Flyers Chat

Delta Air Lines and US Airways yesterday announced a new agreement to swap each others slots in New York’s LaGuardia airport and Washington’s Ronald Reagan National airport. This is the third try between the two airlines to strengthen operations in their respective dominant airport – Delta in LaGuardia and US in Reagan National. May be the third time is the charm?

Why LaGuardia and Reagan National are important?

LaGuardia is the closest airport to Manhattan. Reagan National is the closest airport to downtown Washington. So, business and O&D traffic prefer these airports. The two airports have a lot in common:

• Slot controlled, meaning the number of take-offs and landings are restricted by FAA.
• Most preferred airport of choice in their markets.
• Have perimeter rule that restricts long distance flights with few exceptions.
• Traffic is mostly O&D with a huge proportion of high paying business travelers
• Virtually no room for expansion and hence making their slots the most sought after commodity in the airline industry.

Why Delta and US Airways keep on trying for the slot swap?

Delta wants to wrest the title of New York’s biggest airline from the new United (which dominates the nearby Newark). Delta is already a dominant player in JFK, where its routes are mostly international with most of the domestic flights timed for feeding these flights. By becoming the leading airline at LaGuardia, it wants to capture the business travel market. Delta’s vision is to gain market share in New York air travel market by dominating both JFK and LaGuardia.

US Airways, though has the highest number of slots at LaGuardia, flies mostly to smaller communities with fuel guzzling turboprops. The exceptions being the mainline flights to its hubs in Charlotte and Philadelphia and the Shuttle service to Reagan National and Boston Logan. US Airways has no incentive in joining the turf battle waged between the big three in New York (United, Delta and American). Instead, it can gain market share in another important business travel airport – Washington Reagan National, where it is already a dominant player. This will perfectly fit in its strategy of focusing on its hubs in Charlotte, Philadelphia and Phoenix and the focus city in Washington.

Agreement Details

Here are the highlights:

• Delta would acquire 132 slot pairs at LaGuardia from US Airways
• US Airways would acquire from Delta 42 slot pairs at Reagan National
• US Airways would acquire from Delta the rights to operate additional daily service to Sao Paulo, Brazil in 2015
• Delta would pay US Airways $66.5 million in cash.
• The transaction could result in the divestiture of up to 16 slot pairs at LaGuardia and eight slot pairs at Reagan National to airlines with limited or no service at those airports.

Operational Details

• At LaGuardia, Delta will take control of Terminal C in addition to Terminal D. It will build a connector to connect the two terminals.
• Delta will continue to operate its hourly Delta Shuttle from its six gates at the Marine Air Terminal.
• US Airways’ hourly Shuttle service between LaGuardia, Reagan National and Boston will remain unchanged. US Airways will continue to offer its customers high-frequency schedules from LaGuardia to its Charlotte, N.C. and Philadelphia hubs and Pittsburgh with more than 60 daily weekday flights.
• All US Airways flights from LaGuardia will continue to arrive and depart from nine gates and parking positions in Terminal C
• US Airways plans to add at least 15 new destinations from Washington.
• US Airways will operate approximately 230 peak-day departures at Reagan National, a 20 percent increase over current service levels.
• The airline anticipates an increase of approximately 20 to 25 percent in passenger enplanements at Reagan National as a result of the new flights and schedule improvements.
• There will be no increase in congestion at Reagan National due to US Airways’ planned increase in scale and Delta’s reduction in slots.

What are the chances for approval of this agreement?

Even though both airlines prefer to call it a new agreement, it is essentially a tweak of the previous two agreements – both denied by the US Department of Transportation. This time though, they may have a better chance of getting it approved.

The airline industry has changed a lot since the last agreement. In addition to the merger of United and Continental to create a new behemoth, Southwest, through its acquisition of AirTran, has gained access to both Reagan National and LaGuardia. Jet Blue has entered into Reagan National (through the slots it acquired from American).

But some of the original reservations of the US DOT remain: Delta will control more than 50% share in LaGuardia and US Airways will control close to 50% in Reagan National. The low fare competition will still be limited because of the paucity of new slots. The agreement does not specify which airlines would acquire the divested slots. Delta and US have interests in keeping Southwest from gaining these slots (Southwest argued with DOT to do a open auction for the divested slots last time). Despite these reservations, the agreement now has a better chance of getting approved.

Let’s wait and see!!!