DOT Attaches Foolish Conditions to US Airways and Delta Slot Swap in New York and Washington

The DOT has decided that the proposed Delta/US Airways slot swap in New York and Washington is perfectly acceptable . . . as long as the airlines agree to sell off a bunch of the slots to new entrants first. I will be shocked if the airlines go for it, and that means that basically nobody wins. Way to go, DOT. (You can read the full ruling here.)

First, The DOT Loves Low Cost Carrierslet’s refresh our memories on the details of the plan. US Airways will give up 125 slot pairs at LaGuardia along with terminal space. In return, Delta will give up 42 slot pairs at Washington/National and route authorities to Sao Paulo and Tokyo/Narita. The idea was to let each airline play to its strengths in its largest markets.

Delta has been focused on “winning” New York, as we all know by now. This was going to let them serve more cities from New York than they do now, and they said it would also let them move some flights from JFK to LaGuardia in order to focus on the international hub operation at JFK. They were going to maintain flights to the markets which US Airways was leaving but they would use regional jets instead of turboprops.

Down in DC, US Airways was much more detailed in its plans. It was going to pick up the markets that Delta left, but it was also going to add service to 8 cities that don’t see nonstop service from National today. The Tokyo and Sao Paulo flights were independent, but important for them to grow their international presence in markets that are highly restricted.

The plan seemed very smart to me. There are a lot more US Airways loyalists in DC and Delta loyalists in New York, so they likely would have been happy to have the additional service from their preferred carriers. Also, additional cities would have seen nonstop service to LaGuardia and National that they don’t see today.

But now, my guess is that this plan blows up unless Delta and US Airways figure out a way to sway the DOT’s opinion. Why do I say that? Well, the DOT was fine with the plan as long as the airlines sell off some slots first. They had the biggest concern in Washington where they required Delta to sell a full third (14) of the 42 slot pairs first. US Airways will have to sell off 20 slot pairs in New York.

And these aren’t just slot sales. They are sales to airlines that hold less than 5% of the slots at each airport. No cheating allowed – the sales can’t be to any airline that is owned by Delta/US Airways or even one that codeshares with them. That pretty much means it has to be to a low cost carrier.

If you’re US Airways, would you agree to give up 14 slot pairs to an airline that is likely going to compete with you head-on just to get 28 slot pairs? I think not. What’s worse is that the low cost carrier would undoubtedly just add service on routes that already have flights today. The smaller communities would lose out.

So if this holds, I imagine it means that deal is off. In fact, they’ve said as much. US Airways President Scott Kirby said in a letter to the troops,

At this point, while we are still analyzing the DOT’s proposed ruling, we expect that if the DOT’s order is implemented as proposed (there is a 30-day public comment period before the ruling becomes final) the transaction will not go forward.

That means that pretty much everyone loses, except for the DOT which can continue to try to claim that it has saved the traveler from paying high fares, something that I think is questionable. They seem to rest on that fact that higher carrier concentration automatically means higher fares, even if most of the routes will continue to see service by one carrier, just a different one than before. (See my review of competition on these routes.) Is there any salvaging this? I hope so.

One of the complaints the DOT raised in its response is as follows:

While the carriers have made public some of their new intended services, including new service to small communities, they have not released all intended service changes.

However, it is apparent that is the proposed transaction is approved, the carriers will increase the number of markets they serve on a monopoly or dominant basis. As the two carriers reposition at LGA and DCA, there is no assurance that all markets currently being served by the departing carrier will be maintained by the new carrier.

Maybe if Delta and US Airways came out with specific service plans and included a guarantee to serve the smaller communities for a certain amount of time, the DOT would look at this differently. That would be the last gasp that I can imagine. Otherwise, it looks like the deal is dead, and nobody wins.

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