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When the U.S. Department of Transportation last year approved a proposal by
Delta Air Lines and US Airways to swap dozens of slots at New York LaGuardia and
Reagan Washington National airports, the carriers refused to agree to DOT's conditions. A year later, Delta and US Airways are back with a new
proposal—their third since August 2009—which again stops short of DOT's latest required
divestments of 20 slot pairs at LaGuardia and 14 pairs at National airports.
At stake for Delta is the development of what it claims would be a
domestic, corporate travel-focused hub at LaGuardia, while US Airways would retreat from certain costly LaGuardia
operations, preserve its Northeast shuttle and other services at the airport
and add 15 new destinations from Washington, D.C.
In the newest proposal revealed last week, the airlines argued that new competition
in both markets, along with a commitment to surrender 16 slot pairs at
LaGuardia and eight at National, would satisfy the spirit of the regulatory
Do they have a chance at approval this time? "I thought they did the
first time," said aviation consultant Robert Mann. "On the other
hand, this proposal would seem to be a little more accommodating of some of the
initial objections, without changing the economics of the deal such that it was
According to the revised agreement, Delta would gain from US Airways 132
LaGuardia slot pairs in exchange for 42 slot pairs at National, $66.5 million
and rights in 2015 to serve São Paulo, Brazil. In the previous agreement,
revised to appease prior regulatory objections, Delta was to gain 110 slot
pairs at LaGuardia, but give up five slot pairs apiece to AirTran, Spirit and
WestJet. US Airways, meanwhile, would have received 37 slot pairs at Washington
National, with five slot pairs going to JetBlue.
"Regulators have given the companies a lot of pushback
given the level of slot concentration Delta will have at LaGuardia if the
transaction were to be completed," according to a research note by
Deutsche Bank aviation analyst Michael Linenberg.
DOT in May 2010 called its divestment requirements of 20 slot pairs
at LaGuardia and 14 pairs at National the "minimum necessary to remedy
the reduction in competition resulting from the transaction."
Delta and US Airways maintained that evolving market conditions have
eased many of DOT's concerns. Among other developments, the carriers pointed to
AirTran's expansion at both National and LaGuardia, new JetBlue services at
National and mergers between AirTran and Southwest and between United and
Continental, both of which are changing the face of competition.
At National, the slot share of
"low-cost carriers" has increased to nearly 9 percent from 3 percent since
the initial proposal, according to Delta and US Airways, "exceeding the
6.5 percent LCC slot share the DOT sought to create by divestiture" in its
Meanwhile, at LaGuardia, Frontier, AirTran and Southwest in
the past few years each gained new slots. If DOT approves the revised Delta-US
Airways proposal, an additional 32 slots would go "to airlines with limited or no service" at the airport, according
to the carriers, lifting "LCC slot share at LGA" to 11 percent,
exceeding the 10 percent share originally ordered by DOT.
Delta Plans LaGuardia 'Hub'
At LaGuardia, Delta sees opportunity to build a domestic hub that would
allow it "to compete more effectively for corporate accounts in New
York," according to the slot swap proposal.
Though Delta has not identified any new markets it would fly
to from LaGuardia should the deal go final, the carrier plans to "approximately double the number of nonstop destinations it
serves from LaGuardia, including top business destinations and many cities not
currently served nonstop by Delta or US Airways," according to the proposal.
"We have a whole list of what's the next market we want to serve,"
said Delta senior vice president for New York Gail Grimmett. "That's a
normal, ongoing process anyway within the network strategy."
Delta would use aircraft larger than
the turboprops operated by US Airways, "adding as many as 4 million
additional roundtrip seats available at LaGuardia without increasing
congestion," according to the proposal. Delta also would assume control of
Terminal C, where it would build a connecter to its current home in Terminal D.
The carrier would operate 29 gates out of the expanded terminal, with plans to
"convert the existing US Airways lounge in Terminal C to a Sky Club, while
continuing to operate its current Sky Club in Terminal D."
already has invested in LaGuardia. "When we first announced [the slot swap
proposal], we talked about a $40 million investment, and we've continued to
grow that," Grimmett said. "Now, we're looking at a $100 million
improvement in the facilities. No matter what, we are committed to growing in
LaGuardia. This opportunity is the easiest way to do something like this."
Delta also is in the midst of a $1.2 billion revitalization at New York JFK's Terminal 4.
The first major phase is slated for completion in 2013.
If it picks up the US Airways slots at LaGuardia, Delta would shift some
domestic flights to the airport from JFK while bulking up JFK's international
"Going back to 2009, it was clear to me that a battle for New York
was shaping up," said Mann. "If this deal gets done on substantially
similar terms to what's being proposed here, Delta will have essentially won
the battle and pushed American out of New York. That's an interesting
development, because during the '70s and '80s when I was with American, we
pushed real hard to get United out of New York, never thinking for a moment
that there was ever a next phase of that. American will still have a large
presence at JFK, but in terms of being able to develop the corporate
marketplace, Delta will have won the battle."
US Airways Mum On New National
US Airways in 2009 identified 15 markets it intended to serve
from National upon approval, including Cincinnati, Miami and Montreal. However, a spokesperson this week
indicated those markets could change.
"It's a serious opportunity for them, and it's a good one, because
they have an ability to build a larger presence at a close-in airport that has
a premium," Mann said. "Not unlike the LaGuardia premium relative to JFK,
National has a premium relative to Dulles. US Airways has a strong position at
National, but they'll end up with a far stronger one and the ability to serve
more airports with better frequency and a better mix of equipment."