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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27 Comments on "DOT Attaches Foolish Conditions to US Airways and Delta Slot Swap in New York and Washington"

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JM
Guest

Let’s see…

This deal was opposed by US Airways’ unions and we have a pro-union Obama Administration running USDOT.

Delta is a largely nonunion carrier– and it would have benefitted them, too– so….

Nah. Purely coincidence.

David SF eastbay
Member
At first glance you would think that it makes sense since it would give to much power to DL in New York and US in Washington. But there are other carriers in the metro markets so wouldn’t it balance out? No one seems to care that CO dominates EWR or UA IAD. So it’s not like no other carriers fly to the smaller markets from each metro area. Also did anyone care when US dominated BWI. Not everyone from these smaller cities just flys to NYC or WAS, but a large number I would guess would connect via LGA or… Read more »
Ed Casper
Guest
I tend to agree with your assessment. Are you going to comment to DOT? I hope this is simply part of a negotiation process and a reasonable compromise can be struck. I can see a smaller slot divestiture as one way out. It seems to me as an uninformed (as least as to the nitty-gritty of airline regulatory practices) observer, that US and Delta made an initial offer and DOT has made a counter offer. Now it’s time to get down to finding a deal everyone can live with. I hope that happens. I could be mistaken, but I read… Read more »
Greg R.
Guest
The benefits to the consumer are murky at best and replacing turboprops with regional jets isn’t necessarily an improvement at all. Concentrating the market power of those two airlines in those two markets doesn’t really have a substantive argument behind it with respect to ensuring greater value to the consumer in dollar terms. More connections, different planes isn’t a cry that is even being heard in those markets now. Just because previous governments have ignored that kind of concentration doesn’t make it right. And government isn’t there to represent corporations over individuals. Anti-trust issues have long been ignored and it… Read more »
Zack Rules, Albany, NY
Guest
Zack Rules, Albany, NY
I think that the DoT’ requirements are more than reasonable. DL and US aren’t utilizing their existing slots to the maximum (IE using larger plane) and the DoT’s trying to get them to do this. Instead of DL providing three daily flights to Greensboro on 50 seat jet, they may have to shrink to two on 76 seat jets. Otherwise, they’ll just sit on slots as they do now, serving place like Buffalo and Albany with excessive numbers of turboprop flights and in effect keeping out competition from carriers that would use full size jets. DoT isn’t asking for the… Read more »
chrish
Guest
I think the DOT requirement is more than fair considering what is being requested. First, there is already a process at both LGA and DCA for airlines to rid themselves of routes that at not profitable. They discontinue to flight or route and hand the slots back for reassignment. DL & US are attempting something significantly out of the norm that will make them both significantly more dominant at their chosen airport. At LGA many smaller NE cities will go from 3 airlines down to 2 or 2 down to 1. DL shifting flights from JFK to LGA will also… Read more »
tharanga
Guest

How often do voluntary sales of slots occur? Is there a list someplace, with prices?

New entrants were able to just buy their way into LHR. Why is it so much harder at LGA? Or is it?

Where exactly did B6 get its LGA slots from? Did US ever pay for its existing slots, or were they just given away and grandfathered in when slots were introduced?

Simon
Guest

American Airlines wins, that’s for sure.

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Nick Barnard
Member

Hrm. The government is standing in the way of ratioalizing servichatEhat if the DOT stated that the airlines buying these slots had to serve airports of the same population in their MSA as US and DAL would have to stop serving? No one would want the slots.

tharanga
Guest
If what they want is competition, they should encourage a healthy and active market for slots. They can still block any sales that would create too much consolidation. My impossible proposal is to have all slots expire every 10 years, with the new slots to replace them being auctioned off. In that model, an airline would be more motivated to sell off slots it isn’t using well (like US at LGA). Get some money for them, while they’re still worth something, before they expire. They can always try to gain them back at the next auction, if their fortunes change.
Ron
Guest
Isn’t this just a case of DOT trying to capitalize on an opportunity that happened to come their way? They would probably be happy to redistribute slots to new entrants on a regular basis, but they can’t force slots away from existing carriers. Well, now they can, so they do. Regarding DCA, I think the right thing to do is just get rid of the airport. It’s a security and safety risk, and it sits on land that’s potentially very valuable. Redeveloping the land should raise enough money for providing true high-speed access to both BWI and IAD; at least… Read more »
Gary
Guest

@ Ron:
You’re right on target. Any other place in the nation would already have closed the downtown airport like Kansas City did, but the senators and congressman overlook the incremental increase in safety for their own convience of getting to the airport from their offices in 10 minutes.

Ron
Guest

@Gary: Move the BWI rail station into the terminal and you’ll get there in 20 minutes from Union Station, which is 4 blocks from Capitol Hill.

chrish
Guest
“At LGA many smaller NE cities will go from 3 airlines down to 2 or 2 down to 1. DL shifting flights from JFK to LGA will also eliminate Intl’ options as well.” CF That’s not true. US Airways will stop serving 26 routes. Of those, 21 are not served by anyone else today from LaGuardia. So Delta will just keep the status quo in those markets. Of those 5 remaining markets, 3 will go from 3 competitors to 2 while 2, Savannah and Charleston, will go from 2 to 1. Of course, those do have ample service from Continental… Read more »
dan powers
Guest

for delta…it could be a blessing in disguise- having a split hub=jfk/lga usually does not work well

Tom
Guest
Let’s see, these airlines will be closer to having a monopoly at the respective airports,which means that travelers will have higher fares and less choices. They may get a few more non-stop destinations, as long as they are willing to pay a small fortune for that opportunity. Overall, I am not sure how consumer travelers benefit from this situation. If they were not slot restricted, I would see less problem, but making this exchange with the restrictions would prevent competition. Overall, the relatively low number of slots lost still seems like a good deal for these airlines, although the penalty… Read more »
dondelta
Member

When is the last time you saw anything that made sense come out of Washington?

BJ
Guest

Is there any way we can voice our opinion to the DOT?

Andrew
Guest
From the article… “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.” Continental has not initiated any codesharing with US Airways and they seem to not really want to; they are only reaping the benefits of being in the same alliance. Since CO definitely has less that 5% of the… Read more »
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