The era of big U.S. airline mergers has ended, but there’s still plenty of tinkering left to do around the industry’s edges.
In a push to fortify the dominance of their hubs and boost profits, U.S. carriers have in recent years taken to swapping access at major airports.
The latest such proposal came Tuesday with United Airlines planning to end service at JFK International Airport this fall, exchanging its takeoff and landing slots there with Delta Air Lines, which has built JFK into one of its hubs. Delta, meanwhile, would relinquish slots at Newark to United, which counts that airport as one of its largest hubs. Neither carrier would say how many slots are involved in the swap, and the deals are subject to regulatory approval. The Justice Department isn’t likely to have qualms with the changes because “the number of slots is sufficiently small and competitive positions not altered significantly,” said Robert Mann, an aviation consultant and former American Airlines executive.
United’s transfer of its premium-service transcontinental flights to New Jersey is also a capitulation: The company has lost money on the flights from JFK to Los Angeles and San Francisco for seven of the last 10 years. United’s only other service at JFK—to its Washington-Dulles hub—ended in October. Delta won’t be quitting Newark entirely. The airline will retain about 30 daily flights at Newark, according to Delta spokeswoman Elizabeth Wolf.
The latest swap is testament to the enormous pricing power network airlines enjoy in their bastions—American at Dallas-Fort Worth, Delta in Atlanta, and United in San Francisco. The airlines essentially “own” the market share at those airports, controlling their feed from spokes in the network and giving them firmer pricing power than they enjoy at airports that are not hubs. So while antitrust regulators may determine that further large mergers are not in the public interest—following consolidations engineered by all four of the largest U.S. airlines— they seem willing to allow market-share swaps at slot- constrained airports. A “slot,” in airport jargon, is a right to operate a takeoff or landing. The slot system governs the flights at New York City’s three main airports, Chicago’s O’Hare International, and Reagan National Airport near Washington.
Airport swaps between airlines have occurred often in recent years. Delta ceded a large chunk of its service at Reagan Airport to the former US Airways four years ago, and US Airways did the same at New York’s LaGuardia Airport so that Delta could bolster its flying there. In 2014, American and JetBlue Airways swapped slots at JFK and Reagan, which they had been leasing to each other, as JetBlue sought to build its business at the Washington-area airport and American consolidated its position at JFK.
United, meanwhile, was forced to divest slots at its Newark hub to Southwest as part of United’s 2010 merger with Continental. In effect, the latest deal would see United regain access to some of that service by collecting slots Delta controls and further strengthening its position at Newark, where it has almost 500 daily flights to 150 destinations. LaGuardia, by contrast, has only 37 daily flights by United.
A hub provides the financial lifeblood for a network airline. At Newark, United controls roughly 60 percent of the passenger share, including its United Express regional operations. In Atlanta, it’s more than 75 percent for Delta; American has nearly 80 percent at its DFW International hub and 73 percent in Miami.
Delta is also keen to create a dominant position in America’s two largest cities—something no carrier has historically been able to do given the abundance of service in New York and Los Angeles. Delta has boosted its market share at JFK by 5 percent over the past five years, to 25.5 percent as of March, the latest month for which federal data are available. The airline is also adding new flights in Los Angeles, where American, United, and Southwest are the top three carriers by share.
In New York, Delta has also asked the Port Authority of New York and New Jersey, which oversees the region’s airports, to revoke a “perimeter rule” at LaGuardia limiting flights to 1,500 miles. That would mean new service to the West Coast from the airport closest to Manhattan and ensure a rush by American, United, Virgin America, and JetBlue to match whatever new flights Delta would commence. That change would also cause a clamor by JetBlue and Virgin for more access at LaGuardia.
An end to that rule could also let United complement its West Coast service from its hub for New York passengers reluctant to travel to Newark. The authority is reviewing comments on the proposal.
This article was written by Justin Bachman from Bloomberg and was legally licensed through the NewsCred publisher network.