FAA Receives Tentative Order for Cranky Jackass Award After US Airways/Delta Slot Swap Ruling

The final order has been released from the FAA and, in short, the tentative order stands. The FAA is requiring that Delta divest 14 slot pairs at Washington/National and US Airways divest 20 slot pairs at New York/LaGuardia before being allowed to complete their slot swap. This would then give Delta a net increase of 06_09_12 jackass105 slot pairs at LaGuardia and US Airways 28 slot pairs at Washington/National. Because of this, I am issuing a tentative order awarding the Cranky Jackass Award to the FAA. The comment period is now open and a final order will be issued pending further information.

The history here is a long one. Delta wants to “win” New York while US Airways wants to focus on its profitable operation in Washington. This swap provided a unique opportunity for the two carriers to play to their strengths, improve the offering for customers (bigger airplanes, additional routes) and instantly improve their bottom lines. The only problem? They needed a waiver from the FAA which would allow US Airways to transfer the LaGuardia slots. Slot transfers had been prohibited in recent years thanks to a temporary order that is still in effect.

The FAA came back and tentatively approved the waiver with extremely onerous conditions. The most onerous condition of all was the one requiring Delta to divest 12 of the 42 slot pairs it was proposing to transfer at National. It wanted the slots to go to a new entrant or limited incumbent (airline without a lot of flights there already).

US Airways and Delta weren’t happy about this, but they came back with a different offer. US Airways said it would give 15 slots up at LaGuardia (5 each to WestJet, Spirit, and AirTran) and Delta would give 4.5 slots at National. This was far below what the FAA asked for, but it was an attempt at compromise.

Now, the FAA has issued its final order affirming its tentative order. The only difference? The size of the bundles in which slots must be divested. The total number doesn’t change, and this just makes no sense to me at all.

Much of the final order is spent responding to accusations that the FAA doesn’t have the authority to require these divestments. I couldn’t care less about that. The question here is what is going to be best for everyone involved?

The FAA goes on to use some fairly strange logic to support its position. The argument is one we’ve heard before. US Airways and Delta will increase their dominance at each airport and that’s a bad thing that will result in higher fares. To offset that increased dominance, they’re requiring that the airlines divest all these slots to give to low cost carriers.

This logic works just fine if the low cost carriers were actually going to use the slots to fly to some of the markets where they are concerned about competition, but that’s far from what will happen. Instead, we’ll see the low cost carriers use slots to fly on the busiest routes that already have competition. The small cities end up worse off.

Let’s look at JetBlue. As part of their American swap, they found a way to get nine flights at Washington/National. Did they send those to Buffalo or Roanoke? Yeah right. They put seven of them in Boston, where American, Delta, and US Airways already fly. They also put one in Orlando, where US Airways and AirTran already fly. Lastly, they put one in Ft Lauderdale, where US Airways and low fare king Spirit already fly.

This says nothing bad about the low cost carriers. It just shows that where low cost carrier service works, there are already a good number of options. But the most important lesson here? While the FAA is whining about airlines not being able to get into National and LaGuardia, JetBlue went in and got nine slots all by itself. Other airlines could do the same if they so chose. They just don’t want to pay the price for entry.

By taking away slots from US Airways and Delta, smaller cities will lose service while bigger cities simply gain more. The FAA complains that Delta has already said it will stop serving Roanoke, Virginia from LaGuardia, but do they really think that by giving a bunch of slots to low cost carriers, Roanoke will somehow maintain service to New York? Please.

So why is my order giving the FAA the Cranky Jackass award tentative? Well, I want to see how this all plays out before making it final. If the airlines do decide to go forward with this (which seems highly questionable at best, I believe a federal appeal is on its way), then I’ll want to see which low cost carriers get the slots and where they’ll fly. I know what I expect to happen, but I’ll wait to see it before issuing the final order.

34 Responses to FAA Receives Tentative Order for Cranky Jackass Award After US Airways/Delta Slot Swap Ruling

  1. tharanga says:

    Couple things: While there were already some options on DCA-BOS, there will also be enhanced competition now, and much lower fares. It probably won’t last as somebody will drop out, and fares will eventually go back up again, but there is this short-medium term benefit for the consumer.

    And while anybody can buy into slots if they pay up, I do think it’s unfair that the original holder of the slots (or slot exemptions) just got them for free. The things have market value, so they should not just be handed out, instantly giving the airlines an asset for nothing. Take all the slots away, and auction them all off. Then all airlines are on an equal footing.

    As for Roanoke, who cares? They’ve got basic service to hubs, plus G4. Why should the government care whether they have nonstops to LGA? (I know they do care, but I don’t, so it doesn’t at all bother me that their tactics are counter to that goal).

  2. b757capt says:

    Cranky, GREAT POST. The DOT and FAA are not thinking clearly. This should have been allowed without issue. Its really getting old hearing about this no competition garbage.

