Delta and US Airways reapply for slot swaps

Discussion in 'Delta Air Lines | SkyMiles' started by jbcarioca, Jul 4, 2011.  |  Print Topic

  1. jbcarioca
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    jbcarioca Gold Member

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    Delta Would Purchase 256 LGA Slots from US Airways - 84 DCA Slots Would Transfer from Delta to US Airways - Sao Paulo Operating Frequencies Would Turn Over to US Airways at a Future Date - Significant Increases in LCC Competition at Both Airports Since DOT's Final Order Alone Should Alleviate Any Lingering Competitive Issues

    http://www.airlineinfo.com/

     
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  2. DeltaExpert
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    Hope it works out!
     
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  3. mrredskin
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    mrredskin Gold Member

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    Sorry for never really paying attention to this before, but where would US focus at around NYC, now, if at all? This would almost create a hub at DCA but with PHL so close?
     
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  4. jbcarioca
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    ON the face of it I'd guess there will be much more DCA activity for US with CLT and possibly even some long flights with PHX even possible with new equipment. It does seem odd because the US Airways shuttle DCA-LGA would be hard to do with a loss of 256 slots, would it not? I had not paid attention to the LGA issue either.
     
  5. Travel2Food
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    Sucks for me out of DCA - perhaps the final nail in the coffin for CVG.
     
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  6. MSPeconomist
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    I'm surprised by the slot ratio, which I would have expected to be closer to one-to-one.

    Like others, I'm worried about losing DL nonstop service and DL seats capacity from DCA, although of course (shocking) DL could move from RJs to bigger planes into hubs from DCA and retain the same overall number of seats, I guess, just not the convenience.

    I was shocked to recently discover that DL no longer has the government contract for DCA-MSP. Now it's a connection, IIRC through ORD. Strange!

    Someone said that US could offer flights such as DCA-PHX, but wouldn't this violate the perimeter rule? I( would expect exceptions to be difficult to obtain for a legacy carrier with lots of exDCA flights.
     
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  7. jbcarioca
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    That was me. I was recently told by someone who should know that the perimeter rule was expected to be under review soon. He was drinking his favorite tipple at the time.:confused: That could impair his judgement.
     
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  8. MSPeconomist
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    If the perimeter rule is really rescinded soon, it would seem to make the DCA slots even (much) more valuable. I wonder whether US and DL have very different assessments of the probability of this happening; this divergence of opinion could help to explain their strategies.
     
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  9. jbcarioca
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    jbcarioca Gold Member

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    That is certainly possible. Even without that it is an odd swap, isn't it.? I neither understand US abandoning LGA nor DL giving up so much at DCA. I wish we had some inkling of the strategy. One of the odder individual items is DL giving US the daily GRU frequency, but only in 2015, so DL gets the World Cup and US gets the Olympics. What is that about?.

    Another questioner is here:
    http://www.portfolio.com/business-t...rways-propose-deal-to-trade-new-york-dc-slots
     
  10. ClipperDelta
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    Swap is not odd at all. US has been losing $$$ at LGA for a while now, and their NY presence has been declining over the years; NY is now a 4-way battle between DL (JFK/LGA), AA (JFK/LGA), UACO (EWR), and B6 (JFK) - there is really no room left for US; US stands a much better shot of making it work at DCA, where it is already the biggest player I believe.
    Delta on the other hand has been focusing on the NYC market and has made quite a bit of headway (market share wise, DL is now #1 at JFK, #1 at LGA, and #2 overall in the NYC area (UACO at EWR is bigger); LGA is the preferred NY airport for business travelers/corporate accounts, and also for many Manhattanites for domestic travel and DL would make even more headway in NYC if it were to take the US slots.
     
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  11. jbcarioca
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    Your logic seems sound. How will that affect the odds of getting approval? It seems just to decrease competition as you describe it.
     
  12. ClipperDelta
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    A little background first:
    - This swap deal was first proposed about 18 months ago (or maybe even longer).
    - The Feds approved it on condition that DL and US divest a bunch of slots at both LGA and DCA to new entrants or those with limited service at both airports
    - DL and US didn't really like those terms, so they offered to divest a smaller portfolio of slots, but to only certain low-fare carriers (including JetBlue, Westjet, AirTran, etc.,but specifically excluding Southwest).
    - Feds didn't like that, and seemed to particularly want Southwest to have access to LGA/DCA.
    - DL and US then withdrew their proposal and took the Feds to court.

