Delta and US Airways Cancel Slot Swap, Feds Lose Game of Chicken, Win Cranky Jackass Award

I assume the feds knew they were playing with fire when they decided to attach incredibly onerous conditions to the proposed slot swap between US Airways and Delta in Washington and New York. Now, US Airways and Delta have officially decided to reject the requirements and stick with the status quo, unless they can win in court. Absolutely nobody wins here, and that’s why the tentative order issuing the feds a Cranky Jackass award is now a final order. This was just a bad move.

Delta and US Airways play game of chicken with FAA

I’ll spare you the history again since it’s been recounted here multiple times. In short, Delta wanted to trade much of its slot holding at Washington/National to US Airways for that airline’s slots at New York/LaGuardia. The feds came back saying they’d only approve it if the two agreed to divest a bunch of slots to new entrants before the transaction occurred. That wasn’t palatable to anyone, but Delta and US Airways did come back offering to divest some of the slots to carriers with whom they had already set up agreements. It looked like the FAA had achieved its goal of giving slots to new entrants, but the agency wasn’t satisfied. The feds stuck to their guns and that’s how we got where we are today. (More details here)

US Airways and Delta had asked for more time to consider the swap, and the feds gave it to them. But last week, they decided to reject the requirements for divestiture and sue the pants off the government for such an absurd requirement. So let’s review exactly what the feds have thrown away here:

US Airways would have used larger planes in Washington and would have opened nonstop service to several cities that don’t have it today.

Delta would have used larger planes in New York to create a hub operation at LaGuardia.

Terminal changes in New York would have made it easier for customers.
US Airways would have received rights to fly to Japan; a new entrant into that market providing more competition.

US Airways would have received rights to fly to Sao Paulo; again, a new entrant in that market.

JetBlue would have received 4.5 slots at National. (The last .5 slot was available in off peak times.)

WestJet would have received 5 slots at LaGuardia, providing competition to Canada.

Spirit would have received 5 more slots at LaGuardia, providing low fare service.

AirTran would have received 5 more slots at LaGuardia, providing low fare service.

And now, none of this will happen. What’s the cherry on top? The feds get to waste our taxpayer money defending themselves in a lawsuit that will undoubtedly drag on for awhile. In short, the feds decided to play a game of chicken and they lost. Now, everybody loses. Way to go, guys. I bet you thought they’d give in, but they didn’t. You blew this one.

[Original photo via Flickr user Chief Trent]

Brett

37 responses to “Delta and US Airways Cancel Slot Swap, Feds Lose Game of Chicken, Win Cranky Jackass Award”

DGS

Jul 6, 2010

Does the DL/US lawsuit have a chance here? And/or will it actually get filed and moved in time to make a difference?

If US is losing as much money as they claim to be losing at LGA, they might as well shutter LGA if they won’t get a resolution until 2014 or so…

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1. CF
  
  Jul 6, 2010
  
  I believe US has said that it is now doing much better in NYC thanks to the rebound in demand. So while it could do better in DC, it’s not worth shutting down NYC at this point.
  
  I have no clue if the lawsuit has a chance. There has been some talk of legality below, and that’s all well and good, but there are always intangibles. The US team is smart, and they are unlikely to do something like this if they didn’t think there was a good chance of a favorable outcome.
  
  Reply
tharanga

Jul 6, 2010

A bit slanted here. You can just as well say that US and DL lost the game of chicken.

We won’t really know who won or lost until the lawsuit plays itself out.

And the lawsuit would be a useful thing, as it should set some precedent that would be followed in future instances. We’ll find out what the DoT can and cannot do.

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1. CF
  
  Jul 6, 2010
  
  Well of course it’s slanted. This is an opinion blog. And my opinion is that the DOT blew it.
  
  I don’t see how US and DL lost the game of chicken? They aren’t calling a bluff here. They could have accepted the terms required and gone ahead with the deal, but instead, they’ve decided it’s not worth it for them to do so.
  
  Reply
  1. tharanga
    
    Jul 6, 2010
    
    They lost in that they didn’t get the slots they wanted. They thought they could haggle with the DOT, and it turned out, they could not. Seems simple to me.
    
    Anyway, we’ll see about the lawsuit. “Allocations are not a property interest; they are an operating privilege subject to absolute FAA control.”
    sounds like pretty tough language to beat, but I’m no lawyer, nor have I read all the relevant law. That’s just a sentence that I found in the regulation book.
    
