS THE UNITED STATES by BERNARDO LISKER-MELMAN Electrical Engineer, Anahuac University (1976) Master of Science, Massachusetts Institute of Technology ( 1978) Submitted in Partial Fulfillment of the Requirements for the Degree of DOCTOR OF PHILOSOPHY at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY July, 1981 Bernardo Lisker-Melman 1981 The author hereby grants to M.I.T. permission to reproduce and to distribute publicly copies of this thesis document in whole or in part. Signature of Author A Department'ri Aonautic sand Astronautics July 2, 1981 Certified by X \ Robert W. Simpson, The is Supervisor, Chairman Certified by Char es 0. Cary. Thbsis upervisor Certified by hn R. Wiley, Thelis Supervisor Accepted by Harold Y. Wachman Chairmap, Departmental Graduate Committee Archiveg MASSACHUSETSOF TECHNOLOGY INST;TUTE OC T 13 1981 LIBRARIES PUBLIC INTEREST AND THE FORMULATION OF INTERNATIONAL AIR TRANSPORT POLICY IN A DEVELOPING NATION: MEXICO VIS-A-VIS THE UNITED STATES by BERNARDO LISKER-MELMAN Submitted to the Department of Aeronautics and Astronautics on July 2, 1981 in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy ABSTRACT The United States-Mexico air passenger market ranked second highest of all U.S. international markets in 1980. Yet, information regarding the market is scarce and the underlying reasons for its impressive growth are unclear. In addition, with respect to policy, U.S. observers claim to be receiving mixed signals from the Mexican authorities and perceive the latter's attitude as inconsistent with their own national interests. Under these conditions, planning is difficult. Following an interdisciplinary approach, this study sets forth a conceptual model of the direction and prospects of the United States-Mexico air passenger market. It is demonstrated that Mexico has a coherent international air transport policy. Law, regulation and policy are differentiated and an analysis is made of the market's growth and structural change. The functional structure of the Mexican air transport industry is explored; the country's program of tourist development is analyzed; and there is a comprehensive examination of the United States-Mexico air transport bilateral agreement. In addition, the market is measured: statistical information never organized before in one coherent body is introduced and a significant number of numerical findings are presented. Finally, the limitations of econometric modeling of aggregate demand in such a dynamic market are established. The study fosters understanding of air transport cause-effect mechanisms in developing nations whose philosophy of growth and change has often been misunderstood by more industrialized societies. Thesis Supervisors: Robert W. Simpson, Chairman Professor of Aeronautics & Astronautics Charles 0. Cary Senior Lecturer John R. Wiley Senior Lecturer -3- In memory of my dear grandmother, Dr. Clara Lisker, whose intelligence, clarity of mind and hard-working life I shall never forget. I dedicate this study to my beloved wife, Heidi, who makes it all worthwhile. -4- IMPORTANT NOTICE No part of this work may be reproduced or distributed in any way (including microlbrm) without specific authorization in each instance, procured through the Patent, Copyright and Licensing Office, Massachusetts Institute of Technology, or without written permission from the author. A reader may not quote or closely paraphrase the contents of this study in his own published work without the author's written permission. The author's address appears at the end of this work, () *Bernardo Lisker-Melman 1981 The author hereby grants to M.I.T. permission to reproduce and to distribute publicly copies of this thesis document in whole or in part. -5- PREFACE Air transportation is not only one of the greatest areas of international enterprise today, but also an increasingly interdisciplinary field of knowledge. Mathematics, economics, systems engineering, management and political science intertwine to shape the complex array of decision-making guidelines that the industry follows. Throughout the years of my training at MIT, it was precisely the interdisciplinary nature of the field which attracted me to this type of work. The ideas developed in this study are a direct reflection of this. The Flight Transportation Laboratory, where I have had the opportunity of studying and conducting research for five years, provides a unique environment conducive to this type of academic endeavor. It was thanks to this superbly-adaptive center and the varied academic background of its faculty, that I was able to expand my horizons beyond the borderlines of econometric modeling, which I dealt with during my Master's thesis. The years of my