    DL and US in the meantime continued to rework the deal and during this period, Southwest bought AirTran, thus gaining access/more access to LGA and DCA....This time round, DL and US are arguing that the competitve landscape has changed (UA-CO merger, WN-FL merger, etc.) and that WN now has access to LGA/DCA. In addition, DL-US also indicated that they are still willing to give up some slot pairs at LGA/DCA if necessary (and they did not specify which carriers should get them) though the number they are willing to give up is nowhere near what was requested by the Feds last time, and may even be fewer than what they offered last time round...
    In the end, I think it's a 50-50 shot, but I tend to think that they may have run the proposal by some people in the government (informally at least) before they proposed this round and could have gotten a slightly better response (total guesses on my part of course), though approval is definitely not a given.
     
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  13. MSPeconomist
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    I agree that ClipperDelta's arguments about profitability would support a smaller slot swap of this sort, but the numbers suggest major pullbacks which would make sense in many other airports, but not IMO at NYC and DCA. It's hard to imagine a serious major legacy carrier without a sizable NYC presence, even if more for flag waving purposes than profitability. Similarly, the shuttle services exNYC are prominent and I would assume profitable routes even if they're run differently than other routes and require additional training and systems to operate.

    Similarly, the DCA market should be lucrative with lots of business travellers as well as government fares. However, as I said before, I'm shocked to see DL losing some key government contracts which is the past should have been very profitable.

    One other point is that if DL plans to maintain seat numbers exDCA with fewer slots, they eventually face constraints on the size of planes that can easily use their gate space with the narrow alleys and relatively tightly packed terminal and jetway layout. (The decision not to try to take over Terminal A and update it is looking even worse than it originally did.) I'm assuming that a slot is a slot and can be used for any size of plane that the airport's runways and terminal can handle. However, I'm trying to remember the biggest planes that I've seen at DCA. My guess is maybe 757s but not wide-body jets, although the perimeter rules discourage certain large aircraft types. I don't think I ever saw something bigger than an A320 or 737 (NW used a lot of DC-9s here) in Terminal A, at least not in an extremely long time, although the DCA market should be a place that rewards the convenience of frequent schedules more than some other airports and routes might.
     
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  14. MSPeconomist
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    If it's approved, it would seem to give DL a huge market share at LGA and US a huge market share at DCA, in both cases where the current situation is that both carriers already have big market shares in these airports. Of course, one can argue what the market is (just LGA or include JFK and EWR, maybe more such as ISL and HPN/DCA alone or include IAD and even BWI?). Unfortunately, the current SOP is that regulators tend to look at the number of city pairs with competitors rather than looking at competition with connections using different hubs. Bu this standard, few mergers decrease competition and it's hard to see the slot swap having much of an immediate impact by this measure, although later schedule and network adjustments might well do so. The other SOP is to use a four-firm concentration index threshold criterion. Here the WN-FL merger is likely to make a difference as does the CO/UA merger, although I haven't tried to look at the numbers for these airports or cities. Maybe a better argument here would focus on countervailing power and argue that other mergers make somewhat more concentration more rather than less desirable--i.e., two major players might be better for consumers than one big and two intermediate sized competitors or in this case, two big and one small competitor being better than one big and two intermediate-sized airlines at an airport. Again, I haven't looked at the numbers but such effects are possible.
     
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  15. DeltaExpert
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    Let's hope this gets approved.
     
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  16. ClipperDelta
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    I was able to look up the LGA traffic stats for the full year 2010:

    Delta: 7,071,978 pax = 29.5% share
    American: 4,979,112 pax = 20.8% share
    US Airways: 4,338,161 pax = 18.1% share
    United: 1,639,957 pax = 6.8% share
    AirTran: 1,293,905 pax = 5.4% share
    Spirit: 1,056,366 pax = 4.4% share
    Continental: 865,445 pax = 3.6% share
    JetBlue: 826,294 pax = 3.4% share
    Air Canada: 745,019 pax = 3.1% share
    Southwest: 622,930 pax = 2.6% share

    Here's one very very crude way to look at this in terms of the effects of the WN-FL and UA-CO mergers: in today's world, United pre-merger is about 23.2% the size of Delta at LGA, while AirTran is 18.3% the size of Delta.
    Let's say that as a result of the slot swap that Delta takes 80% of US's LGA pax: a combined UA-CO would be at 23.8% the size of Delta, and WNFL would be at 18.2% the size of Delta; these are very similar numbers to today's (pre-mergers, pre-slot-swap) competitive landscape.

