Late last month, The Wall Street Journal dropped a bombshell for the New York airline business. Apparently, the Port Authority of New York and New Jersey -- which operates all three major New York-area airports -- may end a long-standing "perimeter rule" barring flights of more than 1,500 miles at LaGuardia Airport. (Flights to and from Denver and flights on Saturdays are exempt.)
Delta Air Lines (NYSE:DAL) and American Airlines (NASDAQ:AAL), which have the most slots at LaGuardia, would be the biggest winners from loosening flight restrictions there. Flying from LaGuardia to the West Coast could become a very big, lucrative business.
LaGuardia is popular
LaGuardia Airport is much closer to midtown Manhattan than either JFK Airport or Newark Airport. As a result, it's the preferred airport for most New Yorkers -- especially high-spending corporate travelers. The lack of long-haul flights at LaGuardia has historically been the equalizer for JFK and Newark.
Despite this handicap, Delta gave up dozens of valuable flight slots at Reagan National Airport near Washington D.C. in a slot swap with US Airways a few years ago, in order to expand its presence at LaGuardia.
Delta's management recognized that dominating New York's most popular airport was critical to wooing corporate accounts -- even if flights could go no farther than Dallas or Denver.
Ending the perimeter rules?
Allowing longer-range flights at LaGuardia would make Delta's leading position there even more valuable. It would be able to offer nonstop flights to major destinations like Los Angeles, San Francisco, Seattle, San Diego, Las Vegas, and Phoenix.
American Airlines would adopt the same strategy. American's president, Scott Kirby, recently told an investor conference, "We'd fly a lot of flights from LaGuardia to the West Coast, and we'd fly them with bigger aircraft."
To add long-haul flights at LaGuardia, Delta and American would need to drop other flights, because the total number of takeoff and landing slots is fixed. However, they would still come out ahead. Short-haul flights on small regional jets aren't nearly as profitable as transcontinental flights.
Focus on premium routes
The opening of LaGuardia for long-haul flights would have the biggest impact on flights to Los Angeles and San Francisco. Today, Delta and American compete with three other carriers on the routes from JFK to LA and San Francisco: United Continental (NYSE:UAL), JetBlue Airways (NASDAQ:JBLU), and Virgin America (NASDAQ:VA).
These are two of the busiest airline routes in the U.S. They also cater to a high proportion of business travelers. Accordingly, each airline tries to put its best foot forward on these routes, offering relatively frequent flights, and premium amenities that can't be found on most domestic flights.
The high-paying business travelers, who make these routes so lucrative, would pay even more for the convenience of using LaGuardia Airport. But while it would be a no-brainer for Delta and American to move their transcontinental flights to LaGuardia, it would be more challenging for United, JetBlue, and Virgin America.
For example, by this summer, JetBlue plans to fly a total of 13 roundtrips from JFK to San Francisco and Los Angeles. By contrast, it has only 18 slot pairs at LaGuardia. It would have to decimate its current LaGuardia schedule to replicate its transcontinental service there.
United has significantly more LaGuardia slots than JetBlue, but it would still have to reduce service to its other hubs in order to add flights to Los Angeles and San Francisco. At the other end of the spectrum, Virgin America has just six slot pairs at LaGuardia, not enough to create a competitive offering even if it dropped all of its other flights there.
If competitors are unable to match Delta and American with frequent flights from LaGuardia to Los Angeles and San Francisco, it could make the transcontinental market an even bigger profit center for them.
JFK will remain important
If the Port Authority lifts the LaGuardia perimeter rules, the airport will become even more important to the New York strategies of Delta Air Lines and American Airlines -- both of which also have significant operations at JFK.
That said, LaGuardia still lacks customs facilities. As a result, international flights would stay at JFK and Newark, except for flights to a few airports with U.S. border preclearance facilities (mainly in Canada and the Caribbean).
Delta and American might use the slots freed up from moving transcontinental flights to LaGuardia to add new international routes from JFK. They could also add regional routes from smaller East Coast and Midwestern cities to JFK to provide more domestic-to-international connecting opportunities.
In the long run, lifting the LaGuardia perimeter rules should allow Delta and -- to a lesser extent -- American to better utilize their slot portfolios at both airports. This could improve their competitive positioning in the largest U.S. air-travel market.
Check back later this week to learn which companies might lose out from this rule change!
Adam Levine-Weinberg owns shares of JetBlue Airways and Virgin America 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.
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