There’s great news for people in bigger cities, primarily other hubs. Delta will be providing some competition there that didn’t exist before. But that growth means someone else loses, and it’s primarily smaller cities. This isn’t really a surprise, but it’s going to make people pretty unhappy that need those routes. Ultimately, these can be divided into four different categories. Let’s go through each of them.

Big Cities, Big Winners
What Delta is really trying to do here is offer frequent nonstop service in top business markets. That’s good for travelers but not for other airlines. The biggest likely loser? American.

Of these 14 cities, American serves five of them nonstop, so it won’t be happy. As if that’s not bad enough, Delta’s new flights to Halifax will certainly pull from JFK, where American operates the only nonstop flights to Halifax today. For two cities, Nassau and Halifax, this will be the only nonstop flights in the markets, so they’re just going to be happy in general.

You’ll notice that Halifax, Montreal, and Ottawa all are getting service but Toronto is not. Seems strange, right . . . oh wait not so much. Remember, some of those divested slots went to WestJet, and the expectation is that most if not all will fly to Toronto. Oh, and did I mention that Delta and WestJet are planning to codeshare? Not so much of a divestment, eh? Here’s the list of winners.

A Little Bit of Growth
Those markets above aren’t the only winners. Others will actually see some growth or at least stay the same. These fall into a couple different categories.

Most of them are markets that are already served by Delta today but aren’t served by US Airways. In these, Delta is adding an additional flight, so it’s all good news for this group.

There are two that don’t fall into that category. Washington/Dulles will see its 4 daily US Airways flights replaced with 4 new flights from Delta. That might seem like a wash, but US Airways loyalists could always fly United before and can continue to do so and still earn miles. Delta brings convenience to its loyalists, so it provides better utility. Also, some will be happy to see jets replacing turboprops, but that doesn’t matter to me.

The last one is a special case. The 4 daily US Airways flights to Syracuse will be replaced by 5 from Delta. Not bad, but why is this happening? Delta has been particularly careful to court the New York politicians in this process. That relationship has helped open plenty of doors, so those upstate New York markets will be taken care of quite nicely. Here’s the list:

Just a Haircut
Now it’s time to start talking about the losers, but let’s ease into it by talking about those with pretty mild losses to start.

In this group there are really two types of cities. The first group loses the least. These are cities that have US Airways service today but no Delta service. The US Airways flights will disappear and Delta will step in, just with fewer frequencies. These cities get “upgraded” to jets, and they’ll have at least two flights a day. So, there is a loss in terms of the number of flights but it’s pretty minor.

The other group will be less happy. These are cities that had both US Airways and Delta service before, but they’ll now be losing US Airways completely. In return, these cities will get more flights from Delta, but not enough to replace what was lost by US Airways. It also means there’s one less competitor in the market. Here’s the full list:

Little Cities, Big Losers
It’s time to talk about the bad news. There are some cities that are just getting wrecked here. In general, the plan is this. These cities have service from US Airways today and that’s all going away. Delta’s either not coming to these cities or it’s adding a single, measly flight.

Basically, it sucks if you need to go between these cities and New York because your options are greatly reduced. There is one in this list that’s not like the others. That is Baltimore. Delta has declined to go into that market, and I know why. Southwest is the only other airline in the market. So people who need to fly between New York and Baltimore still have an option, but Southwest only has 3 flights in there. US Airways has 7 flights that are going away, so this market is taking a big hit. It’s just not as bad as those markets that lose absolutely everything. Here’s the list:

As you can see, there are some winners and some losers here. In general, the little cities are the odd men out, but many smaller cities do retain at least some service. It’s completely clear why Delta is doing this. It wants to make its slots at La Guardia as useful as possible, and that means serving larger markets. Delta is also upping its game at JFK (I wasn’t able to get the full details on that one yet), which will really make it so that Delta can adequately get anyone in New York to just about anywhere they need to go.

