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5 Cities That Could See New Low-Cost Carrier Service to DC

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As part of their merger, AMR (UNKNOWN: AAMRQ.DL  ) and US Airways (UNKNOWN: LCC.DL  ) have agreed to give up 44 slot pairs that they currently use at Washington's Reagan National Airport.

These 44 slot pairs will be grouped into bundles, with each bundle containing slots spread across the day. The slots will then be sold to low-cost carriers approved by the DOJ. This is meant to ensure that there will be more robust competition at Reagan Airport after the merger than there is today.

Southwest Airlines (NYSE: LUV  ) and JetBlue Airways (NASDAQ: JBLU  ) are by far the front-runners to win these slots. Whichever airline wins the slots will have the opportunity to add frequent service on numerous routes. Which cities are most likely to benefit from this new low-cost carrier service?

The big one: Chicago
If Southwest gains more slots at Reagan Airport, it's virtually certain to add flights to Chicago's Midway Airport. Midway is the company's largest base of operations, with 253 peak-day departures to 67 cities. That makes it the closest thing to a hub that Southwest has. Midway Airport is also much closer to downtown Chicago than the larger O'Hare International Airport.

If Southwest gains slots at Reagan Airport, adding flights to Chicago will be a priority (Photo: Southwest)

That convenience could make Midway-Reagan National flights very popular with business travelers. Southwest would be competing with both American Airlines and United Continental on the route. However, that would be unlikely to faze Southwest's leaders: the company has expanded rapidly in Chicago in recent years, despite the presence of American and United hubs across town at O'Hare.

JetBlue might also be interested in a route to Chicago if it gained enough slots at Reagan Airport. The carrier already flies to its Boston and San Juan focus cities from Reagan Airport, as well as several of its traditional Florida destinations. If it decides to pursue more business travelers in the D.C. area -- as it has done in Boston -- direct flights to Chicago will be a must.

Breaking the monopolies
Among the top 10 destination airports for travelers originating at Reagan Airport, all but two have competition today. The two monopoly routes are Reagan Airport-Dallas/Fort Worth, and Reagan Airport-Charlotte. (Technically, Reagan Airport-Miami is also a monopoly, but Southwest, JetBlue, and US Airways all serve the Miami area through Fort Lauderdale, instead.)

Southwest will be eager to fly between Reagan Airport and its home base of Dallas Love Field once the ban on long-haul flights from Love Field is lifted next October. Southwest is already looking to expand its flying at Love Field next fall, and Reagan Airport would be a natural choice for new service. Like Midway Airport, Love Field is closer to the (Dallas) city center, which could make Reagan Airport-Love Field flights popular with business travelers.

US Airways currently dominates the Reagan National-Charlotte route because it has hubs on both ends. While neither Southwest nor JetBlue has a major presence in Charlotte, breaking this monopoly would still be an enticing prospect for either carrier, as the route has plenty of traffic for two airlines.

A city of strength
If Southwest gains slots at Reagan Airport, adding service to Nashville will be high on its priority list, as well. Today, both American and US Airways fly from Reagan Airport to Nashville, making it one of the few nonstop routes where they are the only two competitors.

However, Southwest is actually the dominant carrier in Nashville, with a 54.5% passenger share in the last year. As a result, it would be able to draw on its large customer base in Nashville, as well as numerous connecting opportunities beyond Nashville. This makes a new Reagan Airport-Nashville route virtually certain if Southwest wins a significant share of the slots up for grabs.

New York: A wildcard
New York is the last market that could potentially see new low-cost carrier service from Reagan Airport as a result of the slot divestitures. JetBlue already competes against the US Airways Shuttle on the Reagan Airport-Boston route, and is one of the largest airlines in its hometown of New York. If JetBlue manages to win the slots being sold at LaGuardia Airport in New York, as well as slots at Reagan Airport, it might consider setting up a rival to the highly profitable shuttle services operated by Delta Air Lines and US Airways on that route.

JetBlue could try setting up a Reagan-LaGuardia shuttle if it wins enough slots (Photo: JetBlue Airways)

The shuttle market has shrunk over the years due to competition from Amtrak's Acela express trains, but JetBlue could stimulate demand with airfares far lower than those available today. This service would also fit into the "affordable business travel" niche that JetBlue has been carving for itself recently.

Foolish bottom line
Which cities receive new low-cost carrier service from Reagan Airport will depend, in large part, on how the divested slots are distributed. However, Chicago, Dallas, Charlotte, Nashville, and New York are all large metro areas, so any low-cost carrier gaining slots at Reagan Airport would consider serving some of those cities.

Southwest is likely to be particularly interested in flying to Chicago, Dallas, and Nashville, due to its sizable operations in all three cities. JetBlue may be interested in serving Chicago and Dallas, too, but it also might want to fly to New York. Luckily for consumers, the 44 slot pairs that will be distributed to low-cost carriers should allow many -- if not all -- of these routes to see more substantive competition going forward.

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Read/Post Comments (2) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 17, 2013, at 11:36 AM, nickotime wrote:

    You're forgetting Sky Harbor which is a major hub for Southwest in the southwest. We can fly into any eastern hub and get there too.

  • Report this Comment On November 17, 2013, at 4:27 PM, TMFGemHunter wrote:

    Flights at Reagan Airport are limited to 1,250 miles unless you have an exemption, of which there are currently 20. US Airways uses 3 exemptions to operate service to Phoenix from Reagan. However, unless the gov't gives out more perimeter exemptions, Southwest and whoever else gets slots will be limited to East Coast/Midwest/South destinations.


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