The US/DL LGA slot swap [Master Thread]

 
Old Feb 9, 10, 2:54 pm
  #1  
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Post The US/DL LGA slot swap [Master Thread]

Well, SOMETHING seems to have happened with DL and US's DCA-LGA swap application, but good luck figuring it out from this article. It seems like the gov't wants them to sell some slots to foster "more competition."

http://finance.yahoo.com/news/DOT-De....html?x=0&.v=2

I know the Obama administration looks at big business as a "necessary evil," but it's not rocket science to conclude that both DL and US aren't the healthiest corporations in America. They each lose hundreds of millions of dollars when times get tough. Isn't it better to make them each a little stronger than "foster more competition"? I guess the airline unions -- who would obviously benefit from their companies getting stronger -- don't have much pull with Obama (or perhaps don't appreciate the value of their employers being profitable).

I guess we'll see what the actual ruling is, and what the response is.
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Old Feb 9, 10, 3:00 pm
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OK, here's a better report on the Dallas News aviation blog (which I recommend reading on a regular basis if you're interested in the business).

The gov't wants a LOT of slots divested! I think the airlines might walk away from this deal under these terms. Unless, of course, they could sell the slots for a boatload of money. But it would be self-defeating to sell them to someone like WN.

http://aviationblog.dallasnews.com/a...rways-slo.html
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Old Feb 9, 10, 4:14 pm
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They basically say it will not proceed in the Delta/US Airways press release (emphasis below mine):

ATLANTA & TEMPE, Ariz., Feb 09, 2010 (BUSINESS WIRE) -- Delta Air Lines (NYSE: DAL) and US Airways (NYSE: LCC) today issued the
following statement in response to the U.S. Department of
Transportation's proposed rulemaking on the airlines' previously
announced slot transaction at New York's LaGuardia and Washington's
Reagan-National airports. In its decision, DOT said it would require the
airlines to divest 20 of the 125 slot pairs involved at New
York-LaGuardia and 14 of the 42 slot pairs at Washington-National.

"Delta and US Airways are disappointed in the DOT's decision that, if
implemented, would negatively impact the consumer and economic benefits
created by the proposed transaction by divesting 16 percent of the
transaction at New York's LaGuardia Airport and 33 percent of the
transaction at Washington-National. Chief among those benefits is the
ability for both airlines to maintain and add new nonstop service
between two of America's top business markets and small- and
medium-sized communities across the United States.

"Our goal remains to increase access for customers in small communities
to LaGuardia and Washington-Reagan National airports. We appreciate the
thousands of employees, customers and elected and community leaders who
have voiced their support for our transaction. 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.
Both
airlines will review the DOT's proposed rulemaking to determine our next
steps."

SOURCE: US Airways

Last edited by PWMFlyer19; Feb 9, 10 at 4:14 pm Reason: Missed a not...
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Old Feb 9, 10, 5:11 pm
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What's surprising is that the requirement to divest slots is surprising to anyone. As originally proposed, US would have about 55% of the DCA slots and DL almost 50% of the LGA slots. the UA/US merger would have resulted in the merged company having had a smaller percentage of DCA slots than that and it was going to be shot down because of that concentration of slots in one carrier's hands so UA pulled out.

Even with the proposed changes US will control half the DCA slots (a higher percentage than the UA/US merger would have led to) while DL will control 45% of LGA slots - each will still be the biggest at the respective airports.

What I found especially amusing were the form letters submitted by various airport officials that recommended the deal be approved. Distilled to their essense they all said:

"I write to express my strong support for this transaction as it provides benefits of importance to my city and indeed my state."

"US Airways has announced that upon consummation of this agreement ... they will provide non-stop service from (my airport) to Washington Reagan National Airport."

"In addition, because US Airways has a well-established network system at DCA, my community will have the ability to easily connect with major cities, particularly throughout the East."

I can just see someone at DOT shaking their head and saying "Geez, can't they even come up with their own verbiage?"

Jim
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Old Feb 9, 10, 5:20 pm
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Originally Posted by iahphx View Post
Isn't it better to make them each a little stronger than "foster more competition"?
No.

In fact, what the feds should do (much like they do with other "public trust" things like radio spectrum) is reclaim and auction all of the slots at slot controlled airports and let the market (rather than history) decide who wants them most. In the absence of that, letting two incumbents who have the slots based only upon their longevity exchange them and create two monopoly positions at slot/entry controlled airports is brutally anti-competition. DOT for the win.

Unlike the previous administration (who screwed up with the ATSB), this one, while still not getting it economically, is apparently going to err on the side of the consumer while "not getting it."

