MIAMI — Low cost-network hybrid carriers Southwest Airlines and JetBlue Airways  won the lion’s share of the slot auction at Washington Reagan yesterday, as we all now know. The slots became available due to the settlement of the Department of Justice against the American-US Airways merger. Southwest was the primary winner from the deal, scoring 27 slot pairs, while JetBlue won another bundle of twelve slot pairs.

The Deal Hurts Small City Access to Washington D.C.


Throughout the entire process of the DOJ lawsuit, the management of pre-merger American and pre-merger US Airways were extremely consistent in maintaining that small cities would lose access to Washington Reagan if the merged carrier was forced to divest slots as a condition of the merger. And the cynic’s view of their previously announced service changes at Reagan post-divestiture is that the merged carrier has followed through on those threats.

The table below outlines the cities that will be losing service from the new American, the size of their metropolitan area, daily demand, average fare profiles, and the remaining nonstop service to the DC area (including Dulles and Baltimore/Washington.

Community

MSA Population (2010)

Daily PDEW O&D Demand to Washington DC Area

Average One Way Fare

Other Carriers Serving DC Nonstop

Augusta, GA

564,873

65

$226.62

None

Detroit, MI

4,296,250

979

$179.48

3

Fayetteville, NC

366,383

10

$264.59

0

Fort Walton Beach, FL

236,865

89

$210.47

0

Islip, NY

NYC

1465

$217.73

1

Jacksonville, NC

177,772

14.5

$203.99

0

Little Rock, AR

699,757

200

$186.81

1

Minneapolis, MN

3,348,859

957

$247.08

4

Montreal, Canada

3,824,221

128

N/A

2

Omaha, NE

865,350

304

$187.20

2

Pensacola, FL

448,991

137

$223.46

0

San Diego, CA

3,095,313

789

$326.90

2

Savannah, GA

347,611

115

$247.80

1

Tallahassee, FL

367,413

88

$207.56

0

Wilmington, NC

254,84

42

$214.87

0

These markets are the ones that make the least sense for the new American to keep around. Many of the markets have military ties, which, given the sequester and stagnation in government travel contracts, are markets that will likely suffer revenue moderation over the next few years. The other markets are a pair of Delta hubs (Detroit/Minneapolis), a Star Alliance hub (Montreal), and smaller leisure markets (Fort Walton Beach, Pensacola, Tallahassee).

Southwest and JetBlue are Unlikely to Backfill Service Losses


Neither Southwest nor JetBlue is likely to add service to small cities to compensate for the losses from American. Neither carrier has the smaller regional jet aircraft, nor the hub complex generating connecting traffic required to serve the smaller cities effectively. They are likely, however, to add competition in large markets with large demand volume where they can co-exist comfortably with legacy carriers.

Turning to specific predictions for new markets, Southwest (including AirTran) currently has 17 flights per day from Washington Reagan distributed as follows: 2x Houston Hobby, 2x St. Louis, 4x Milwaukee, 6x Atlanta, 1x Fort Meyers, 1x Austin (beyond perimeter), 1x Kansas City.

For the remaining 27 slot pairs, Southwest will definitely be adding between six and eight daily flights to its largest hub at Chicago Midway. From October 2014 onwards, Southwest can be expected to add between three and five daily flights to Dallas Love Field once the Wright Amendment restrictions expire.

The Houston Hobby hub will likely be bulked up with two to three daily flights. Ditto for St. Louis, Kansas City, and Nashville. Given that Southwest will be expanding international operations from Fort Lauderdale in 2015, adding flights to Fort Lauderdale to feed those operations would make sense. With the remaining three to five slots, Southwest it seems likely that the carrier would add flights to high volume leisure markets, such as New Orleans and Orlando.

Turning to JetBlue, airline spokespeople did throw out Charleston, South Carolina; Portland Maine; and Jacksonville, Florida as potential additions. However, the primary expansion track for JetBlue is likely to be bulking up services to its hub in Boston, and to its core leisure markets in Florida.

Fort Lauderdale should see the largest set of additions in advance of JetBlue’s international expansion there. Orlando, Tampa, Fort Lauderdale, Fort Meyers, and West Palm Beach (along with Jacksonville) could all see additional service. There is also the outside chance for service to JetBlue’s largest hub at New York JFK. The current service profile is as follows, consisting of 18 daily flights: 10x Boston, 1x San Juan, 3x Fort Lauderdale, 3x Orlando, 1x Tampa

Regardless of whatever cities the two airlines end up adding, the key takeaway from the deal is that small cities will lose out.

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