    Reply
    1. CF
      
      Jul 6, 2010
      
      They tried to haggle with the DOT and couldn’t, but in the end, they could still accept the DOT’s deal. So they didn’t play a game of chicken where they lost the chance to take the original deal.
      
      They were trying to get a better deal. Then they couldn’t. Now they’re walking away.
      
      Do they lose when compared to what they wanted to do? Yes. But they had to have done the math and decided that giving up all those slots wasn’t going to be worth it to them. So compared to the deal proposed by the feds, they’ve won by not taking it.
      
      Reply
stan

Jul 6, 2010

a giant win for NYC travelers. delta taking over LGA would have been a disaster for everyone. despite your bullet points (i have no idea why you love delta so much considering they horrific customer service at LGA), there is still no reason for this from a consumer point of view. we don’t need 5 more airtran flights a day to ATL, or five more spirit flights a day to ft. lauderdale or ft. meyers.

and US has no business flying to japan or brazil in their disgusting, uncomfortable long-haul fleet.

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1. chris
  
  Jul 6, 2010
  
  Cranky makes the point that this will provide larger aircraft with service to more destinations. DL would be able to better leverage NYC and move service from JFK –> LGA reducing the congestion there and US would increase its presence at DCA (and aircraft).
  
  Both airlines would arrange to re-do their terminals providing a MUCH better passenger experience. It would have been a win for all sides. Too bad the DOT can’t see that (though I have a feeling WN has a significant gripe about this as they didn’t want to pay the market value for the slots).
  
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2. CF
  
  Jul 6, 2010
  
  Wait, who says I “love” Delta so much? They do their fair share of things to piss me off, just like the rest. (Search for “SkyMiles” and you’ll see exactly what I’m talking about.) But this was a good thing for everyone.
  
  First off, I don’t think you would have seen 5 more flights on AirTran to Atlanta. You probably would have seen more Florida, Milwaukee, and maybe some other surprises as well. We’ll never know.
  
  And another question – why do you hate US Airways so much? They have put out an excellent business class and good coach product on their A330-200s. The A330-300s will be receiving the new business class as well. They 767s are pretty awful, but the A330s are quite good.
  
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nab

Jul 6, 2010

I don’t think it is so much that WN does not want to pay market value for the slots (isn’t that what an auction would do, set market value?) as it is that there are no slots available right now at any price.

The question is “Who has the ownership of the slots?” Is it the federal government or is it the airlines who have held these slots since deregulation?

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1. tharanga
  
  Jul 6, 2010
  
  If you read the law, it is completely unambiguous. The government owns the slots. The airlines hold them, the airlines can exchange them with each other, but they are absolutely not private property, and the federal government reserves the ability to mess with them.
  
  I suppose the question in the lawsuit will be how absolute/discretionary that government power is – for what purposes can the government mess with existing slots.
  
  Reply
2. CF
  
  Jul 6, 2010
  
  There are always slots available, as evidenced by JetBlue’s recent deal with American to get into National on its own. It’s just a matter of wanting to do a deal and pay the price of entry.
  
  Also, tharanga, the airlines cannot exchange the slots at LaGuardia (they can at National). If it weren’t for the requirement that they get a waiver to exchange the slots in LaGuardia, the government wouldn’t have even had to have been consulted.
  
  Reply
  1. tharanga
    
    Jul 7, 2010
    
    Yes, that’s true. You need a waiver to exchange LGA slots, and the DOT is putting strings on the waiver.
    
    As for slots being available: note that the jetblue-AA deal was a slot swap. When was the last time slots were exchanged for cash? I’m curious. A new entrant might have cash, but not have slots at other airports to trade.
    
    Reply
    1. CF
      
      Jul 7, 2010
      
      Well, isn’t that how Southwest got into LaGuardia? Picked up ATA’s slots by buying them in bankruptcy, I believe.
      
      Reply
  2. JamesK
    
    Jul 9, 2010
    
    To your point, Brett, for ages the slots weren’t even transferable between regional carriers. ASA operated a single CAE-LGA flight and a handful of flights from DCA (HSV, JAN, etc) before the gummint decided that it was permissible for Delta to shift the flying to Comair without putting the slot back up for sale.
    
    And yes, I once had to deal with a staffer of a Congresswoman from Kentucky who missed her swearing in thanks to a misconnect caused by a mechanical. Staffer was lovely, but I sincerely hope the honorable member learned something about flight planning.
    