The dirty little secret is that if Southwest gets their hands on a dozen more slots at LGA and aitran (or whomever) gets them at DCA, it'll cause fares to go down. That is better for the consumer than overinflated fares from a few additional small destinations to LGA or DCA.
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Old Feb 9, 10, 5:28 pm
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Sounds to me like Delta and US don't want an airline like Southwest coming into DCA or LGA to provide competition to their nonstop flights that they like to gauge passengers on.
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Old Feb 9, 10, 5:31 pm
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Originally Posted by ClueByFour View Post
No.

In fact, what the feds should do (much like they do with other "public trust" things like radio spectrum) is reclaim and auction all of the slots at slot controlled airports and let the market (rather than history) decide who wants them most. In the absence of that, letting two incumbents who have the slots based only upon their longevity exchange them and create two monopoly positions at slot/entry controlled airports is brutally anti-competition. DOT for the win.

Unlike the previous administration (who screwed up with the ATSB), this one, while still not getting it economically, is apparently going to err on the side of the consumer while "not getting it."

The dirty little secret is that if Southwest gets their hands on a dozen more slots at LGA and aitran (or whomever) gets them at DCA, it'll cause fares to go down. That is better for the consumer than overinflated fares from a few additional small destinations to LGA or DCA.

^ You said it better than I did. But I agree, this is definitely their concern. All of a sudden those ridiculous $500 tickets on a 400 mile flight go out the window.
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Old Feb 9, 10, 5:37 pm
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Ditto Clue's comments - the FCC regularly auctions spectrum (the late 90's auction of spectrum is widely credited with creating that long gone federal surplus at turn of the century) - It is a market driven process with plenty of anti-collusion safeguards in place. A good idea for slots - but, the short term downside is the "winner" needing to recapture their purchase price from pax fares - maybe, like the FCC does, restrict the total number you can acquire in one "market" to ensure there is a diversity of carriers (which should in turn create price competition).
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Old Feb 9, 10, 6:00 pm
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Originally Posted by jbird82 View Post
Sounds to me like Delta and US don't want an airline like Southwest coming into DCA or LGA to provide competition to their nonstop flights that they like to gauge passengers on.
The airlines planned to use these flights to serve smaller markets. Low cost airlines rarely fly to smaller markets -- and certainly wouldn't use these slots for that purpose if they got hold of them.

I hear a lot of bellyaching about high fares, but the reality is that it is EXTREMELY difficult for a network carrier to make money on domestic flying. I think it's best for the consumer if enough legacy carriers survive to maintain COMPETING global networks. We don't really need more competition between NYC and LA.

By imposing ridiculous conditions that no businessman would accept, the net result will be that the slots remain underutilized. DL planned to replace US's turboprops with jets -- adding something like 2 million seats to LGA alone. That's not bad for competition. And now the net result will be nothing -- unless the Obama administration realizes the folly of this (or perhaps after the next election).

It's a lose-lose for everybody.
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Old Feb 9, 10, 6:08 pm
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Originally Posted by iahphx View Post
The airlines planned to use these flights to serve smaller markets. Low cost airlines rarely fly to smaller markets -- and certainly wouldn't use these slots for that purpose if they got hold of them.

I hear a lot of bellyaching about high fares, but the reality is that it is EXTREMELY difficult for a network carrier to make money on domestic flying. I think it's best for the consumer if enough legacy carriers survive to maintain COMPETING global networks. We don't really need more competition between NYC and LA.

By imposing ridiculous conditions that no businessman would accept, the net result will be that the slots remain underutilized. DL planned to replace US's turboprops with jets -- adding something like 2 million seats to LGA alone. That's not bad for competition. And now the net result will be nothing -- unless the Obama administration realizes the folly of this (or perhaps after the next election).

It's a lose-lose for everybody.
So what's your explanation on why the airlines don't seem thrilled about selling the slots?
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Old Feb 9, 10, 6:16 pm
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Originally Posted by jbird82 View Post
So what's your explanation on why the airlines don't seem thrilled about selling the slots?
Precisely. The airlines could give up the slots and still have a big majority at their respective "focus cities." But as was stated earlier, that would allow LCCs to jump in and get the vacated slots, thus driving fares down between DCA/LGA and larger destinations.

US doesn't have to fly 10 flights/day (or whatever the total is) between PHL and LGA. The could reduce the number to 7 and use larger aircraft, then use their 3 "new" slots to provide service between LGA and a smaller market if they cared so much about serving these small towns.
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Old Feb 9, 10, 6:19 pm
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Originally Posted by iahphx View Post
The airlines planned to use these flights to serve smaller markets.
1 - The airlines proposed no requirement that they do so.

2 - The airlines can still serve these smaller market with the reduced number of slots if that's really what they want to do.

