In the immortal words of Dennis Hopper (rest in peace, you crazy bastard) . . . pop quiz, hotshot. Let’s say that you’ve been presented three deals impacting the most dominant airline at a highly-congested airport. You can approve one. Which would it be? Here’s what the airport will look like after the deal is approved:
You’re probably thinking that B looks best, and there’s no chance anyone is going to pick deal A, right? But that’s exactly what’s just happened now that the Department of Justice (DOJ) has given its approval to United and Continental to merge. All Continental has to do is take United’s 18 daily flights and give those slots (or equivalent) to Southwest. Done deal. Those other two deals? Yeah, that would be the rejected slot swap between Delta and US Airways in Washington (C) and New York (B).
I know, I know. These are totally different things and the approvals came from different branches of government. True, but it also shows how screwy it can be dealing with the feds. I should be clear here. I think the Continental and United deal should be approved. I just think the slot swap should have been approved as well.
Let’s start with the Continental/United deal. Apparently, the Department of Justice (which tends to be more strict than the Department of Transportation) had no concerns about this deal outside of Newark. Newark, of course, is a highly-congested airport with no slots available. So Continental agreed to permanently lease 18 slot pairs (the same number of flights United operates today) to Southwest. In other words, United gives up its slots to Southwest and everything else is fine. Here’s the state of the airport after this deal.
I’m sure Southwest is thrilled to be getting in there, but it’s still a pretty small number of flights in the scheme of things. And of course, everyone else is still frozen out for now. Contrast that with the slot swap deal. First, here’s the Washington/National chart had the deal been allowed to go through.
Here you can see an airport with more balance and greater low cost carrier penetration than Newark, but that’s nothing compared to LaGuardia.
When compared to National, there’s a greater transfer of slots here, but the dominant carrier would still have held a smaller position than at the other airport. Note the even higher LCC penetration of 12.7%. That’s more than double where Newark will be after Southwest gets its 18 slot pairs. So what gives?
Well it’s hard to say exactly what’s going on when you’re dealing with political bodies. Making sense is never the highest priority. But in this case, I would assume it’s simply an issue of looking at current versus potential scenarios. Continental won’t grow in Newark with this transaction while Delta and US Airways would have grown at LaGuardia and National respectively in that deal. Really, that shouldn’t be the issue here.
If the feds want to act like they’re sticking up for the consumer, they have the ability to hold airlines over a barrel. The Department of Justice chose not to do that with Continental and United while the Federal Aviation Administration has apparently gone the opposite route with the slot swap. Go figure. One thing we do know is the feds do seem to love Southwest these days.
You’ll remember that Southwest voiced a large number of objections when it came to the slot swap. The feds came back and agreed with the airline. Remember, Southwest actually said that open auctions were the best outcome. Now it’s gone and done a back-room deal. Not bad for Southwest, and certainly not bad for Continental and United. Then again, it probably just frustrates Delta and US Airways even more. Or maybe not.
Maybe this suggests that the better path for US Airways is to get bought (as they’ve been saying for some time anyway). Then it won’t need to get an FAA waiver to give its LaGuardia slots to another airline. It’ll be that other airline, so the FAA won’t get to ruin the party. If this helps build up US Airways’ efforts to get bought, then that’s good news for the airline.
Never a dull moment inside the Beltway, that’s for sure.
