If there’s been one constant in the last few years, it’s my general opposition to what the feds have tried to do when it comes to the airline industry. Now, they’re at it once again by suing to block United from leasing 12 slot pairs from Delta at Newark. I can’t say I like the way the Department of Justice (DOJ) is presenting its case, but for once, I don’t disagree with the idea.
Some of the notable government challenges in the past have come during mergers. Sure, DOJ rolled over and approved the United/Continental merger, requiring only the disposition of 18 slot pairs to Southwest. But the department, under new direction from Bill Baer, Assistant Attorney General for Antitrust, took a hard line against American and US Airways by trying to block that merger outright. Yes, that would undoubtedly reduce competition on some specific routes, but on the whole it made American a viable competitor to Delta and United in a way it wasn’t before. Much of DOJ’s concern (including the disappearance of US Airways Advantage fares) has been proven wrong. Then there’s the more recent collusion investigation, which is just silly.
This is Different
But those are primarily about mergers and the aftermath; what we’re talking about here is different. Back in June, United announced it would be pulling out of JFK and consolidating its flights to LA and San Francisco in Newark. As part of the deal, there were two separate transactions that effectively amounted to a slot swap. Delta agreed to lease United’s 12 slot pairs at JFK for $14 million. At the same time, United agreed to lease 12 of Delta’s Newark slot pairs (one of which was only during the summer) for $14 million. These leases were long term and auto-renewing so in effect, it was a slot swap that was done within the rules.
Delta’s lease at JFK was approved quickly, likely because while Delta does have a large position there, it doesn’t dominate. Meanwhile, the clock kept ticking on United’s lease at Newark. It took an absurdly long 5 months for DOJ to basically dust off an old press release and announce it was suing to block the deal in Newark. You can read the entire complaint here.
You’re probably expecting me to get angry and refute everything DOJ has to say. That’s not going to happen. I do think DOJ is making some really stupid arguments that can be easily dismissed. But overall, there is some merit to the overall idea here… that United already has a dominant position at the effectively full airport and other airlines should be able to get access.
Building the Case
The basic rationale for trying to block this is that United has a dominant position at the airport and it already squats on some slots that it doesn’t use. DOJ likes to pick and choose the numbers that make its case look best. In this case, that number is the percentage of slots being held. United currently holds 73 percent of slots and that would go up to 75 percent if the deal goes through.
In reality, United serves a much lower percentage of total passengers at the airport. That’s because it has a lot of regional jets flying around to small cities whereas other airlines are flying big jets to their hubs or overseas. So if you’re talking about passenger numbers, then United has a lower percentage. But yes, it still serves well over half of the airport’s passengers, and it is no doubt dominant there.
What about the second part of that argument? DOJ acts like it has a smoking gun in saying that United “‘grounds’ as many as 82 slots at Newark” every day. That’s just silly. The key there is “as many as.” DOJ isn’t looking at an average number here but is instead cherry-picking the day with the most unused slots, I presume. Every airline operates this way. Schedules vary with demand by day-of-week and by season as well. A Saturday in September is going to have a lot fewer flights than a Monday will. That’s why slots have rules on how often they have to be used. And United follows those rules. (You’ll find this in every airline’s schedule, even that of DOJ golden-child Southwest.)
The Big Question
To me, this just distracts from the main argument. First, what is the consumer benefit here? Unlike when US Airways and Delta swapped slots in New York and Washington, this isn’t a major change in operations. Delta was building a hub at LaGuardia and US Airways was able to add service to a bunch of new cities in Washington. That was a very big change with real positive benefits. In this case, United would simply be able to add 12 flights each day. My guess is that means more frequencies in a handful of markets and not much more; it doesn’t materially improve United’s ability to operate a killer hub in Newark.
On the other hand, there are other carriers that would be interested in getting more access to Newark that they can’t get today. Even 12 departures would materially alter their ability to provide service. The consumer impact would likely be greater than letting United have just a handful more. Of course, this is just rational discussion. None of that matters. What matters is the law, and whether this violates anti-trust rules.
An open market solution is probably not going to change anything here (the slots are worth more to United than anyone else), so that’s why the feds are stepping in to challenge the deal. While I can’t understand why it took DOJ this long to act, I can see the merits of taking this to court. Let the legal system decide what’s right here. Or maybe United will offer to divest a couple of slots to make this go away.
I may not like the way DOJ is building its case, but in principle I don’t object. I’m going to be curious to see if the deal is abandoned, if a settlement comes out of this, or if it goes to court.
[Original SWAT team photo via Shutterstock]