    I wonder what the DOT will say about ORD-EWR or ORD-IAH in the next few months……

  3. frank says:

    and the WRIGHT AMENDMENT got axed for an airline that has a MONOLOPY at Love. Go figure.

    • nab says:

      But there is a big difference. Love is not slot controlled and anyone can go in there who wants to fight Southwest. It is the restricted number of slots that is the only real factor in this decision.

      Cranky, are there slots available for purchase at the two airports? If so, why is this whole thing an issue?

      • tharanga says:

        But Love is somewhat gate-limited. I’m not sure how easy it is to get in there.

      • CF says:

        Love is gate restricted and is effectively full, so nobody else can get in there, even if they threw money at them.

        You can get slots at National if you want – JetBlue just got 9 slot pairs so clearly they can do it. Slots at LaGuardia can’t be sold right now. (That’s why they need a waiver.) But I imagine that if someone really wanted to get slots, they could make a deal and apply for a waiver. The FAA isn’t going to deny that for a low cost carrier.

    • >>and the WRIGHT AMENDMENT got axed for an airline that has a MONOLOPY at Love.
      —————————————————————————————-

      …after being put in place 1979, for the pure benefit of a certain AAirline that had moved HDQ from NYC to DFW and developed its own MONOPOLY hub at DFW.

      God save us from revisionist historians, please…

  4. Ed Casper says:

    According to their joint press release US and Delta are going to appeal the ruling. I wonder how long the process will take. Meanwhile US Airways is allegedly losing a boatload of money at LGA. It’s too bad DOT had to be so rigid. They could have made a counter propsal. I’ve seen posters on other boards (most likely Republican ideologues) criticizing the Obama Administration for this ruling. But they conveniently forget that Ray LaHood is a Republican. Isn’t politics wonderful?

    • Well if USair is losing a lot of money at LGA then they can just drop LGA and pull out. They are choosing to lose money there which is dumb.

      • tharanga says:

        US could just dump LGA, but then they’d be giving up control of their slots, and getting nothing in return.

        Since the slots have market value, they want to get something for them. And that something is DCA slots.

        Also, if US just gave the slots back to the FAA, then US would lose any control it had over who would get the slots. US will still be flying the LGA-BOS/DCA shuttle, so it doesn’t want the slots going to somebody who’ll use them to bust into that market. DL is a safe partner in that regard, because they already run as many LGA-BOS/DCA flights as they would want to.

      • CF says:

        Actually, they can’t just walk away. The slots are used as collateral for some debt, so it requires some sort of swap to get other valuable assets, I believe.

  5. Dan says:

    Cranky, another “thumbs up” from this camp.

  6. David says:

    I’m an amateur on all this, but I’m also a DC resident. I have to say the prospect of SWA at DCA strikes me as a very good thing. So, why is all of this such a bad idea *for the consumer* if it leads to Southwest flying, for example:

    -DCA-MDW or
    -DCA-DEN (which United and Frontier currently charge an arm-and-a-leg for) or -DCA-MSY (which US used to offer, but no longer does)

    Again, I’m an amateur looking to be educated. . .

    • Dan says:

      This is why: “This says nothing bad about the low cost carriers. It just shows that where low cost carrier service works, there are already a good number of options.”

      And Cranky’s right. DCA-MDW? Although technically, there is no service on that airport pair right now, there is service from DCA-ORD, BWI-ORD, BWI-MDW, IAD-MDW, and IAD-ORD. I don’t think we need to bend over backwards to add even more DC-metro to Chicago-metro service. I forget what happened to the DCA-MDW slots that ATA had, but it seems if WN wanted in bad enough, it had its chance.

      DCA-DEN? I don’t know this route very well, but not to long ago, UA didn’t even fly it. For a long time, UA’s only DCA service was to/from ORD. I don’t know if F9 came in first, but there is competition on the route, even if you don’t like the prices.

      DCA-MSY, well, one would think if it was a profitable route, US would still be serving it as sole-incumbent.

      The point that Cranky made, and he’s right, is that the markets that are profitable for LCC’s already have service from existing carriers.

      • Ryan says:

        DCA has a 1,250 mile perimeter rule. You won’t see SWA flying a DEN-DCA route.

        • David says:

          Thanks. Just on the perimeter rule, both United and Frontier fly DCA-DEN today.

          • Jason H says:

            Exemptions are granted for certain airlines and certain routes. Frontier and Alaska come to mind because their flying to their hub from DCA and because our legislators want to be able to fly straight home instead of connecting.

          • CF says:

            There were a limited number of exemptions granted several years back to go beyond the perimeter. That’s why there is a single flight to LA, some to Phoenix and Vegas, etc. These are not part of the transaction so Denver service would not be possible.

      • tharanga says:

        Regarding new entrants only duplicating existing service: On paper, DCA-BOS also has plenty of competition – US, DL, AA.

