US Airways and Delta Offer to Sell Slots in Washington/New York Swap

DCA - Washington/National, Delta, LGA - New York/La Guardia, US Airways

The great US Airways/Delta slot swap is back in the news, and the airlines are now willing to offer some concessions to the DOT to get the deal approved. These aren’t nearly what the DOT was asking for, but we’ll see if they’re in a bargaining mood or not. Here’s how it now works.

Delta USAirways Slot Swap Part Deux

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.

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30 comments on “US Airways and Delta Offer to Sell Slots in Washington/New York Swap

  1. Cranky, You worked for AW/US at one point but seems your compassion for any moves they make to get to profitability are not good enough.

    I totally disagree with the BS that is coming from Southwest. Especially the statement “slots should go to the highest bidder.” Yet again the sole reason I can’t stand them, ignorance.

    I hope the DOT approves this move, if not we may be loosing another carrier in the United States.

    1. I have to disagree somewhat. What US & Delta are saying is that not only should they get to collude/coordinate their service and capacity at these two slot-controlled airports, but they get to choose who can compete against them.

      Since this is an issue of creating overwhelming market share for each of these airlines in the respective airports and not just a regular business deal, the DOT has the right to dictate how the slots are re-distributed.

      The DOT should approve the revised slot numbers +/-, but DOT should decide the process on how to distribute DCA slots in order to best serve the flying public. In LGA, it should be distributed by whomever controls the slots (Cranky: is it DOT or PANYNJ?)

      From DCA, JetBlue’s use of the slots is almost silly if they fly to NY and Boston since those routes are already served by 3 other airlines. Not to say Southwest should get them, but hopefully somebody who will either serve new markets or bring competition.

      1. Presumably B6 would fly DCA-JFK, which is actually new service. CO flies DCA-EWR, and DL & US fly DCA-LGA.

        As much as they are all NYC metro airports, I do believe they are still distinctly separate markets.

        1. DCA-JFK is currently served by both DL and AA so it definitely would not be new service. as much as i love B6, adding them to DCA w/ 5 slots is pretty useless since there are plenty of ways to get to NYC from DCA already plus amtrak. i would prefer the divested DCA slots go to a carrier that already has a presence at DCA like FL which could add service to MDW (lost from DCA after WN stopped babysitting ATA) or another city in florida.

      2. I don’t know that it is such a huge issue about US gaining greater dominance in DCA. Cranky can check the numbers, but I think US will have a smaller seat share in DCA than WN at BWI or UA at IAD. Not so sure about the NYC shares.

        1. BWI and IAD are not equal comparisons when it comes to seat share since DCA is slot and size controlled. You can’t fly a dozen 777’s in your 5pm flight bank out of DCA. While part of the same geographic region, it has a much different mission than BWI & IAD.

          BWI and IAD are only limited by runway capacity. A competitor can decide to come in and add all the flights they want to gain market share, ala Southwest at IAD, or AirTran at BWI. Because of slots, it would take an act of congress for an airline to gain market share or even access to DCA except for rare sales/transfer of slots such as this one. Limited commodity or supply = higher demand = higher airfares = bigger profit (in theory).

          1. While I agree with you, Shane, slots actually make competition easier. Good luck trying to go into Dulles and start up an operation competing with United today. They’ll ramp up flying and end up crushing you. (Remember Independence? Ok, not a great example, but still.) If Independence flew out of National, United wouldn’t have been able to respond nearly as hard as they did and might have had more of a chance. (Still a tiny one, but more than they had at Dulles.)

            So if you can get in to the slot-controlled airport, you have a better chance of success than going in to an airport that has de facto competitive controls.

      3. The DOT has already outlined how they want slots to be redistributed. They want them to go to airlines that don’t have a large presence at the airport already. So, US Airways and Delta picked the airlines that would be least painful for them to compete with, as they should if given the option. They didn’t ask for it – that’s what the DOT required.

        The problem, of course, is that the airlines that don’t fly into the airport much today aren’t going to add new destinations. The best way to get nonstop service to new destinations is to let Delta and US Airways keep the slots. Otherwise, you just end up with more competition on existing routes.

  2. It they are so valuable maybe the DOT needs to take control of all the slots and all the airlines must submit a report on why they want slots and a 5 year ‘game’ plan on their use. Make the slots up for grabs every 5 years so they can be used to their fullest and not have some major put in a express carriers to fly 3 people everyday somewhere just to hold the slots until they need them.

    With New York they will look at how much DL would control things and in D.C. it will be more on which Sentors/Congresspersons pressure the DOT depending on how much USAIR caters to their flying needs.

  3. Please tell me how a failure with this slot swap can cause another airline to go out of business? That comes off as being a bit extreme & sounds like something you would here on FOX NEWS.

    1. US has stated numerous times that without this deal it will continue to impact their profit margin. Not to mention the ENORMOUS fact that US has the worst hubs of all of the major’s. I’ll say it again, They have to make these moves or else their long term viability will be in question.

      1. the capt is right. there is no reason for US to keep flying puddle jumpers to LGA (which DL wants to do for some reason) and DL’s non-hub service in DCA is duplicative at best. on the other hand, US having more slots at DCA is a plus for the additional smaller cities it would serve nonstop, is a plus for US as it also presents new connecting opportunities to those cities (relieving some pressure on PHL and CLT) and actually creates new competition (and pricing relief for us pxs) by starting service on routes currently not served by US but served by another carrier.

