(Adds airline and analyst comment, share prices, adds NEW YORK to dateline)
By David Shepardson and Jeffrey Dastin
WASHINGTON/NEW YORK, Nov 4 (Reuters) - Delta Air Lines Inc and Aeromexico can set prices and coordinate schedules for their U.S.-Mexico flights, but they must free up certain airport slots to bolster competition, the U.S. Transportation Department tentatively ruled on Friday.
The decision paves the way for the two companies to dominate the second-busiest market for travel to or from the United States. It comes after the U.S. airline industry has consolidated, with carriers operating more efficient itineraries and having more power to raise fares on some routes.
Opponents of the tentative ruling, which lets the airlines cooperate with immunity from U.S. antitrust law, have until Nov. 30 to raise objections.
The department said the decision benefits the public because Delta and Grupo Aeromexico SAB de CV can plan shorter layovers, increase flights and offer more destinations. The U.S. government has approved similar arrangements for many other airlines.
However, the department has proposed that the carriers divest 24 takeoff and landing slots in Mexico City and six at New York's John F. Kennedy International Airport to give budget airlines room to add flights.
Slot allocation in Mexico City depends "on confusing and often unwritten rules, making it extremely difficult for new entrants," the department said. "This remedy would allow for new, competitive entry at these airports that would not otherwise be possible."
In an unusual move, the department also proposed limiting Delta and Aeromexico's antitrust immunity to five years because it was unclear whether the divestitures and reforms in Mexico City would be enough to ensure low fares for travelers.
In a statement, Delta said it was reviewing the tentative decision and looked forward to implementing a cooperation agreement with Aeromexico. It is in the process of buying 49 percent of Aeromexico, similar to stakes it has taken in other airlines to influence how they operate and where they fly.
Friday's ruling "really gives Delta a huge advantage" over United Continental Holdings Inc and American Airlines Group Inc, which will be unable to compete for Mexico flights outside their major hubs, said industry consultant Robert Mann.
Delta's shares were up nearly 3 percent at $43.03 on Friday afternoon. Aeromexico's rose nearly 5 percent.
Budget carrier JetBlue Airways Corp, which had wanted the airlines to divest at least 30 slots in Mexico City, said it commended the department for ensuring greater airport access.
Aeromexico did not immediately comment.
Mexico's federal competition commission approved the airlines' joint venture in May.
Editing by Paul Simao and Matthew Lewis