As I said above, this hurts American the most. American now becomes an even more distant third place in New York, and that’s even if you count JetBlue as its partner. For Delta, this is a smart way to use the slots. Of course, I say that as someone who doesn’t have to travel to Ithaca or Providence.

At La Guardia, there were two bundles of 8 slot pairs being auctioned off. That means that two airlines will get the right to operate 8 takeoffs and 8 landings per day at good times. The bidders had to be either new entrants or airlines with very small presences at the airport already. One of the winners has been officially announced . . . WestJet.

That’s right. Those crazy Canucks are swooping in to fly 8 daily trips to La Guardia. It’s not a surprise that WestJet was interested. The rumors were that WestJet’s proposed partnership with Southwest ended over something closely related to La Guardia. See, WestJet wanted to be able to partner with multiple airlines in order to help feed its network. This was important at La Guardia, where Southwest couldn’t add much. Southwest supposedly didn’t want to see WestJet partner with anyone else. The partnership ended so that WestJet would be free to pursue a life of religious fulfillment, er, um, multiple partnerships.

Earlier this year, Delta launched an interline partnership with WestJet. I imagine we might see it get a little cozier now that Delta will have so many flights that could feed WestJet. Someone is going to need to fill those 8 flights, most if not all of which are undoubtedly bound for Toronto.

But what about the other eight? That’s a bit more of a mystery. Though it hasn’t officially been announced, Bloomberg reports that JetBlue won that bid. It also is said to have picked up the 8 slot pairs down at Washington/National as well. That’s a big win for the Blue Crew.

JetBlue’s interest should be no surprise. It already runs just shy of a dozen daily flights out of La Guardia to Ft Lauderdale, Orlando, and West Palm Beach. At National, it has nine with flights to Boston, Ft Lauderdale, and Orlando. This will help the airline expand its reach at those airports with a nice chunk of new slots.

So is anything surprising about this whole thing? You bet. The most surprising thing is that Southwest didn’t win anything. It has a gajillion* dollars in the bank (*rough estimate) and certainly could have outbid anyone if it wanted. It has made serving big cities a priority lately as a way to get its customers wherever they need to go in the US.

Southwest fought its way into La Guardia when it got 8 slot pairs there to start flights to Baltimore and Chicago. It gained more when it acquired AirTran, which has about 20 slot pairs. It acquired its first beachhead at National with AirTran’s 12 slots there. So you would think it would have been hungry for more, and in fact, it has expressed great interest in the past. It just somehow got outbid this time.

So, Southwest fans won’t be thrilled, but JetBlue lovers should be. There will be more JetBlue flights coming soon, assuming the deal gets done. And Canadians can rejoice that they will have another option to get to New York.

Now we just have to wait for all the “i’s” to be dotted and “t’s” crossed. Oh yeah, and we’re still waiting for final governmental approval in a couple areas. But things are starting to shape up nicely.

If you want to follow this closely, head on over to Things in the Sky. Dan Webb is keeping a close eye on this.

[Original photo via Flickr user Bob n Renee/CC 2.0]

After last week’s post on American’s decision to order 460 new airplanes, I had some great offline conversations with people about it. I still stand by my belief that it was a good move. I have no doubt American beat up the manufacturers to get a great deal, and it will certainly help to lower operating costs when the airplanes start coming in, probably at little to no additional cost to American. But that doesn’t mean that American’s problems are solved. If American thinks this is the solution, and I really can’t imagine that’s the case, then the airline is screwed. This doesn’t touch American’s revenue problems at all.

The news that Delta and US Airways received approval of the slot swap provids a great contrast between Delta/US Airways and American. Delta and US Airways have been very proactive at doing the right thing and improving their respective businesses. For US Airways, it’s been all about focusing the business on reliability, convenience, and appearance while re-forming the route network to fit its strengths. US Airways shut down the money-losing Vegas operation. It got rid of all the non-hub flying on the east coast that was a drain. It cleaned up its airplanes, and focused on on time performance. And now, it’s ditched its turboprop-based hub at La Guardia in favor of strengthening its position at Washington’s National Airport where it’s a much stronger player and can draw better revenue.