    2. I think that claiming that without this move, US Airways will fail is a bit extreme, but the points are still valid about profitability. LGA sucks for US Airways, but the slots are valuable so they need to get something out of it. Those slots are used as collateral on some of their debt, so they really can’t sell the slots outright. By doing a non-cash swap, they should be able to switch their debt covenants around. This is the best possible move they could make to seriously improve their P&L.

  4. I think US and DL have given the DOT more than they asked for in this. The airlines that will get the slots are small players and therefore meet the DOT definition to the letter. To auction them off only guarantees that an airline with a huge warchest (Southwest) will get everything they want and the other airlines will be left with the cast offs, if any.

    If people want competition at these airports this is the way to do it, not selling most of the slots to Southwest.

    1. Yes, they’ve followed exactly what the DOT wanted except that they are offering far fewer slots than the DOT wanted. So we’ll see if they think it’s good enough.

  5. A lot of the outcome of this negotiation will depend on politics – especially since it involves service to Washington (and DCA in particular). The various communities who stand to benefit or lose from the transaction will put up a lot of pressure to keep what they perceive as beneficial to them. The various politicians who represent those interests (and fly into and out of DCA) will weigh in too.

    I think you’re right about LGA and its relative importance vis-a-vis DCA in this whole deal. But even with the original divestiture requirements, US Airways would have over 50% of the slots at DCA – hardly an insignificant presence.

    From what I understand, US Is losing a boatload of money at LGA. They simply don’t have a network that can exploit LGA to its fullest. It ultimately might be in their best interests to go along with the original order even with the reduced number of slots. But why not try to get the best deal you can?

    There are two very legitimate sides to this argument. J. P. Morgan once opined that too much competition destroys all competition. We’ve seen that scenario play out in the airline industry. There have been a lot of bankruptcies and loads of capital lost in the airline industry over the years.

    I recently read a comment by industry analyst Robert Mann that held that US Airway’s recent moves to rationalize its operations were 20 years overdue. Maybe that’s why it took outsiders (i.e. Doug Parker and the AWA management team) with no emotional ties to “tradition” to make the tough choices that had to be made. If I remember correctly, in the fourth quarter of 2009, of the legacy carriers, only US Airways made an operating profit – that’s right – an operating profit.

    I really believe, based only on my limited knowledge as an investor and not an airline “insider”, that despite the posturing, both Delta and US Airways will benefit from this transaction – even as originally approved. Since I know you disagree with this idea Cranky, I would love to see why you believe the originally approved deal is a bad one for Delta and US.

    1. “Since I know you disagree with this idea Cranky, I would love to see why you believe the originally approved deal is a bad one for Delta and US.”

      I agree with much of what you say, but the problem is that the DOT is asking for too much in terms of slots. They want a third of the slots that US Airways would gain to be divested. That’s just too much to give away. It doesn’t make the deal sound for them.

      1. I agree with you. I thought you might have some additional insight into why US would have to divest a greater percentage of its slots than Delta. I could have answered the question myself in my original comments – politics.

        1. Ah, I understand. Sorry about that. I believe the reason isn’t US Airways vs Delta but rather market concentration at National vs LaGuardia. They believe that US Airways would have too much control over National slots so they want more to be divested than in LaGuardia where they perceive the problem to be less acute.

  6. Did Southwest have first right of refusal or opportunity for ATA’s slots at DCA? They bought the LGA slots; the DCA slots went to AirTran.

    1. There were only two slot pairs at DCA. That really is not enough slots to justify an airline going into a major airport.

  7. i hope this deal blows up. having delta completely dominate LGA is a horrific thought. they are by far the worst operator out of LGA. allowing delta to dominate LGA and keep a giant presence in JFK is a scary thought. and don’t give me any BS about EWR being an alternatve, it’s a $100 cab ride from brooklyn and might as well be a million miles away.

  8. Hasn’t anybody wondered if Delta’s plans to move its LGA-MDW shuttle to LGA-ORD has anything to do with this slot swap? By cutting out nearly 10 flights a day from MDW basically frees up the equivalent of 1 gate, which perhaps is going to another carrier as part of some kind of “deal”. Notice that Delta has NOT published its LGA-ORD schedule even though the date has been announced of June 10th. Perhaps Delta is giving Airtran a gate in which to expand MDW-LGA service and let Southwest and Airtran duke it out!

    If Delta was going to keep all their gates and capacity at MDW, what might they do with it? They already have service to DTW, MSP and ATL. It would be great if they added CVG-MDW service…

  9. (warning: this is not my original thought, but I thought it was a good question)
    I saw an interesting comment on Today in the Sky about the potential WestJet/Southwest breakup in favor of WestJet/Delta. Wouldn’t that taint the 5 slots that US Air would be selling to WestJet at LGA?

    1. It’s a good question, Shane. I’ve been putting that together for BNET tomorrow. That would go against the original DOT requirement, but then again, they aren’t offering enough slots to satisfy the DOT anyway. So we’ll see how this goes.

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