3 - The airlines contended that the concentration resulting from the deal would be less than CO has at EWR, UA has at IAD, or WN at BWI - all three
"serving" either NYC or WAS. Yet those three airports are not slot controlled so DL or US could add service there if those airports were really competitive alternatives to LGA or DCA as they claim.

BTW, you've got the DOT confused with the FAA. It's the FAA that has the dual role - enforcing safety regulations while fostering the airlines fiscal health. The DOT role is strictly to consider the effect of proposals on the consumer.

Jim
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Old Feb 9, 10, 6:20 pm
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USNews Now: An Important Message from US Airways President Scott Kirby
Feb. 9, 2010

Dear Fellow Employees:
Earlier today the Department of Transportation (DOT) issued a ruling regarding US Airways’ proposed slot transaction with Delta Air Lines. Although granting tentative approval, in its decision the DOT states it would require both airlines to divest 33 percent (14 of the 42 roundtrip slot pairs) at DCA that US Airways would obtain from Delta and 16 percent (20 of the 125 roundtrip slot pairs) at LGA that we would transfer to Delta. Furthermore, we could only sell those assets to carriers that control fewer than 5 percent of the slots at each airport, and if we are unsuccessful in that sale, DOT will simply take the slots away from us.
We are disappointed by the DOT’s decision, and here’s why. First, this represents a significant portion of the proposed economic benefits we would achieve. DOT is asking both us and Delta to give up 16 percent of the proposed transaction at LGA and 33 percent of the transaction at DCA and they are severely limiting the potential field of airlines that can purchase the slots from us. Second, for a hub and spoke carrier like US Airways, this proposed ruling and divestiture negatively impacts both the consumer and economic benefits that would have been created by the proposed transaction. Third, this decision will result in the loss of opportunity for our country’s smaller- and medium-sized communities that would have benefited from new service from both DCA and LGA as a result of this transaction. Among the benefits our proposed transaction would have created is both airlines’ ability to not only maintain but to also add new nonstop service between two of America ’s top business markets and small- and medium-sized communities across the United States . Providing service to those smaller communities is one key benefit a larger hub and spoke carrier provides across our country, and today’s announcement by DOT creates more obstacles to keeping this service and growing service in these smaller markets.
We appreciate the support our employees, as well as our customers and elected and community leaders, voiced for this transaction. At this point, while we are still analyzing the DOT’s proposed ruling, we expect that if the DOT’s order is implemented as proposed (there is a 30-day public comment period before the ruling becomes final) the transaction will not go forward.
If the order stands as proposed and the transaction does not go forward, we will continue to fly our regional jet and turboprop operation at LGA but we will not be able to expand at DCA. Without this transaction, we also will not be able to offer our customers the new international flights to Sao Paulo , Brazil and Tokyo , Japan that we would have secured from Delta. All of this, of course, will make it harder for us to return to profitability, which is not good for the people of US Airways. As we have consistently said though, LGA remains a valuable asset, which we will continue to operate and support as next steps are determined. This would eliminate the need for the previously announced furloughs in station personnel at LGA and other impacted stations. However, this would not impact our previously announced crew base closures in BOS, LAS and LGA because we never planned to reduce mainline flying at LGA as a result of this transaction.
While our Legal and Public Affairs teams continue to work to bring this transaction to a positive conclusion, the best thing for all of us is to simply keep focused on running a great airline and taking care of our customers. In an industry that has lost 160,000 jobs in the last decade, and that is working hard to engage in self-help measures to stabilize the long-term future for our employees, today’s news is disappointing. We’ll continue to work hard on your behalf to ensure US Airways prospers in the future, in spite of today’s news, and I have every confidence we’ll be successful in this endeavor. Thanks again for all of your hard work. We will keep you posted on our progress.
Scott Kirby
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Old Feb 9, 10, 6:27 pm
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Originally Posted by jbird82 View Post
So what's your explanation on why the airlines don't seem thrilled about selling the slots?
the explanation (which is obvious reading his posts) is that he does not like obama.

anyway, let's face it , there is nothing in this situation that i can think of more crushingly uncompetitive then delta controlling all of their slots and most of us's former slots at LGA and the opposite at DCA. add to that that delta's operation at LGA is probably the one of the worst customer service experiences that a traveler can have., and there is no surprise this happened.

"significant consumer benefits"??? how unbelievably laughable.
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Old Feb 9, 10, 6:27 pm
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As usual, Scott Kirby has this exactly right.

Too bad so many participants on this forum have such animus toward US that they can't understand the stupidity behind today's gov't ruling. You might think frequent flyers would understand the benefits of stronger legacy carriers.
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