2 Airlines Looking at American Airlines' Slots

Having the best routes is important for airlines, but to operate the best routes, airlines need the best slots. Like any other piece of real estate, location matters, and supply is often limited. However, two airlines are looking to gain slots if the latest proposed airline merger succeeds.

Merger challenge
In August, the Department of Justice, alongside several states, filed a lawsuit to block the proposed merger between US Airways (NYSE: LCC  ) and American Airlines parent company AMR (NASDAQOTH: AAMRQ  ) . The DOJ complaint stems from an alleged lack of competition, especially at certain airports.

We don't know what the internal position of the DOJ is, but if a settlement is being considered, concessions relating to slots are likely to be on the agenda.

Near the top of the list has been Washington National Airport, where the combined US Airways/AMR combination would control nearly 70% of the slots. The airlines defended their large slot position at Washington National even going as far to say that if forced to give up slots, the first flights cut would be on less profitable routes to small towns.

This announcement prompted many members of Congress to sign a letter telling the DOJ not to force the airlines to give up any Washington National slots, partly out of concern for small towns that may be part of their districts, and partly because the members themselves enjoy flying direct into the more convenient Washington National.

With the lawsuit filed, slot concessions would probably be part of any settlement, and two airlines are already positioning themselves to acquire the forfeited slots.

Opportunity from consolidation
In September, JetBlue Airways (NASDAQ: JBLU  ) noted its opinion on the Washington National situation. With the current US Airways controlling around 55% of the slots, JetBlue CEO Dave Barger said, "That should be the ceiling." In the end, he wants the merged airline to forfeit the equivalent of the current number of AMR slots at the airport so total controlled slots remain at current US Airways levels.

Although JetBlue's opinion is not as focused on acquiring slots, decisions here clearly affect JetBlue itself. With a major northeastern presence, JetBlue would be naturally fearful of having one airline gain such control over a valuable airport like Washington National. In addition, if slots at the airport were to become available, JetBlue would probably be among the contenders, as it would give the airline another path for growth.

More recently, Southwest Airlines (NYSE: LUV  ) has thrown its hat in the ring asking for some of the new American Airlines Group's Washington National Airport and New York LaGuardia Airport slots. Like JetBlue, Southwest is seeking expansion and large presences at top airports for its network.

Going forward
Southwest and JetBlue are both looking to expand their networks in an industry where slots are often tightly held. But the potential merger of US Airways and AMR could free up some slots if the merged airline grants concessions.

For US Airways and AMR's perspective, there is a slight positive here. The nature of the requests by Southwest and JetBlue suggests that they believe a completed merger between US Airways and AMR is a meaningful possibility. Southwest Airlines CEO Gary Kelly even went as far to say that he is "reasonably confident" the merger will eventually proceed.

Combined, this opens up many opportunities for airline investors to either play the merger through the merging parties themselves or through other airlines looking to grab forfeited slots.

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  • Report this Comment On October 30, 2013, at 11:13 AM, Tyeward wrote:

    If it comes to slot consessions (more than likely it will), you can best believe that American, and USAirways would push to make those slots go to JetBlue. There is nothing on the books that anyone would be able to use against a codeshare agreement being established in a way that JetBlue operates the flight with it´s own flight number and American tagging their flight number on a JetBlue flight. That wouldn´t be an antitrust issue and the combined carrier wouldn´t be giving up much of anything and in a way it would be to their advantage and JetBlue. Besides, Southwest is building up BWI which is just up the street (the last time I checked). JetBlue is the major one that could use the exposure in the area more. All in all when it comes to the combined carrier being able to watch it´s back, it´s safer for them to go with someone American is already cozy with. Southwest more than likely won´t use those slots to provide extensive service, just to add frequency to what they already serve out of DCA.

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