    Also, under this scenario, Delta post-slot-swap would come in around 44-45% market share at LGA - yes, that's big but that's still not even 50% of the market. I believe US would have a bigger share of DCA traffic though (haven't looked up the DCA stats).
     
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  17. MSPeconomist
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    Then under the DOJ standard, even ignoring the fourth firm, these airports are already too concentrated even before any slot swap.
     
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  18. Travel2Food
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    The political reality is this: right now is the very best time (in the Obama administration) to propose a swap that would increase concentration.

    Why?

    1) The Administration is trying to show business that it's pro-business. It's a plus to help the airlines (as they're not the demons that Wall Street, the banks, or "rich executives flying private jets" are).
    2) The home states of the two airlines involved (Georgia, Arizona) could very well be in play next election. If the administration shows some empathy for corporations based there in a way that might boost job prospects, then it can campaign more effectively in those states.
    3) If there's any way they can show net job gains, it will be a plus.
    4) If it happens to hurt Virginia, all the better from the view of the Administration. Virginia has not been kind to the Administration (and the actions of the administration in other cases have definitely not been pro-Virginia).

    So, if DL and US have any prospect in the next, oh, 6 years, of pulling this off, now is the time. Perhaps a consent decree will be negotiated, but it will likely be more favorable to airline interests than before. And if there's some unwritten quid-pro-quo, even better.

    Just my $0.02 from the peanut gallery.
     
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  19. MSPeconomist
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    Interesting, but would you make a similar argument regarding FA unions? However, I think a lot of voters think airlines except WN are evil and have already been bailed out enough.
     
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  20. Davescj
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    If this goes through, how many slots would DL have in DCA? Why would DL want to lose Sao Paulo? DL would totally pull out of the market? Or reduce service?
     
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  21. MSPeconomist
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    That's what I'd like to know. Is it slots per day, including weekends or are these weekly slots? Also, when slots are sold, is it a slot at a particular time or just a slot with the time to be negotiated with the airline.
     
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  22. Travel2Food
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    I don't think FA unions reach to the same political level, at least not right now. That may change if one goes on strike. This administration is probably well advised to avoid the airline union issue for now, though my guess is that if pushed into a corner that the administration would support the union but take action to avoid a strike as it would throw many others out of work (some of which are unionized, like pilots). That's just a guess.

    I don't see the voting public sees the unions the same way they see GM (government motors) or the financial/banking industry. GM wasn't demonized by the administration the way the banks were... neither were the airlines. For the most part, what's seen about the airlines is bankruptcy, not bailout, and all that is still seen as tied to 9/11 (even though we all know that the airline troubles were on the horizon long before that). I think most folks see the airlines the same way they see cable TV, the phone company, or the electric company: utilities that offer lousy service but still give them something they want. Yes, they hate fees. But they don't hate 'em enough to stop flying.

    Personally, I don't think anyone will posture a slot swap as a "bailout", even if they understand what a "slot" is. Getting this done is more about timing than anything else.
     
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  23. MSPeconomist
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    I see your points and basically agree, but my perception is that most people are more favorable toward our domestic carmakers than you suggest. They now seem to be doing things right with decent quality and little publicized overseas outsourcing in the news recently. I think people have largely forgotten about the debacle when the auto CEOs flew private to their Congressional summons and then the silliness of driving in fuel efficient vehicles the next time.

    Most phone, etc. complaints are ongoing so that people become accustomed to conditions of their service and prices. Airlines, however, are infrequent (for most people) anticipated experiences and when things go wrong, it tends to be dramatic and publicized, frequently impacting important special occasions in people's lives.
     
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  24. TravelerRob
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    So the DCA perimeter rule is being reviewed for revocation but the LGA perimeter rule is not? I don't understand that at all.

    Also, DL definitely flies 757's at DCA. They do a DCA-SLC flight using a stupidly old 752 (I won't take that flight again!). I'm not sure runway 1/19 is even long enough for a 763?

    -RM
     
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  25. LETTERBOY
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    Congress is closer to DCA than they are to LGA.
     
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