Delta and US Airways threaten to abandon slot swap

Washington DC
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Delta Air Lines and US Airways are warning they might withdraw their proposed slot swap at New York LaGuardia and Washington National if US regulators succeed in their requirement to force the carriers to sell a portion of the slots to maintain ample competition at each airport.

In August of 2009 the two carriers announced a strategic swap that entailed US Airways agreeing to transfer 125 pairs of its Express slots at New York's LaGuardia airport to Delta, which would result in Delta transitioning the airport into a hub. In turn, Delta agreed to transfer 42 pairs of its slots at Washington National airport to US Airways.

A pair of slots equal one roundtrip flight.

DOT in its tentative approval is requesting that the carriers divest 14 slots at Washington National and 20 slots at LaGuardia to incumbent or new entrant carriers to strengthen competition at the airports to offset potential harm caused by the proposed transaction.

The agency is requiring that the slots be sold to Canadian or US carriers that have less than 5% of the slot holdings at each airport.

At Washington National, DOT says the divestment of 14 pairs of slots would allow for an incumbent or a new entrant to launch or increase service in one large or several small markets. Based on DOT's criteria, which prohibits airlines that codehare with either carrier purchasing the slots, AirTran Airways and Spirit Airlines would qualify for slot purchases at Washington National.

DOT estimates the 20 slots required for divestiture at New York LaGuardia would allow new or existing carriers to strengthen their presence in three existing markets or launch service in up to four new markets.

The incumbent carriers eligible for the divested slots at LaGuardia are AirTran, JetBlue Airways, Spirit and Southwest Airlines.

Recently Southwest CEO Gary Kelly said that if the carrier had the opportunity to add gates and slots at LaGuardia, it would consider expanding at the airport.

Using February 2010 schedules as a baseline, regulators explain that if the transaction was approved as presented by Delta and US Airways, at Washington National the share of departures held by US Airways would rise from 47% to 58%.

Adopting the same rationale at LaGuardia, DOT says Delta "would ascend to a dominant position", as it share of departures would grow from 26% to 51%.

"Stated another way," says DOT, "US Airways and its affiliates at Washington National and Delta at LaGuardia would become three times and almost two-and-one-half times, respectively, the size of their closest competitor."

Delta and US Airways calculate DOT is requiring a divestment of 16% of the slots at LaGuardia and 33% at Washington National, and argue it hampers their ability to add new nonstop service between key business markets and small- and medium-sized communities in the USA.

"Our goal remains to increase access for customers in small communities to LaGuardia and Washington-Reagan National airports," say both carriers. "However, we expect that if this order is implemented as proposed the transaction will not go forward and significant consumer benefits will never be realized."