        Yet the introduction of B6 looks like it will lower fares quite a bit, at least for a while. Getting a new entrant can shake up the complacent old ones, even if you’d normally think 3 is enough competition.

        So having a fresh entrant to a market can have an impact.

        • CF says:

          Yeah, and they got in there without being given slots. They did it on their own.

          • tharanga says:

            Granted. I’m just demonstrating that having a new entrant can shake up a market, even if that market is apparently well served. That, in response to your statement,

            “This logic works just fine if the low cost carriers were actually going to use the slots to fly to some of the markets where they are concerned about competition, but that’s far from what will happen. Instead, we’ll see the low cost carriers use slots to fly on the busiest routes that already have competition.”

      • let me step in here. DCA-MDW absolutely should be served again! ATA, of all airlines, filled 4 757s a day on that run so the demand is obviously there. what’s the rationale in not serving that again? because somebody thinks there are “enough” options from WAS-CHI? you wanna hike to ORD, BWI or IAD? be my guest. but ask anybody in chicago’s loop which airport they prefer and ask anybody in the district which airport they prefer. it’s just common sense to link each city’s most convenient airport.

        DCA-MSY is still served by US w/ 4x RJ (70 seaters i believe) service; in fact, I’m flying that run on Friday so I can personally attest to its existence.

        UA flew one, maybe two, DCA-DEN flights per day before F9 arrived at DCA. the perimeter rule still exists, sort of, but you can fly nonstop from DCA to many cities outside the perimeter including LAX (Alaska), LAS (US), PHX (US), SLC (DL), SEA (Alaska) and DEN (UA, F9). I’ve been on all of them nonstop from DCA except to seatac. Surprised (and disappointed) that UA never got a senator to complain about lack of service to SFO, the only major city we are missing.

  7. Maybe it’s time for the Feds to strip all the airlines of their slots at LGA/DCA and set up a schedule of service to markets they feel should have nonstops to LGA/DCA. Then let the airlines bid (and pay) to service those routes. Maybe even bundle them, like if you want to fly LGA-FLL you also have to take LGA to a couple of smaller cities. Now that would be interesting to see how it would play out.

    • tharanga says:

      I’d rather just have the airlines bid on slots that have no strings attached. Let them all fly whatever they want to fly. So long as they pay for the access, and the hourly number of flights doesn’t exceed the capacity.

      And dump the perimeter rules, while we’re at it.

  8. Pingback: The Slot Swap Drama Continues - Things in the Sky

  9. Sanjeev M says:

    The gate restrictions at Dallas Love is because the state of Texas wants to support only Texas based airlines – AA, CO, and WN.

    1. It would be interesting to see what happens with the 2 gates CO has at DAL because of the United merger.

    2. More importantly, the FAA could grant Southwest access to DCA (somehow) in return for making sure other airlines (Read: JetBlue) can get into Dallas Love. But to tell you the truth, if JetBlue can get into DCA on its own, so can Southwest.

    3. Dumping the perimeter rule is ok with me, or at least expand the quota.

    • tharanga says:

      You can get into LGA and DCA on your own, but it seems like the easiest way is to have other slots to swap, or to buy a failed airline. How many slot re-sales have there been for just plain cash, paid to a currently healthy carrier?

  10. David says:

    I don’t know this route very well, but not to long ago, UA didn’t even fly it. For a long time, UA’s only DCA service was to/from ORD. I don’t know if F9 came in first, but there is competition on the route, even if you don’t like the prices.

  11. >>The gate restrictions at Dallas Love is because the state of Texas wants to support only Texas based airlines – AA, CO, and WN.
    ————————————————————————————–
    That statement is so fundamentally wrong on so many different levels that I hardly know where to begin.

    I’ll start by noting that the State of Texas has zippo to do with anything. The rest I’ll leave to you to educate yourself on Wright Amendment v1.0 and v2.0 that covers the years 1979-the present.

  12. Chris says:

    So, if the markets that LCC’s want to serve are already being served, why is it the LCC’s have to make the sacrifice to serve the smaller cities. The larger carriers with more market share should keep the service to the smaller cities. If those routes are so profitable, why are they being dropped? Go where the money is. More carriers, lower fares. Feed more people thru other cities.

    Alos, getting slots is a huge pain in the ass. No one is giving them up for nothing. Getting the slot is one thing, now where is my gate. Anyone up for sharing?

  13. stan says:

    allowing delta to own laguardia under their proposed conditions is asinine and anti-competitive. i applaud the faa’s decision.

  14. tharanga says:

    Even with the deal, I think DL would ‘own’ less of laguardia than CO owns of EWR. But LGA is special, I guess.

  15. Pingback: Delta and US Airways Cancel Slot Swap, Feds Lose Game of Chicken, Win Cranky Jackass Award - >> The Cranky Flier

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