The Justice Department is trying to block an effort by United Airlines to increase its dominance at Newark Liberty global Airport, saying it will further reduce competition and drive up airfares that are already among the highest in the country.
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Delta had agreed to lease 12 of its 32 EWR slot pairs to United in exchange for leasing a similar number of slots from United at NY JFK worldwide Airport, which United is pulling out of all together. As of the moment, the airline is control of 902 of the 1,233 slots the FAA has allocated to all the airlines at the airport. The average fare was $473, compared with $439 at New York’s John F. Kennedy Airport and $410 at Los Angeles worldwide Airport, for example. Delta is a more recent challenger – beginning around 2000, it has gradually created an global gateway at JFK Airport. And to top it off, Delta holds just 31% of the slots at JFK airport, with low cost carrier (LCC) JetBlue constraining them with another 28% of slots.
Federal authorities say deal with Delta is the third time that United Airlines has tried to restrict competition at the airport.
Newark on the other hand, does have genuine slot constraints.
Over the objections of a few antitrust experts, the Justice Department allowed a series of mergers from 2005 through 2013 that left four airlines – American, United, Delta and Southwest – controlling more than 80 percent of the domestic travel market. Frontier, Spirit, Alaska, Virgin America and Allegiant wrote last week to Transportation Secretary Anthony Foxx to complain that United, Delta and American are blocking competition by controlling the vast majority of slots at those airports. And in this case, as rarely happens, that scrutiny led to action by the DOJ. The deal is effectively a straight swap-with each carrier agreeing to pay the other $14 million for the slots at the respective New York-area airports-but the lawsuit has revealed it is not actually technically a swap. If this argument is taken to its extreme, it would be no different than United and Delta moving terminals or shifting flight times within their operations at a single airport. JFK and La Guardia can plausibly be said to mostly serve NY City, but Newark not only draws upon NY City proper, but the massive affluent population of Northern and Central New Jersey, as well as its large swath of businesses and business travelers. Newark’s addressable market is tangibly different than that of La Guardia/JFK, and so it should at least be treated as partially separate. This would harm consumers by reducing direct competition (by removing 12 daily Delta flights that overlap with United’s network) and preventing additional LCC competition from driving down fares in Newark. However, it would benefit consumers, particularly business travelers, in the form of new destinations and frequencies on existing routes.
The Antitrust Division’s lawsuit, filed in the U.S. District Court for the District of New Jersey in Newark, New Jersey, alleges that United’s planned acquisition of 24 takeoff and landing slots at Newark would increase United’s already dominant position at the airport, and would strengthen a barrier that diminishes the ability of other airlines to challenge United at the airport.
The DOJ seems to be skeptical of United’s proposed slot rental largely because United does not use numerous slots that it now maintains. United is, after all, a competitor.
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Bottom line: DOJ wants Delta to keep competing with United at EWR or, if Delta is content with lessening its presence at the airport, to give the slots it no longer wants to another carrier that would compete with United at EWR. Only the latter deal is under litigation however. Since the DOJ is only suing to block the Newark portion of the deal, the JFK component of the deal will still go through. And in DOJ’s lawsuit, it does ask for specific things.
