US Airways CEO pushes back at potential Washington Reagan slot divestitures

Should the U.S. Department of Justice rule in favor of the American Airlines-US Airways merger, as is expected by the end of September, many analysts and industry-watchers suspect the department's conditions would include slot divestitures at Ronald Reagan Washington National Airport.

US Airways CEO Doug Parker, leader-to-be of the merged airline, pushed back at the premise during an annual shareholder meeting Friday, during which US Airways stockholders went through the motions of officially approving the transaction.

Parker acknowledged that American and US Airways combined would hold "something in the order of two-thirds" of the departure slots at Washington Reagan, which "is being used as the rationale to say, 'That's too many, and they should divest.'"

Not only is there no legal antitrust threshold at which an airline must relinquish slots, Parker said, but also similar and even greater airport share positions aren't uncommon among competitors.

The approvals of the mergers of Delta and Northwest, United and Continental and Southwest and AirTran fortified strong hub positions, Parker argued.

He rattled off the figures: Delta holds 78% slot share at Atlanta, 83% at Detroit, 76% at Minneapolis and 77% at Salt Lake City, while United has 74% at Newark, 75%at Washington Dulles and 86% at Houston Intercontinental. Southwest, meanwhile, holds 83% share at Chicago Midway.

Furthermore, Parker said the number of departures "isn't even a relevant number" to gauge competitive presence. Look instead at the number of seats, he said. "Because we fly to so many small communities out of Reagan," routes on which the carrier uses smaller aircraft, the combined carrier's seat share at Reagan "is closer to 50%, much lower than these other airlines have at their hubs."

Additionally, Parker said the Washington area boasts competition from three airports. Including Dulles and Baltimore-Washington, the merged American would hold about a quarter of Washington-area seats, "lower than United's share in the D.C. area and about exactly the same as Southwest," Parker said.

JP Morgan airline analyst Jamie Baker pointed to mounting pressure for US Airways and American to divest at DCA. "Most recently, it was reported that attorneys general from 19 states have joined the [DOJ] probe, and that concentration at DCA may need to be addressed," he wrote in a July 3 research note.

A recent U.S. Government Accountability Office report, entitled "Issues Raised by the Proposed Merger of American Airlines and US Airways," noted that U.S. Department of Transportation policy and "congressional action" in recent years have "favored new-entrant airlines like Southwest" in awarding operating rights at "congested airports like Washington Reagan and New York LaGuardia."

That was the case in 2010 when the DOJ approved the United-Continental merger with conditions that called for the combined carrier to relinquish Newark slots to Southwest.

In this latest merger scenario, JetBlue already has positioned itself for control of slots that may become available at Washington Reagan, according to media reports.

"We've long expected DCA to draw scrutiny given [US Airways'] formidable, post-Delta-slot-swap market share," said Baker, referring to a 2011 transaction that boosted US Airways' seat share at Washington Reagan. That deal also required slot divestitures.

Parker on Friday suggested that forcing American and US Airways to divest slots at Washington Reagan would result in reduced service to smaller communities.

Baker seemed to agree with that premise: "Admittedly, forcing [the merged American] to surrender slots currently utilized to serve smaller cities so that JetBlue could fly to Orlando strikes us as a curious and regrettable allocation of public resources."

Source: Business Travel News
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