For Delta, the change has been no less significant. It has pulled down flying at minor hubs like Cincinnati and more recently Memphis. It’s parking smaller airplanes and cutting service to small cities that simply aren’t profitable. The airline built up a more comprehensive premium product and has worked on setting product standards from its 70 seaters on up. It has positioned itself as a technology leader in a variety of ways, and it has worked hard to improve the airport experience. Now, it can trade its Washington position in order to strengthen its already strong capabilities in New York.

For both US Airways and Delta, this is yet another effort to play to their strengths, and it’s going to provide a great deal of benefit to both. Let’s contrast that with American.

Instead of doing hard work on its own, American is relying on partners to fix its problems. It has put its eggs in the joint venture basket – saying that its partnerships with British Airways/Iberia as well as with Japan Air Lines will spike revenues. It’s built up a partnership with JetBlue to feed its flights in New York and Boston. That’s nice, but it doesn’t fix the structural problems. It’s just a patch.

If you didn’t see the investor report issued by Bob McAdoo back in May, then you missed out on a scathing review. Bob noted some very simple things, like the fact that American’s 10 worst routes lose about $450 million a year, more now that oil has spiked. He uses Chicago to London as an example. American gets a much lower fare than United but it flies larger airplanes and has more frequencies. The same goes from JFK to LA and San Francisco. The average fare to LA has dropped over $100 since 2000 but the level of service stays the same, losing money all along the way.

Instead of addressing these big problems, American pokes around the edges. Sure, it made some moves, like slowly killing the San Juan hub, and cutting some vestigial flying, but it’s been mostly minor changes. It stops flying routes like San Francisco to Honolulu and starts flying to Helsinki and calls that a strategy. (This week, it’s building up Ft Lauderdale a little. Woohoo.) It has its cornerstone strategy of focusing on LA, Dallas, Chicago, New York, and Miami. That’s fine. But instead of just culling service around those cities, it seems the problem is how American serves those cities in the first place, at least that’s what the McAdoo report makes very clear. Then there’s New York. Delta has made huge strides in New York, and it will now have a ton of new service from La Guardia to offer up to its corporate clients. American stands still.

It’s not just the route network but the onboard product as well. The most glaring deficiency is that American is the only long haul domestic airline without a plan for flat beds in business class. It rolled out its substandard business class about the time United went fully flat, so it was obsolete from the start, and nothing has changed. Even US Airways has been actively rolling out flat beds.

Even when American has been a leader, it’s quickly fallen behind. It was an early adopter of gogo inflight internet, but it only put it on a limited portion of the fleet. While Delta put it everywhere, American stuttered and is only now catching up. Hopefully some of its more forward-thinking moves, like working on streaming video with gogo will actually go past the testing stage and give the airline a leadership position in . . . something.

I’m sure many of you will say a merger is the answer, but it’s most definitely not. American’s costs are higher than any potential merger partner, so it would effectively kill an airline that works well today on its own. The math becomes 1+1=0.5 if they were to do an ill-advised combo. So the weight falls squarely on American to do the hard work. It has spent a lot of time raising cash, but it keeps losing money while others profit. Instead of slowly bleeding cash, American needs to invest that money into fixing its problems.

The airline might want to take a hint from its partner Qantas, which is about to make some major changes on August 24 in order to get its house in order. Will these be popular? Not all, but that’s not the point. The point is turning the business around at all costs.

Get bold, American. Do something to get those revenues jumping.