    Reply
David SFeastbay

Jul 6, 2010

I don’t think US growing bigger at DCA or DL in NY is going to help anyone in the wallet except maybe US and DL.

But as the saying goes……’It ain’t over until the fat lady sings’

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Oliver

Jul 6, 2010

Maybe i am naive, but I think slots should be leased to airlines (like gates at airports or apartments to renters). The airlines can vacate slots when they are no longer desired, and the government can then rent them to someone else (maybe using an auction process). If I rent an apartment, I can’t just swap it against a buddy’s apartment just because it would be more profitable for both of us.

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1. Jason H
  
  Jul 6, 2010
  
  Actually depending on the contract language of your rental agreement you can do exactly that. I rented at a place near Denver that had language stating that if two parties swapped apartments that was within the rights of the tenants and that the tenants would basically switch contracts, monthly rates and all.
  
  As to the slot swap. I hope US/DL win. It is ridiculous to think that the DOT is blocking companies that are trying to make a profit (I know, a bad word in this current world) and are going to fly larger planes and were even willing to bring in several LCCs.
  
  Reply
  1. Sean S.
    
    Jul 6, 2010
    
    Wait a second there. The DOT isn’t “blocking” this from happening; what they were trying to do was negotiate what they felt was a better deal to level competition. Obviously their leverage wasn’t enough and their bluff was called; that doesn’t mean they are out to ruin companies bottom lines.
    
    Lets be clear about what the sticking point is here, which isn’t divestiture (something most airlines have had no problem with during mergers). It was to do with that the divested slots will go the companies they choose, robbing the DOT of being able to auction the slots off at their true price.
    
    Reply
    1. tharanga
      
      Jul 6, 2010
      
      On the sticking point: I don’t know about that. After all, US and DL submitted a plan that had the same structure as what the DoT wanted; it just wasn’t big enough in terms of divestiture.
      
      Anyway, if it’s going to a lawsuit, the time is passed for mere opinions. It is time for a close reading of all the law: statue, case and regulatory.
      
      This is what I found, in Title 14 Code of Federal Regulations PART 93
      
      “(a) Slots do not represent a property right but represent an operating privilege subject to absolute FAA control. Slots may be withdrawn at any time to fulfill the Department’s operational needs, such as providing slots for international or essential air service operations or eliminating slots. Before withdrawing any slots under this section to provide them for international operations, essential air services or other operational needs, those slots returned under §93.224 of this part and those recalled by the agency under §93.227 will be allocated.”
      
      and
      
      “(a) Allocations are not a property interest; they are an operating privilege subject to absolute FAA control.”
      
      Reply
    2. Jason H
      
      Jul 6, 2010
      
      @Sean S
      
      Block is exactly what the DOT is doing. US and DL want to swap slots and were willing to divest several of them to LCCs, but the DOT wanted to gut the deal to appease the 500-ton gorilla based at Love Field. I agree that a full swap looked bad, but giving slots to other carriers (especially DL giving anything to AirTran) showed they were willing to work with the DOT.
      
      In the end the DOT is blocking a deal that would help the bottom line profits of 2 large carriers. As I said before though, that foul p-word was there and that just doesn’t seem to fly now a-days.
      
      Reply
      1. Sean S.
        
        Jul 6, 2010
        
        Yes it would help the bottom line of two carriers at the expense of other airlines at the same airports. If the swap were to have occurred as US Airways and Delta planned it would have resulted in the dominance of each in their respective markets, further locking out competition in those airports. And there are no guarantees that smaller and more regional airports would be served from those locations. Its especially ridiculous for US Air/Delta to complain when even with the divestment their increase in control would have still been substantial.
        
        Reply
  2. Oliver
    
    Jul 6, 2010
    
    I’d think there are other companies interested in those slots that are also trying to make a profit. So to argue that the DOT is trying to keep US/Delta from making a profit is a bit of a simplification. Why is Delta/US’ profit more important than that of their competitors?
    
    Reply
Patrick Flannigan

Jul 6, 2010

This whole befuddled back-and-forth process has been a sideshow. I sincerely hope that Delta and US win out in court but I’m not placing any wagers just yet.

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Ed Casper

Jul 6, 2010

I may be dead wrong, but based on my observations, it seems that most lawsuits are settled, not litigated. This suit may very well be another part of the game to get a better deal from the feds.

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JayB

Jul 6, 2010

Cranky, couldn’t you stick with something like: “Why is my air fare so high?”

