Delta-US Airways slot swap approved, but FAA calls for blind sale

See related story: Delta and US Airways controls who gets slots in La Guardia, Washington National deal

Legacies to appeal

Delta and US Airways charged the DOT with exceeding its authority, calling it "inexplicable". They reiterated the new service that would be going into both LaGuardia and National not currently offered by the two airlines, as well as the preservation of links to small- and medium-sized communities. Delta said it also threatens its multimillion dollar construction program at LaGuardia to connect the existing Delta and US Airways terminals, which it estimated would generate as many as 7,000 new jobs in the New York City area driven by the construction of new facilities and the addition of service.

In the Washington market, US Airways pledged to add 15 new daily destinations to its schedule, including eight routes that currently have no daily nonstop service to National on any airline. It also plans to serve all the former Delta markets and significantly expand its use of larger dual-class jets by nearly 50%.

"We are disappointed the DOT and FAA rejected a proposal that would provide clear consumer benefits in both the Washington DC and New York markets," said Delta and US Airways in a joint statement released last night. "There are no winners in this decision - consumers lost, communities lost and our employees lost. Even our competitors lost. The Delta-US Airways proposal also would provide expanded access to JetBlue at Washington National Airport and to AirTran, WestJet and Spirit Airlines at New York LaGuardia Airport. Upon review of the just-issued order, we believe the DOT and FAA's decision is inexplicable and has clearly exceeded their statutory authority. We intend to appeal this ruling to the US Court of Appeals."

Designed to gain allies

The deal between the two legacies and four low-cost carriers was designed to satisfy FAA requirements to give up slots to avoid market concentration, as well as gain new allies in convincing regulators to jump on board. The six-way deal called for Delta to operate an additional 110 slot pairs (down from the original 125) at LaGuardia, while AirTran, Spirit and WestJet would each get five slot pairs from Delta at LaGuardia. At Washington National, US Airways would acquire 37 slot pairs (down from the original 42), while it transfers another five slot pairs to JetBlue. Finally, US Airways would gain access to Sao Paulo and Tokyo-Narita, now needed more than ever with the United-Continental deal.

The deal, essential to Delta's New York strategy (again needed more now than ever given American's slot and interline deal with JetBlue and the UA-CO merger), did not convince regulators. FAA is now requiring Delta and US Airways to divest 14 pairs of daily slots at Washington National and 20 pairs at LaGuardia and sell them through a blind sale to airlines that currently have little or no service at these airports. Delta and US Airways would retain the proceeds from the sale.

"Slot pairs would be sold in bundles large enough to ensure that a purchaser would have a sufficient number of slots to provide meaningful new competition," said the agency, adding the final decision incorporates most of the major elements of the tentative decision announced on 09-Feb-2010.

"This decision will enable the two airlines to carry out their transaction, while making sure competition is preserved at both airports," said US Transportation Secretary Ray LaHood.

The two carriers requested approval for their transaction nearly nine months ago on 12-Aug-2009 that originally had US Airways receiving 42 pairs of daily slots at Washington National in exchange for Delta obtaining 125 slot pairs at LaGuardia. Their counter offer called for 15 slot pairs at LaGuardia and 4.5 slot pairs at National to be given to low-cost carriers, but shut out Southwest. The FAA characterised this as "insufficient to preserve competition at the two airports."