Yesterday, Delta and US Airways announced their re-vamped slot swap plan in New York La Guardia and Washington Reagan. The swat slop was first conceived back in 2009, when the airlines brought an initial proposal. However, the DOT responded by placing restrictions on the deal in early 2010. Following this, Delta and US Airways apparently decided that the added restrictions were not worth the gains and terminated the deal. Last July, the airlines sued to force the DOT and FAA to allow the deal to pass as planned.
But apparently the airlines have had a change of heart, and decided that they do want to go through with the updated plan. They’ve submitted their updated and revised plan to the DOT, which can be read here.
If you remember back to the original plan, the crux of the deal was that Delta would give 42 slot pairs (ie: 42 daily flights) at Washington Reagan, as well as route authorities and slots in Sao Paulo and Tokyo- Narita, to US Airways. Pittsburgh’s Favorite Airline would return the favor with 125 slot pairs at New York La Guardia. The Sao Paulo service would have started in the second half of last year and Tokyo-Narita was to be served from Phoenix by 2015, following delivery of their first Airbus A350s.
While the initial deal had many benefits for both consumers and the carriers themselves, the DOT just had to stick its fingers into the pot and ask for significant divestitures of the slots (ie: giving them off to other carriers); 20 slot pairs at La Guardia, but more significantly 14 slot pairs (or 1/3 of the overall transfer) at Washington-Reagan. The carriers (rightly) cried foul, and responded by offering the divestiture of 20 slot pairs (15 at LGA, 5 at DCA) to specific carriers. Our beloved Department of Transportation said no, because they wanted the slots to be available in a blind auction so that all new entrant or limited incumbent (less than 5% of total slots) carriers (—cough—Southwest Airlines—cough—) had a chance to purchase the slots. Delta and US Airways couldn’t accept the DOT’s proposed deal and now have come out with this new plan. I’ve summarized the basic details below.
- Delta gives 42 slot pairs to US Airways at Washington Reagan (DCA) >>> no change
- US Airways gives 132 slot pairs to Delta at La Guardia (LGA) >>> +8 slots
- Delta also gives US Airways $66.5 million in cash
- US Airways receives the right to operate to Sao Paulo beginning in 2015
- The carriers are willing to allow the divestiture of up to 16 slot pairs at LGA, and 8 at DCA.
- Delta will start flying from Terminal C at LGA (in addition to their current operations in Terminal D and the Marine Air Terminal). They’ll be converting the existing US Airways Club in Terminal C into a Sky Club, which US Airways will replace with an entirely new lounge (presumably in Terminal D)
The deal is, as it was before, a win-win for all parties (with the possible exception of our Washington based friends) both airlines as well as consumers in each market. But what exact changes will be made in each market?
New York La Guardia
Delta proposes 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.” So you’re going to see an increase in the Delta network at LGA. My guess is that they’ll now be able to move flights around more easily, and create a better hub presence in the airport, with efficient schedules. As per the agreement, US Airways will be dropping service to 27 airports from LGA, and Delta is supposed to add service to all of these destinations plus a few more (see below for a list of the largest markets from LGA unserved by Delta). Furthermore, many of the aforementioned markets are going to see increases in capacity as Delta upgrades them all to regional jets from the turboprops currently used by US Airways. Delta claims that it will be “adding as many as 4 million additional roundtrip seats available at LaGuardia without increasing congestion.” Delta will also take control of 18 of the 20 gates in US Airways’ Terminal C (bringing their LGA total to 35), and allow inter-terminal connections by building a 600 foot connector. In all Delta will plow $117 million into terminal upgrades at LGA, and claims that the swap should directly and indirectly create up to 6,000 jobs in the NYC area. Delta and US Airways will continue to serve the Shuttle Services to Boston and DCA side by side (Delta at its 6 gates in the Marine Air Terminal).
US Airways will continue to operate services to their hubs in Charlotte and Philadelphia, will serve Boston and DCA as mentioned before, and will retain service to Pittsburgh as well. The plan to keep service to Wilmington, North Carolina has been dropped (why was it even planned in the first place?). They will continue to operate from Terminal C, where they will retain 2 gates and 7 more parking positions (ie: for regional aircraft), and plan to build a new 5,500 square foot lounge.
From the consumer perspective, there’s a lot to be gained here. Delta says that it’ll be keeping most if not all of the cities currently served by US Airways on board, so the NYC passengers keeps his broad range of destinations, while small markets keep their access to NYC. The passenger experience improves with a more fluid Delta operation (which could re-time flights to be more attractive to business travelers), and a nicer terminal experience; with upgraded lounges and smooth connections. Furthermore, despite the proposed increase in market consolidation, fares may actually go down, because Delta will be adding so much more capacity.
From the airport’s perspective, the deal is also a win-win. The airport gets a strengthened hub from Delta (its first true hub operation), and should see a significant uptick in passengers within a couple of years (increasing revenue). Furthermore, an upgrade to a couple of terminals (which improves how La Guardia is viewed by the traveling public) will be paid for by the carriers themselves.