Here’s the plan this time around:

US Airways no longer wants the Japan slots it had wanted before, mostly because there is now an open skies agreement between the two countries and it doesn’t need to buy them. It also will no longer give up its terminal location in LaGuardia as before. Delta will get a few more slots in the deal, and US Airways gets a bunch of cash. Here’s the full rundown depending upon where you live:

For Washingtonians

• Delta will give 42 slot pairs (1 slot pair = 1 departure + 1 arrival) to US Airways at National and US Airways will begin service to at least 15 new destinations. Back when US Airways first announced it would do this deal in 2009, it gave 15 new destinations it would serve, so I imagine it will be similar.
• Delta will continue to serve its 7 (!) domestic hubs from National – which I assume are New York/JFK, Atlanta, Memphis, Detroit, Minneapolis/St Paul, Cincinnati, and Salt Lake City along with the shuttle to LaGuardia and some “select” cities, whatever that means. Delta never gave us any inkling before, so we can only guess now.
• This is pure speculation, but I would assume that US Airways will acquire more gates on the middle pier at National which would allow United to move to some old Delta gates on the south pier to be right next to Continental.
• If needed, Delta will give an additional 8 slot pairs to be divested for use by airlines with limited or no service at National. US Airways would still end up with 42 new slot pairs regardless. I assume the feds will make this a requirement.

For New Yorkers

• Delta will get a whopping 132 new slot pairs (up from the 125 in the first dealin the last deal, Delta would buy 125 but lease another 15 with the option to buy, so this is actually a decrease) at LaGuardia. We have no clue where they’ll go, but we can expect to see Delta replace US Airways on many of the airline’s current routes. Delta also says it will double the number of total destinations it serves, including some that aren’t currently served by US Airways.
• Delta will use an all-jet fleet at LaGuardia instead of the turboprops that US Airways currently uses. Wanna guess where those jets are coming from? My guess is the obvious. (*cough*Memphis*cough*Cincinnati*cough*)
• US Airways will give up 18 of the 20 gates in its terminal at LaGuardia (called Terminal C) to Delta. Delta will use those plus 11 in its current terminal (now Terminal D) for 29 in total. Delta will then build a connector between the two terminals so that it can operate as a single terminal from a passenger perspective. (They aren’t physically connected now.)
• Delta will continue to run the Shuttle from LaGuardia to Boston and Washington from six gates in the Marine Air Terminal, which is a change from the previous plan to consolidate in one place.
• US Airways will still have two gates in LaGuardia’s Terminal C along with 7 other parking spots from where it will run its operation have 6 gates once the terminal is reconfigured to add more spots plus 3 parking positions for regional jets. It will continue to have the Shuttle to Washington and Boston along with flights to Philly, Charlotte, and Pittsburgh but that’s it. The previous plan to keep Wilmington (who knows why) won’t happen.
• Delta will take over the current US Airways Club at LaGuardia in Terminal C and turn it into a Sky Club to complement the existing club in Terminal D. US Airways will build a new, smaller lounge for its operation.
• Delta (not US Airways) will give up 16 slot pairs at LaGuardia to new entrants if needed, and you can bet that will be the case.

On top of all this, US Airways will get a slot to fly to Sao Paulo in 2015, which is on top of another slot it already has acquired on its own. As mentioned above, the Tokyo slot that was previously included is gone since Japan and the US now have open skies. To make everything work out after these changes, Delta will drop $66.5 million into a US Airways bank account.

So why do I say this is a done deal? Because it has to be. US Airways and Delta had filed an appeal in the courts to force the feds to allow this to happen. As part of this new deal, the airlines are dropping the appeal. There has to have been a lot of backroom bargaining here. The feds must have given the green light behind the scenes or these airlines wouldn’t have bothered making another proposal. To me, the only question is who will get those divested slots and will the full amount be required.

As Delta and US Airways both make clear, things have changed a lot since the swap was first proposed nearly two years ago. Southwest has gone into LaGuardia on its own and its purchase of AirTran gives it more slots there as well as some at National for the first time. JetBlue has found its own way into National as well. So there is a lot more low cost airline penetration and connectivity to the rest of the country. It should be enough.

I’m actually surprised that Delta is willing to pony up 24 slots just to appease the feds here. But Delta has been foaming at the mouth around cementing its role in New York and this would be a huge step forward. It would also be a major slap at American. The new United and Delta will be the two biggest players in the New York area and American will have to figure out how it wants to respond, if it does at all.

