Airport slot issue produces unlikely airline alliances

By Michael Fabey

Two of the nation’s busiest airports are again becoming a battleground between airlines and the FAA — and the scene of some unlikely airline pairings.

But the skirmish, which revolves around takeoff and landing slots at LaGuardia in New York and Reagan National in Washington, is more than just a tiff between the FAA and a handful of airlines over market concentration and competition.

The real issue, again, is whether the FAA or the Transportation Department has any legal bearing over domestic competitive matters concerning U.S. airlines.

At the center of the current dispute is the proposal by Delta to swap some of its Reagan slots for US Airways slots at LaGuardia. The airlines said in August that US Airways would transfer 125 slot pairs at LaGuardia to Delta, and that Delta would transfer 42 slot pairs to US Airways at Reagan.

But the FAA later said it would approve the deal only if the two airlines gave up some of their slots at both airports — 14 pairs at National and 20 pairs at LaGuardia — to prevent either carrier from gaining too much power in those markets.

The FAA says it has legal grounds to help determine the competitive course of airports and airline networks. The agency pointed to previous DOT actions to do just that; for example, when granting antitrust immunity on international routes.

But airlines argue the exact opposite is true. Congress has made it clear that the FAA’s interference in domestic airline matters should be limited to concerns over safety or airspace congestion, they say, and the FAA has no authority to decide on competitive issues involving things like slot sales or trades.

The carriers say the only U.S. federal agency with the authority to rule on domestic airline competitive matters is the Justice Department.

"That limitation on the FAA’s authority reflects Congress’ determination that the FAA … should not interject concerns about competition over which it has no institutional expertise," Delta and US Airways said in a filing last week with the FAA in their bid to push through their proposed slot swaps.

Rivals American, Continental and United, meanwhile, jumped to the defense, questioning in filings the FAA’s authority to force airlines to give up the LaGuardia or Reagan slots for competitive reasons.

A battle for the decades

The airlines clearly have a stake in the outcome, as slot trades, swaps and sales have been common through the years.

The airlines have battled with the FAA over slot-enforcement issues for decades. The agency tried to force a slot divestiture and auction at Newark Liberty in 2008, but it faced legal battles from airline and airport lobbying groups. The FAA retreated from its plan after the Obama administration took over.

Delta and US Airways said last week that they’re willing to go to court again to settle the issue.

"They should take this all the way to the courts," said analyst Darryl Jenkins, founder of the Airline Zone, an aviation economics website. "Who owns the slots is important enough of an issue."

Legal questions aside, Delta and US Airways said they can’t comply with the FAA’s proposal to divest slots for several reasons.

Delta’s plan to create a hub at LaGuardia depends not only on the slots, but also on all the accompanying airport space and connecting flight traffic. US Airways used its slots as collateral for credit, and the airline needs to get full value in any trade or sale.

The way the FAA has tried to mandate the divestiture and sale would diminish the value of the slots, Delta and US Airways argued.

But instead of going to court, Delta and US Airways last week made a counterproposal: Transfer 12% of the slots to four additional airlines: AirTran, Spirit, WestJet and JetBlue.

With the six-way agreement, Delta would operate an additional 110 slot pairs at LaGuardia, and AirTran, Spirit and WestJet would obtain five slot pairs each at LaGuardia from Delta.

At Reagan, US Airways would acquire 37 slot pairs and gain access to Sao Paulo, Brazil, and Tokyo; and JetBlue would gain five slot pairs from US Airways.

Delta said in its filing that the four new carriers were "considered limited incumbents or new entrant airlines" by the FAA at these airports. This opens the airports to the greater competition the FAA says it wants, the carrier said.

"This not exactly what the FAA wanted, but it is kind of interesting," Jenkins said. "We’re seeing some dealing going on. This is how business is done."

Southwest objects

The plan leaves Southwest, which wants some of the very slots the FAA is trying to wrest free from Delta and US Airways, out in the cold. It opposed the modified proposal, saying it would enable Delta and US Airways to pick their competitors and make a private deal with public assets that wouldn’t be in the best interest of the public.

Southwest also viewed the slot-control question differently. The FAA must force Delta and US Airways to give up the slots to prevent the carriers from monopolizing the service in their respective markets, Southwest said.

"The DOT and FAA unquestionably have the legal authority to require divestitures of slots," Southwest said in its filing on the issue.

The original swap plan would double Delta’s share of LaGuardia slots to 50% and increase US Airways’ share at Reagan by 10 percentage points, to 57%, Southwest said.

Delta and US Airways have yet to spell out how the new slot plan would address their concerns about the FAA’s planned divestiture. But the proposal does establish slot control for the carriers — a win for them.

The FAA said it was reviewing all of the comments and proposals.

 

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