10 Largest Markets Without Delta Service at LGA
1. Miami
2. Dallas-Fort Worth
3. Charlotte
4. Denver
5. Houston
6. Milwaukee
7. Pittsburgh
8. Myrtle Beach
9. Cleveland
10. Buffalo
Washington-Reagan
The changes at DCA are slightly more subtle. US Airways will add service to at least 15 new cities at the airport, and will “connect more small, medium and large communities with the nation’s capital and create additional flight options throughout the airline’s route network. US Airways expects to further increase its use of dual class mainline aircraft and soon to be dual class larger regional jets at Reagan National. The move will benefit customers by increasing the number of available seats between Washington and favorite destinations without increasing congestion.” Again there should be a capacity boost here, (though not quite as much as by 4 million passengers. There has been no information as of yet on how the terminal situation will work out.
Delta’s going to keep service to 7 domestic hubs (Atlanta, Detroit, Memphis, Minneapolis St. Paul, Salt Lake City, Cincinatti-Northern Kentucky, and New York JFK), as well as continuing their shuttle services to Boston and LGA and keeping service to other “select cities.” The swap will only result in the loss of 40% of Delta’s DCA operation, and they will continue to operate close to 60 flights per day at DCA.
In terms of the consumers and the airport, they’ll see some of the same benefits as La Guardia, though on a smaller scale. US Airways (their preferred carrier) will have an expanded “hub” in place, and will add capacity to several key destinations with up-gauges in equipment. This added capacity will push more passengers through DCA and lower fares somewhat. However the overall effect will be, as mentioned; muted.
So what are the carriers getting in this deal?
On the Delta side they will be gaining a lot more than they’ll have to give up (132 slots vs. 42), at least on paper. Delta’s been trying to “win New York” (read: take on Continental/United at Newark) for some time now. While the addition of these slots will strengthen that goal, ultimately United will still have the superior operation because Delta will be running a split hub. Following the deal, LGA will function well as a domestic connecting hub to the Northeast, and JFK in its continued role as a Trans-Atlantic gateway. However, the combined power of the two operations doesn’t match the scope and breadth of United’s operation under one roof. However the strengthened LGA operation (at the most popular airport for business travelers), as well as the upgraded terminal facilities (Terminal C is the nicest one at LGA) will help attract and retain NYC area frequent flyers. And according to Delta, JFK’s going to stay pretty much as is. The most you might see is a couple of small flights that don’t connect into the main international banks could shift over to LGA and allow for a bit of growth in the JFK portfolio.
From the US Airways perspective, the gains are much greater. Their LGA operation has long been a money loser; simply because their overall New York network was not broad enough to attract enough frequent flyers and high yielding passengers. US Airways stated last year that: “The core issue is that we don’t have an intercontinental operation out of New York. The perimeter rule stops us from competing out of New York. We couldn’t take the assets and really run with them.” Without a major presence in markets such as Los Angeles and San Francisco, they were unable to leverage the LGA operation into anything significant. On the other hand, DCA is one of their most profitable markets. And the airline said last year that the move could boost profitability by $75 million annually, a figure that should still be valid today.
US Airways is also going to be getting additional rights to serve Sao Paulo, beginning in 2015; presumably from Charlotte. However, this is a bit of a dud; for two reasons. First, US Airways already has the right to serve Sao Paulo (they leased it from United Airlines). They don’t because they can’t seem to get adequate slots or terminal space in Sao Paulo. So this won’t be giving them anything they don’t already have. Furthermore, the US and Brazil will be entering an Open Skies Agreement in 2015, which would have (theoretically) allowed them to serve Sao Paulo anyway.
Overall though, Delta and US Airways both stand to gain and grow here; with each airline playing to its respective strengths. But will the DOT play ball?
As a whole, the arguments they made against the deal last year are much less relevant now. The competitive landscape in these two markets has changed; especially in New York. Southwest has gained access to Newark from United, and to La Guardia by merging with Air Tran. They’ve built up a significant NYC presence, and are less likely to complain about the deal; especially because they should get a chance to bid for these slots as well. Additionally, United remains a strong competitor with its P.S service and Newark hub.
Down in Washington, there’s also been a shift in market dynamics. Thanks to the combination of Southwest and Air Tran hubs at Baltimore-Washington, they’re now the single largest carrier in the area. Furthermore, Southwest has gotten access to DCA via the aforementioned merger. JetBlue’s around as well, and United’s fortress hub at Dulles is there as well.
So these markets have been exposed to ample low cost carrier competition in the past few months, which should translate towards a more rational response from the DOT. Furthermore, because the airlines have agreed to drop their lawsuit against the DOT, my guess is that there’s been at least some discussion between the warring parties.
Finally, in terms of who could grab some of these available slots; my guesses are as follows. Southwest will definitely ask for slots at both airports, and JetBlue will want more at DCA. Spirit could ask for some flights at both airports. You may even see bit domestic players like Sun Country and Vision Airlines (LGA-Destin flights anyone?) enter the fold. Internationally, WestJet, Porter, or even Air Canada may ask in to LGA or DCA.
So ultimately, the deal is a winner for all parties involved. The involved airlines get to re-structure their networks and focus on their strengths. Consumers will see access to better and smoother operations, larger aircraft, and potentially lower fares. The airports themselves will get increased passenger traffic and revenue. And the deal still allows for the addition of new competition, in the form of low-fare carriers. The onus is now on the DOT to quickly approve what will be a beneficial deal for all.