doctorate helped me to acquire a much broader perspective of air transportation. This study is a partial result of these years of further training. I would like first to express my gratitude to the laboratory's Director, Professor Robert W. Simpson, chairman of my doctoral committee. This most gracious man is the driving force at the laboratory. His open-door policy makes him not only a distinguished researcher, but also a true teacher, a combination not often found. I will always remember his support during critical times of my research. -6- Professor Charles 0. Cary is one of the newest instructors at the laboratory. He has brought with him many decades -- an entire life -- of priceless experience in the aviation industry. His background in aspects of policy- making analysis was invaluable to me. He was extraordinarily generous with his time (both at MIT and at home) and represented a constant source of stimulus and counsel. In addition to this, his editorial help and inquisitive ways of analyzing my writing contributed very much to my work. Professor John R. Wiley has been a source of encouragement and guidance beyond this investigation and even beyond the boundaries of my academic life. He has been my teacher and friend since I first came to MIT. His students -- scattered all over the world -- always remember his instructive lectures and his warm personality. This work has been typed by Ms. Abigail Crear. Her outstanding typing skills and her commitment have been greatly appreciated. She has worked with me practically day and night during the final preparation of this thesis. Last but not least, I wish to express my deepest gratitude to my wife, Heidi Lisker, for her unceasing encouragement and many months of help and patient proof- reading. During the already-difficult time of her medical internship, Heidi accepted, with no lessening of spirit, the added pressures and lost weekends caused by this work. BERNARDO LISKER-MELMAN Cambridge, Massachusetts, July 1981. -7- TABLE OF CONTENTS Page TITLE PAGE......................................... 1 ABSTRACT........................................... 2 DEDICATION................................--- .3 COPYRIGHT NOTICE.................................... 4 PREFACE............................................ 5 TABLE OF CONTENTS..................................... 7 LIST OF FIGURES...................................... 11 LIST OF TABLES....................................... 13 I. INTRODUCTION 17 II. MEXICO: THE PEOPLE, THE GOVERNMENT AND AIR TRANSPORTATION 25 2.1 Introduction.......................... 25 2.2 The Land and the People................ 26 2.3 Legal and Political Background........ 48 2.4 The Executive Branch and its Structure............................... 60 III. MEXICO: ECONOMIC GROWTH, ITS CHANGING PATTERNS AND AIR TRANSPORTATION 69 3.1 Introduction.......................... 69 3.2 Leading Indicators..................... 70 3.3 Markets in Flux, Underdevelopment, and Air Passenger Demand.................... 85 8- Table of Contents (continued) P age 3.3.1 Unemployment and Income Distribution: General Patterns...... 85 3.3.2 Analytical Constraints.............. 97 3.4 Future Prospects.................... 103 IV. MEXICAN AIR TRANSPORT: REGULATORY FRAMEWORK AND STRUCTURE 107 4.1 Introduction.........................107 4.2 Regulatory Framework ................ 108 4.3 The Structure ....................... 121 4.3 Civil Aeronautics Directorship.......123 4.3 Federal Airport Authority............128 4.3 Airport Construction Directorship.........................133 4.3 Air Traffic Control.................135 4.3 Airlines and Markets................137 4.4 Overlapping Functions and the Need for a Central Authority........156 V. MEXICO-UNITED STATES AIR PASSENGER TRAFFIC: DIMENSIONS AND PATTERNS 165 5.1 Introduction...................... 165 5.2 Traffic Volume and Routes: An Analysis.......................... 166 5.3 Travel Patterns: An Analysis...... 218 5.3 1 Mexican Travelers: A Profile...... 219 5.3 2 American Travelers: A Profile..... 230 -9- Table of Contents (continued) Page VI. MEXICO: STATE INTEREST AND AIR TRANSPORT POLICY 239 6.1 Introduction......................... 239 6.2 Mexico: Policy-Making and State Interest........................... 240 6.3 Mexican Air Transport: Policy Framework.......................... 250 6.3.1 Background of the Policy........... 250 6.3.2 Policy Framework.................... 255 VII. EXICO: TOURISM AND DEVELOPMENT 269 7.1 Introduction......................... 269 7.2 Tourism: Structure and Policy Framework........................... 270 7.3 Tourism: Supply and Demand......... 295 7.3.1 Supply............................... 295 7.3.2 Demand.............................