US Airways and Delta Throw Down with the Feds and Southwest Over Slot Swap

This whole US Airways/Delta slot swap in DC and New York just keeps dragging on and on. Have you had enough yet? Just wanna see it end? I’m with you, but the fight continues, and Delta and US Airways are done playing nice. In their latest filing with the feds (I can’t find it on regulations.gov so you can download here), they take aim at the FAA for not having the jurisdiction to require divestiture and at Southwest for, well, being a punk, it seems.

Delta and US Airways Fight FAA and Southwest

The filing starts off as you might expect, with a summation of their new plan to sell slots to a few other carriers and an explanation that it is so totally awesome, the FAA should be all over it. You know the deal, but as a refresher, they’ll give 5 slots each to Spirit, WestJet, and AirTran at LaGuardia along with 4.5 slots at National. Actually, I didn’t know it was 4.5 slots until I saw this, but I assume they’ll just get the other half slot during an off peak time where slots are currently available. Otherwise, that plane will be stuck at National forever.

After we get past the formalities, they start revving up the anti-Southwest machine. Why should the feds approve this deal and not require an auction of slots?

. . . unlike an auction, which would likely lead to Southwest obtaining all the slots, the modified transaction transfers slots to multiple carriers.

Oooh, slam. Why are they hating on Southwest? Well, first of all, they say:

For it’s part, Southwest simply seeks to exploit this transaction to obtain a competitive advantage for itself.

Also, Southwest filed comments that they’re strongly against the deal, and now Delta and US Airways are letting it rip. They go on and on about how Southwest has had numerous opportunities to get in to National yet they haven’t done it. That’s true. If you really want in, you can find a way, but apparently getting slots from Delta and US Airways are not going to be an option.

Delta and US Airways may not be thrilled with Southwest these days, but they’re pretty happy about American and JetBlue. See, the American/JetBlue swap gives JetBlue even more of a presence at National which, in their eyes, makes for better competition (or so they hope the FAA believes). But regardless of which airlines they love and which they hate, they reserve much of their wrath for the feds. At one point, they even offer a (very) thinly veiled threat of legal action.

Approving the proposed modified transaction would also have an additional important benefit for the FAA. It would allow the FAA to avoid acting in a manner that would subject it to legal challenge. The parties retain the right to challenge any imposition of a divestiture condition, and such litigation would be likely if the modified transaction is not approved.

I won’t bore you with all the details. I mean, these guys must be paying the lawyers a lot, because they’ve cited a lot of precedent and highlighted many inconsistencies in great detail. You can read through this lengthy document on your own. In my eyes, there really were two points that stood out.

  1. The DOJ’s claim that the FAA’s proposed divestitures will not interfere with the transaction’s benefits ignore the parties’ unequivocal statement that they will not go forward with the transaction as conditioned by the FAA.
  2. [The DOJ] completely fails to acknowledge the loss of service to small and medium communities that would likely result from its proposal.

I think both these points are important, though the first one has lost some of its power. They seemed to be pretty certain that this deal wouldn’t get done if they had to give any slots away, but they came back with a modified proposal that offered just that. Do I believe this is the absolute final deal? You know, maybe if you get them in a room they could go back and forth a little bit but I doubt we would see any substantial changes going forward. It’s take it or leave it.

That second point is the one that I think is always overshadowed here. You get a low cost carrier in there and they are going to fly on routes that already have flights. They’ll look at the Bostons, the Chicagos, the Atlantas, and the Floridas. While it’s certainly nice to have more competition in those markets, it’s also important to offer more diverse flying opportunities. The low cost carriers won’t serve the small cities, but US Airways and Delta will. That’s why the smaller cities are lining up to support this swap. They want service, and I don’t blame them.

This filing takes on a pretty aggressive tone, and that’s kind of fun to watch. It appears that they certainly are ramping up for a lawsuit if necessary, but hopefully that’s just posturing and it won’t need to get to that point. I still think this swap is the right thing to do.

Of course, if the once-again-hot rumors of a US Airways/United merger are true, this deal is completely toast. But that’s a post for another day, if these rumors ever become more substantial.

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