JetBlue demands the new American Airlines divest slots with merger

JetBlue, which has commercial partnership with American Airlines, has come out swinging, demanding that a merged American Airlines-US Airways divest “a significant number of slots” at Reagan National Airport (DCA)  as a precondition for antitrust approval.

In a letter to New York Sen. Charles Schumer (D-New York), JetBlue notes that the merger would give US Airways control of 67% of the slots at DCA, up from its already anticompetitive 55%.

“JetBlue believes that the merger, absent meaningful action by the Department of Justice, will make an unbalanced competitive situation at Ronald Reagan Washington National Airport (DCA) even worse, especially for communities in central and western New York where air service levels have decreased, fares have increased and economic decline has resulted,” Robert Land, JetBlue’s senior vice president, government affairs, writes on the letter.

JetBlue notes that US Airways solidified its “dominance” at DCA in 2011 when Delta transferred 42 slot pairs at DCA to US Airways in exchange for 132 slot pairs at LaGuardia. JetBlue ultimately paid $40 million to acquire eight slot pairs at DCA in connection with the slot swap.

The low cost carrier believes that if the new American’s 67% slot share at slot-controlled DCA is not overturned, then the new American would warehouse slots and “discipline any carrier that even attempts to challenge one of its high-margin, noncompetitive routes, thus increasing barriers to entry and reducing the ability of other airlines to challenge its market dominance by increasing competition for the benefit of the traveling public.”

Schumer mentioned the JetBlue letter today at hearing on the merger before the Senate Judiciary Committee Subcommittee on Antitrust, Competition Policy, and Consumer Rights.

Appearing before the subcommittee, US Airways CEO Doug Parker said the new American doesn’t envision divesting slots at DCA, but is open to listening to what the Department of Justice, which is reviewing the merger, has to say on the topic.

While the new American would command two-thirds of the slot pairs at DCA, it would only account for about half of the available seat miles, Parker said, adding that the DCA situation should be considered in context with the competitive mix at Dulles Airport (IAD) and Baltimore Washington Airport (BWI), as well.

Parker argued that if the new American had to divest slots at DCA, then it would divest slots servicing small- and medium-size communities, and that would hurt service to those cities.

“Small communities would be disserviced,” Parker said.

But, Diana Moss, vice president of the American Antitrust Institute, who appeared at the hearing, challenged Parker’s stance on the DCA slot pairs.

Moss noted that divesting slot pairs servicing small- and medium-size cities would not be a solution since doing so wouldn’t mend competition concerns.

Meanwhile, several senators challenged Parker and American Airlines CEO Tom Horton, who also testified, on whether the merger would be a barrier to entry for new airlines.

In fact, Senator Amy Klobuchar (D-Minnesota) noted that Virgin America has been the only new entrant of note in more than a decade.

Horton contended there is ample opportunity and capital to facilitate new entrants, and he cited JetBlue as an example, noting that JetBlue has grown nationwide.

Klobuchar countered that JetBlue wields only about 5% market share domestically.

Further championing the prospects of low cost carriers, Parker explained that while legacy carriers have struggled for years and needed to consolidate, low cost and regional carriers such as Allegiant, Alaska, Hawaii, Sun Country, Spirit, Frontier and JetBlue have been making inroads.

“That’s where all the growth is,” Parker said.

Here’s JetBlue’s letter to Schumer:

Download (PDF, 744KB)

Here’s a prepared statement from Parker and Horton for the subcommittee:

Joint AA US Airways Statement by skiftnews