The Transportation Department reaffirmed a February decision to allow US Airways and Delta to swap slots at Reagan Washington National and New York LaGuardia airports, provided they divest some slots to other airlines.
In so doing, the DOT rejected a proposal by the carriers that they divest the slots in private transactions that they have already negotiated with four new entrants. Instead, the DOT insisted that the carriers hold a blind auction.
The airlines said they would appeal the ruling.
"We are disappointed the DOT and FAA rejected a proposal that would provide clear consumer benefits in both the Washington, D.C. and New York markets," Delta and US Airways said in a joint statement. "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 U.S. Court of Appeals."
The carriers’ basic proposal, filed last August, was for Delta to trade 42 slot pairs at Washington Reagan to US Airways in exchange for 125 of US Airways' slot pairs at LaGuardia, along with other assets. The trade would make Delta the largest slotholder at LaGuardia, and US Airways the largest at Reagan National.
The DOT tentatively decided to approve the plan in February, subject to a divestiture requirement. To avoid market concentration and to encourage new entry, the DOT said the carriers had to divest 20 and 14 slot pairs at LaGuardia and Reagan National, respectively.
US Airways and Delta responded with a counteroffer in March that fell short of the DOT's requirements. They proposed to transfer 15 slot pairs at LaGuardia (three each to AirTran, Spirit and WestJet) and up to five pairs at Reagan National to JetBlue.
Today, though, the DOT said the counteroffer would be "insufficient to preserve competition at the two airports."
In addition, the DOT decided on the form of the divestiture, stipulating that it be a blind auction where Delta and US Airways would not know the identity of the buyers. The carriers will be permitted to retain the proceeds from the auction.
"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," the DOT said.
Delta and US Airways have threatened to either drop the deal or take the DOT to court if the agency rejected their counterproposal or forced a slot auction. The airlines contend the agency has no legal right to block slot deals based on competitive concerns.
The Justice Department should rule on such matters, the carriers said.
Justice officials have backed a blind auction, such as the one now being required by the DOT.
This report was updated on Tuesday night to add a joint statement from US Airways and Delta.