Anything related to “slots,” particularly when Reagan National is involved, is unlikely to be resolved in a manner you or I might think equitable. Forget it. This has the potential to be tied up in politics and the court system forever, and beyond.

FAA/DOT authority, whether for making a requirement to divest, to do whatever; consideration of the virtue/economics of slot auctions; need to ensure equal opportunity to the old, new, low-cost, not-so-low-cost carriers; proper deference to congressional interests to ensure appropriate service to every district, whether hither or yon; and then the impact on jobs, at least to the extent it secures life, liberty, and the pursuit of happiness, while preserving the right to bear arms, et. cetera!

Seriously, if UA could offer a $188 round-trip fare, IAD-LAX, over the 4th of July holiday, why can’t I get that fare every day, and for every flight combo? Maybe for $178 next weekend?

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1. Nicholas Barnard
  
  Jul 6, 2010
  
  Uh Jay, No one probably was flying IAD-LAX during that time. So they were just trying to fill seats.
  
  Reply
  1. JayB
    
    Jul 7, 2010
    
    Seriously, I jest! Hard to tell sometimes, isn’t it.
    
    I’m sure somewhere out there in blogger land someone is saying: “OMG, another idiot demanding his $99 fare!” Whatever!
    
    Reply
PHILL

Jul 6, 2010

Seems like the only winner here is AMR, who have been ramping up their efforts at LGA and NYC in general, and who now don’t have to worry about even more competition from more new entrants to the NYC market. (Except JetBlue…).

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1. Nicholas Barnard
  
  Jul 6, 2010
  
  And JetBlue and AMR have a cooperation agreement of some kind. I forget if it’s a codeshare or just an interline agreement of some kind.
  
  Reply
  1. tharanga
    
    Jul 7, 2010
    
    as it stands, it’s just an interline, but everybody including the airlines themselves are making it sound like a bigger deal than that. So maybe it’s an interline backed by more marketing than normal.
    
    Reply
robert

Jul 7, 2010

Cranky is failing to recognise that ‘government knows best’ :)

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JayB

Jul 7, 2010

Along these lines, I see today’s (Wednesday) Washington Post has a front page, above-the-fold, Lisa Rein story: “Flight restrictions at National targeted.” Discusses attempts by various politicians to limit, not-to-limit, activity at DCA and revise the perimeter rules. FAA authorization bill language, etc.

I remember reading stories about this issue in the late ’60s. Moving on…!

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Greg

Jul 7, 2010

Let’s face it, Washington has too much power. I promise you if any airline offered direct service to Congressman X’s hometown from DCA, the deal would be approved.

We no longer care about the free market (if I don’t like an airline’s offerings from airport Y I’ll drive to airport Z and fly airline N). No, no we expect that every airline should offer 1998 prices my city to where I want to go, oh, and if I have a powerful congressman, I should get a discount.

We don’t want airlines to make money, because only the government should make money and it should dictate all aspect’s of our lives.

BTW, do you know what the worst investment you could have made in the last 20 years was? It’s an airline. Very few and lucky have ever made a profit offf of airline investments.

Let’s let them actually go at it, let the market decide winners and losers, not some holier than thou Congressman who insists that he should have a direct flight to Podunk Iowa

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JP

Jul 7, 2010

Well, we all know that Obama and his minions know that a flight from DCA-BFE will create a new job in BFE…sure, 10 jobs will be lost due to decreased productivity, but Obama will claim the extra TSA employee at BFE.

It’s time to let the market make the decisions.

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Mark

Jul 7, 2010

You really should note that four of the markets that US Airways was planning to add – Birmingham, Montreal, Ottawa and Tallahassee – are getting new service anyway. And Delta is going ahead with new service from LaGuardia to Nashville and St. Louis.

Clearly, the slot swap isn’t stopping the airlines from adding service to these markets.

Consumers would have lost if the transaction was approved by way of giving Delta and US Airways far too much pricing power in the LaGuardia and Reagan markets, respectively. Who cares if AirTran would have gotten five slots when that’s simply not enough more to make it competitive in the LaGuardia market.

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Delta’s Growth in Washington Smells Fishy – >> The Cranky Flier

Jul 30, 2010

[…] It’s the increase at Washington/National that has me perplexed. As we all know by now, Delta and US Airways were trying to arrange a slot swap where Delta would give most of its slots to US Airways at National in exchange for US Airways slots […]

Reply