I still like this swap a lot, and I think it should have been approved two years ago. Let’s hope that this is effectively a done deal at this point.

Updated 5/26 @ 1009a to reflect that I forgot about the previous deal to lease 15 slots to Delta at LaGuardia. Also received clarification from US Airways that the terminal will be reconfigured and it will still have 6 gates plus 3 parking positions at LaGuardia.

You’re probably thinking that B looks best, and there’s no chance anyone is going to pick deal A, right? But that’s exactly what’s just happened now that the Department of Justice (DOJ) has given its approval to United and Continental to merge. All Continental has to do is take United’s 18 daily flights and give those slots (or equivalent) to Southwest. Done deal. Those other two deals? Yeah, that would be the rejected slot swap between Delta and US Airways in Washington (C) and New York (B).

I know, I know. These are totally different things and the approvals came from different branches of government. True, but it also shows how screwy it can be dealing with the feds. I should be clear here. I think the Continental and United deal should be approved. I just think the slot swap should have been approved as well.

Let’s start with the Continental/United deal. Apparently, the Department of Justice (which tends to be more strict than the Department of Transportation) had no concerns about this deal outside of Newark. Newark, of course, is a highly-congested airport with no slots available. So Continental agreed to permanently lease 18 slot pairs (the same number of flights United operates today) to Southwest. In other words, United gives up its slots to Southwest and everything else is fine. Here’s the state of the airport after this deal.

I’m sure Southwest is thrilled to be getting in there, but it’s still a pretty small number of flights in the scheme of things. And of course, everyone else is still frozen out for now. Contrast that with the slot swap deal. First, here’s the Washington/National chart had the deal been allowed to go through.

Here you can see an airport with more balance and greater low cost carrier penetration than Newark, but that’s nothing compared to LaGuardia.

When compared to National, there’s a greater transfer of slots here, but the dominant carrier would still have held a smaller position than at the other airport. Note the even higher LCC penetration of 12.7%. That’s more than double where Newark will be after Southwest gets its 18 slot pairs. So what gives?

Well it’s hard to say exactly what’s going on when you’re dealing with political bodies. Making sense is never the highest priority. But in this case, I would assume it’s simply an issue of looking at current versus potential scenarios. Continental won’t grow in Newark with this transaction while Delta and US Airways would have grown at LaGuardia and National respectively in that deal. Really, that shouldn’t be the issue here.

If the feds want to act like they’re sticking up for the consumer, they have the ability to hold airlines over a barrel. The Department of Justice chose not to do that with Continental and United while the Federal Aviation Administration has apparently gone the opposite route with the slot swap. Go figure. One thing we do know is the feds do seem to love Southwest these days.

You’ll remember that Southwest voiced a large number of objections when it came to the slot swap. The feds came back and agreed with the airline. Remember, Southwest actually said that open auctions were the best outcome. Now it’s gone and done a back-room deal. Not bad for Southwest, and certainly not bad for Continental and United. Then again, it probably just frustrates Delta and US Airways even more. Or maybe not.

Maybe this suggests that the better path for US Airways is to get bought (as they’ve been saying for some time anyway). Then it won’t need to get an FAA waiver to give its LaGuardia slots to another airline. It’ll be that other airline, so the FAA won’t get to ruin the party. If this helps build up US Airways’ efforts to get bought, then that’s good news for the airline.

Never a dull moment inside the Beltway, that’s for sure.

There are far too many reasons for this to simply be a coincidence. For example, US Airways will increase its flying on October 31, the very same day Delta does it in Washington. The new routes are as follows:

US Airways will be adding a net of 17 new flights a day at LaGuardia. And where exactly are these magical slots coming from. According to US Airways, the slots were on a “short-term lease” that has now ended. Hmm, anyone want to guess to whom those were leased? If your guess isn’t Delta, hang your head in shame.

