Southwest Airlines CEO Gary Kelly last month hinted to reporters that the carrier could seize an opportunity made available from an industry merger, like the one proposed by United and Continental airlines. "Historically, without fail, there are opportunities created when big airlines consolidate," he said during the National Business Travel Association conference in Houston. "It is something we are definitely keeping our eye on." Now more than just an observer, Southwest last week announced it had worked out a lease deal with Continental for slots and facilities at Newark to accommodate 18 daily roundtrip flights.
Though Southwest did not detail service specifics other than to indicate an initial launch some time in March 2011, the Newark agreement--contingent upon the UA-CO merger and governmental approvals--would complement the carrier's existing service from New York LaGuardia and Long Island/Islip and further intensify New York metropolitan-area competition. The Southwest deal also led the U.S. Department of Justice to close its "thorough" investigation of the proposed United/Continental merger, indicating that the agreement "resolves" DOJ's "principal concerns regarding the competitive effects of the tie-up." United and Continental expect the transaction to close on 1 October following shareholder meetings on 17 September.
The 1 October close would be "the first step in the three stages of the merger (legal merger, Customer Day One and single operating certificate)," according to a memo by Continental CEO Jeff Smisek.
However, DOJ noted that attorneys general of California, the District of Columbia, Hawaii, New Jersey, North Dakota, Ohio, Pennsylvania, Texas and Virginia continue to investigate the merger and said it "is supportive of the states' efforts to have any of their additional concerns about the proposed merger addressed." Continental and United stated that they "remain engaged in discussions with the state attorneys general who are reviewing the merger and hope to conclude those discussions expeditiously with a positive outcome."
Meanwhile, Rep. James L. Oberstar, D-Minn., chairman of the U.S. House Committee on Transportation and Infrastructure, described DOJ's decision as "regrettable." In a prepared statement, he wrote, "The Department's examination of the merger proposal turned up problems with market domination on routes between United's existing hubs and Continental's hub at Newark. However, when Continental announced a deal to transfer slots and other assets at Newark to Southwest Airlines, the potential antitrust violation was removed and Justice believed that it had no grounds on which to object to the merger. This action points strongly to the need to give broader authority over such mergers to the Department of Transportation, allowing DOT to consider such factors as the impact a merger will have on service to communities and customers, as well as the effect the merger could have on the industry as a whole. There must be consideration of whether a merger will inevitably trigger others."
The European Commission in late July concluded that the proposed Continental-United merger "would not significantly impede effective competition in the European Economic Area or any substantial part of it."
Continental's dominant share in Newark--where "there is limited availability of slots, making entry by other airlines particularly difficult," according to DOJ--prompted the Southwest deal. Continental and United said they "currently operate 442 daily roundtrip flights into and out of Newark Liberty" and would "continue to serve all the communities both airlines currently serve. The slot transfer is expected to have minimal impact on the combined carrier's route network."
At the same time, the transfer to Southwest of slots ("peak and off peak") and "certain related facilities" (including gates) at Newark would "enhance domestic competition at Newark," according to Smisek.
For Southwest, that would mean a bigger toehold in the New York area. "The slots are spread throughout the day and would allow Southwest the ability to integrate Newark service conveniently into its extensive national route network," according to an airline statement.
In 2009, a "very sharp focus on the business traveler" led to Southwest's entry into Boston, Milwaukee, Minneapolis-St. Paul and New York [LaGuardia]," according to Kelly. Such efforts undoubtedly would be augmented by a presence in Newark.
"We've seen tremendous demand for Southwest Airlines in the New York City/Newark area in the past year," according to Southwest executive vice president Bob Jordan. "This service also will provide a needed injection of low fares and competition into the New York/Newark market." Southwest noted that the lease deal is "contingent upon the closing of the Continental and United airlines' merger by Nov. 30, 2010, and certain governmental approvals."
Other airlines also have been eyeing the lucrative New York market:
American Airlines(including regional affiliate American Eagle) recently launched or announced plans to launch new or expanded service from JFK and/or LaGuardia to various U.S. cities, including Atlanta, Charlotte, Cincinnati, Indianapolis and Minneapolis. Considering the new flights, existing services and a previously announced schedule expansion--including services to Madrid and Manchester, U.K.--AA would operate more than 200 daily departures from the two airports to 63 destinations. AA this summer also began a partnership with JetBlue Airwaysthat includes interlining at JFK.
Delta Air Linesin June expanded New York LaGuardia-Chicago service to "hourly shuttle" flights and announced plans for new or expanded service from LaGuardia or JFK to several other cities, including Baltimore, Cleveland, Charlotte, Kansas City, Montreal, Reykjavik, St. Louis and Toronto. This month, Delta will begin expanding JFK's Terminal 4 to handle growing international operations.
US Airwayslast month announced plans to add in October new service between LaGuardia and seven secondary cities. "With these additions, US Airways increases its presence at LaGuardia to 194 peak-day departures to 34 airports," according to a statement.
JetBlue Airwaysthis week said it would start four daily flights between Newark and Boston, effective May 2011, adding to its existing JFK-Boston service.