Under the new United States-Japan air-service agreement, U.S. carriers will be allowed to operate six daily flights at Tokyo's popular Haneda Airport, up from four previously. Five of those six flights will receive valuable daytime arrival and departure slots.
For the past several months, American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), United Continental (NASDAQ:UAL), and Hawaiian Holdings (NASDAQ:HA) have been sparring over these coveted slots.
Based on the Department of Transportation's preliminary decision issued earlier this week, it looks like Delta Air Lines is the winner. It will be the only U.S. airline granted two daytime flights to Haneda Airport.
Airlines get to keep their existing routes
Since 2010, there have been numerous changes to the roster of U.S.-Tokyo Haneda flights, after many of the initial routes were unprofitable due to inconvenient flight times. Today, each of the four U.S. airlines serving Japan holds one Haneda route authority. American Airlines and Delta Air Lines both fly to Los Angeles, United Continental flies to San Francisco, and Hawaiian Airlines serves Honolulu.
Most of the airlines -- all except Delta -- wanted the DOT to let them move their existing flights to the new daytime slots without having to justify them from scratch. The DOT refused, finding that the availability of daytime slots necessitated a full re-examination of the Haneda flight allocation.
However, in the end, the DOT decided to let American, Delta, United, and Hawaiian move their four existing flights to the new daytime slots.
This was a good outcome for Hawaiian Airlines in particular. It was the only airline that was interested in the one remaining nighttime slot. As a result, in May, the DOT approved its plans to fly four times a week to Honolulu and three times a week to Kona during the overnight hours.
Other airlines argued that Hawaiian Airlines shouldn't also get a daytime slot, since it could clearly be successful at night. However, Hawaiian very much wanted to keep its existing daily Honolulu-Haneda service while shifting it a few hours earlier. The DOT's decision this week will allow Hawaiian to do so, giving it a third of the available Haneda flight frequencies.
Delta gets the last remaining route authority
With the DOT allowing all four airlines to shift their existing nighttime flights to new daytime slots later this year, there was only one slot left to allocate. American Airlines proposed a route to Dallas-Fort Worth. Delta proposed routes to Minneapolis-St. Paul and Atlanta (in that priority order). Finally, United proposed a route to Newark.
The DOT has tentatively selected Delta's Minneapolis-St. Paul route. Of the four airports under consideration, Minneapolis-St. Paul is the closest to Tokyo and can therefore provide the most convenient connections, particularly for travelers coming from the Northeast or Midwest.
This decision is sure to infuriate American Airlines and United Airlines. In the past few years, Delta has canceled two Haneda routes: Detroit-Haneda and Seattle-Haneda. Delta believes that its new Minneapolis-St. Paul route will succeed because it will operate during the daytime, but American and United don't think their rival deserves a third chance.
However, American Airlines and United Continental have joint-venture partners in Japan. As a result, American can sell seats on Japan Airlines' two daily Haneda-U.S. flights, and United can sell seats on ANA's four daily (as of this fall) Haneda-U.S. flights. Regulators believe that giving Delta two of the five daytime slots will help level the playing field.
Delta is on probation
The DOT plans to watch Delta's new route from Minneapolis-St. Paul closely, due to the carrier's shaky history at Haneda Airport. If Delta deviates significantly from its proposed service on that route, its route authority will be terminated and handed over to American Airlines to use for flights to Dallas-Fort Worth.
Delta will probably do just fine with its new route, though. While demand for nonstop flights between Minneapolis-St. Paul and Tokyo is nothing to write home about, Delta will be able to offer the most convenient one-stop service to Haneda Airport from many U.S. cities. This should help it earn a revenue premium -- which is more important than ever, as Delta works to get unit revenue growing again.
Adam Levine-Weinberg owns shares of Hawaiian Holdings and United Continental Holdings and is long January 2017 $30 calls on American Airlines Group, short October 2016 $50 calls on Hawaiian Holdings, and long January 2017 $40 calls on Delta Air Lines. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.