In the comments on the Delta post, reader David asked why Delta and US Airways didn’t just lease their slots to each other if they couldn’t get permission to sell them. I figured that wouldn’t be allowed at LaGuardia, but apparently that’s not true, at least in small quantity. Then again, who knows what the feds would have done had the airlines tried to go behind their backs on the entire process. You can’t hide that, and I can’t imagine it would have been looked upon favorably, to say the least.

So the story now starts to come together, at least in my mind. Delta and US Airways tried to do the slot swap and set up some slot leases as part of that to ease the transition. Then the deal got shot down. Delta, either not content to wait for the court ruling or simply not expecting to win, took its slots back from US Airways at National and decided to build them up. US Airways, obviously pissed about this, then took its slots back and decided to throw down in New York as well.

Of the 10 markets getting new or increased flying from US Airways at LaGuardia, seven of them are served by Delta. Six are actually only served by Delta right now. The Dulles move is probably an effort to get some Star Alliance connectivity via United’s hub. Then there’s Harrisburg and Hartford. I suppose it’s possible those were the next best markets out there that didn’t have service, but really? Hartford? That’s an easier drive. Maybe they think they can get some good connections via LaGuardia. Or maybe there’s just something really goofy there that I can’t figure out. (Maintenance base, aircraft routing efficiency?)

Either way, the message here is clear. If Delta wants to try and compete in Washington, then US Airways will do the same in New York. With US Airways now actually showing a profit in LaGuardia, this move could make sense . . . until the economy rolls back downhill again. But hey, let’s not let economics get in the way of a good old-fashioned round of fisticuffs. This is a lot more fun.

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.

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.

We all remember the original deal, right? US Airways would give Delta 125 slot pairs at LaGuardia in exchange for 42 slot pairs at Washington/National along with route authorities to fly to Sao Paulo and Tokyo from other cities in the system. And yes, I believe Delta is still demanding that Pete Rose rookie card as well. The DOT came back and said that the deal was only going to fly if they divested 14 slot pairs in Washington and 20 in New York. Now the airlines have come back with their own response.

Once this deal is done, US Airways says it will sell 5 slot pairs in Washington to JetBlue. Delta will sell 15 slot pairs in New York, 5 each to Spirit, WestJet, and AirTran. That’s obviously not exactly what the DOT was looking for here.

The DOT’s biggest concerns were in Washington, and US Airways isn’t even getting close to what the DOT wants there. I have a feeling New York is a non-issue here. That divestiture seems like it should be enough. But Washington is a tough one. Meanwhile, Southwest is making some serious noise about the deal demanding that even more be given up. (Translation: “We want in”)

Why would US Airways and Delta agree to give these up? Well the deal will be beneficial for both. Apparently, it will be beneficial enough that it’s worth forfeiting a handful of slots. Besides, they’re able to pick and choose who gets the slots, so the sale can do the least harm to them.

WestJet is a no-brainer for New York. They can only fly north of the border, keeping them out of Delta’s hair for the most part. Spirit being the ultra low cost carrier that it is, is probably less of a competitive threat than some others out there. It’s hilarious to see AirTran in the mix since they have been a giant thorn in Delta’s side for years. But Airtran may very likely have been the best option left under the DOT’s rules that it goes to someone with a very small or non-existent presence at the airport. In DC, JetBlue is probably a smart move as well. Maybe some flights to New York or Boston? They wouldn’t be able to offer many flights so the impact would be limited.

The key is that no airline gets more than 5 slots, so there’s not a ton they can do to make a massive impact from a competitive standpoint. I also fully expect to see these flights go in markets that already have plenty of competition, but if it satisfies the DOT, then it’s probably a relatively small price to pay.

I just have to wonder if this will satisfy the DOT. It’s a significant cut compared what they had proposed originally, but you would hope they’ll be open to negotiation. This seems like the final offer to me. Either it goes through or the deal blows up.

First, let’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.