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Other Carriers Weigh in on AA/US Deal: Our Take on What They Have To Gain

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Other Carriers Weigh in on AA/US Deal: Our Take on What They Have To Gain

Other Carriers Weigh in on AA/US Deal: Our Take on What They Have To Gain
November 13
13:14 2013

MIAMI — As the details of the settlement between American Airlines, US Airways, and the Department of Justice roll in, competing airlines have been getting a sense of what the new landscape might look like. We’ll take a look at what we think each airline stands to gain from the deal, and what each had to say (if anything at all).

Southwest:  Likely the biggest winner – we could see them taking around 20-25 of the up for grabs Reagan National (DCA) slots. They’re the biggest US carrier and their domestic fares are equivalent with those of the legacies, so while the Department of Justice will tout this as more LCC access, in reality its just throwing in another big network player at DCA. We could also see them taking up to half the slots at LGA. There’s a good chance they’ll be able to snap up the two gates American is being forced to give at Dallas Love, which would be an interesting historical twist.

They had a short statement:

“We congratulate all the parties on a tentative settlement that preserves vigorous competition in the U. S. Airline industry. We look forward to working with the DOJ on a fair and transparent process by which Southwest can expand our low fare competitive presence in DCA and LaGuardia.

Spirit: The carrier does not have a horse in the race, per se, and has actually reduced its DCA slot holdings in recent years. They might be convinced to pick up a few slot pairs, but not much more. Perhaps aligning with our perceived lack of interest, the carrier kept their response relatively short and sweet:

“As we have said before, allowing continued consolidation will help the airline industry, as it promotes rational pricing.”

JetBlue: Along with Southwest, JetBlue also gets first dibs on any currently leased slots and gates leased from American at DCA. On everything else they join the pack in fighting for what’s left. Unsurprisingly they support the decision:

“On behalf of the 15,000 crewmembers of JetBlue Airways, New York’s Hometown Airline, I applaud the Department of Justice’s pro-consumer proposed settlement and we look forward to participating in the divestiture process. JetBlue is eager to increase our low fare service in communities across the country and particularly at Ronald Reagan Washington National Airport and New York’s LaGuardia Airport.”

Delta: A heavy-weight in the battle, Delta came out in favor of the decision. They have to be happy about US decreasing its presence in New York LaGuardia, and with Delta flush with cash they’re well positioned to be able to afford snapping up anything they’re interested in. But with the DOJ explicitly looking to create opportunities for low-cost-carrier growth, it seems that Delta will have a tough time talking the DOJ and the DOT into prying some slots loose. Their statement clearly underscores their case going forward:

“Delta welcomes the settlement agreement and looks forward to the opportunity to acquire slots that will be divested under the agreement, particularly at Washington-Reagan National Airport. Delta is the airline best positioned to continue competitive nonstop flights from Reagan National to small- and mid-sized cities that could otherwise see service reduced or eliminated, which should be a strong consideration in the divestiture.”

Virgin America: The Bay Area based carrier had the longest statement of all, and arguably is the least likely to benefit from the merger. There is no change in the DCA perimeter rule, so they cannot take advantage of that. Most likely they’ll go for the LAX gates, but that seems about it.

Their statement: “We are pleased that the Justice Department has taken a serious look at the merger’s impact on consumers, particularly at congested airports, which have historically been dominated by larger carriers and which have offered limited competition – and as a result, higher fares and lower quality of service — for decades. That said, this is the fourth consecutive ‘mega-airline’ merger in a just a handful of years, and we remain concerned that barriers to entry resulting from this scale of consolidation ultimately will hurt consumers, especially in almost all of the hub-to-hub cities cited in the original suit and in markets outside of New York and Washington D.C.

As the last successful airline launched in the U.S., we fought to get access to key airports, and have seen first-hand how, when one to two big airlines dominate a market, consumers often lose, with less competition, poor service and higher fares. Mergers can be good in the short term for existing players in the industry, in that they improve balance sheets and often result in capacity reductions, but longer-term, further consolidation will likely have a chilling impact on any future new entrant airlines . The costs of this decrease in competition, will ultimately be borne by consumers in the form of higher fares and fewer choices.

We are pleased that the Justice Department raised the issue of competition within smaller markets in the first place, however the settlement today did not address some of the competitive issues raised in the case, including larger carrier practices that are intended to limit competition by smaller airlines and access to low fares by consumers in smaller cities. We understand that the DOJ settlement is a compromise and since it was a settlement of one airline merger, it cannot be expected to address all of the competition issues in the industry. As a result, we will not object to the merger, but we do plan on raising these concerns re: smaller market competition with the Dept. of Transportation, which has authority to mandate more specific competition remedies in the industry.”

Frontier: The carrier has not yet provided any known comment, but they might benefit from five or six slot pairs. It would fit their point to model for their evolving (or devolving) drive to be to the next ultra-low-cost-carrier. The airline declined a request for comment.

Sun Country: The little airline out of the northern mid-West might go for a handful (three to five) pairs to build up its operations. You never know. They have not responded to a request for comment.

Allegiant: Really this carrier has even less of a horse in the game than Spirit does and we don’t see much, if any, activity from them on this. They have not responded to a request for comment.

United: Same as Allegiant and Spirit, we don’t see much activity here. Fair to say they’ve got other things to worry about. They have not responded to a request for comment.

Alaska & Hawaiian: No horses in the race here either, plus hubs generally too far away to do anything with. Maybe a bid by Alaska to pick up those LAX gates. Neither responded to a request for comment as of press time.

 

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