Bloomberg News

AMR-US Airways Washington Focus Opens Airport to New Carriers

November 13, 2013

The U.S. settlement allowing the merger of American Airlines parent AMR Corp. (AAMRQ:US) and US Airways Group Inc. to go through will open the door to more low-cost carriers at Washington’s Ronald Reagan National Airport.

The combined new airline, which would have controlled 69 percent of traffic at the airport closest to the U.S. capital, has to sell off rights to 104 flights, according to an agreement with the U.S. Justice Department announced yesterday. The merged carrier also agreed to maintain its commuter operations at the airport to serve small- and mid-sized markets.

The agreement, which resolves a U.S. lawsuit to stop the merger, was designed to encourage new competition at the capacity-controlled airport from carriers such as JetBlue Airways Corp. (JBLU:US), Southwest Airlines Co. (LUV:US), Spirit Airlines Inc. and Virgin America Inc., Hubert Horan, an airline competition consultant, said in an interview.

“There will be a couple isolated cases where consumers will feel something on service and price,” the Phoenix-based Horan said. “But overall it will still be one of the most expensive places in the country to fly in and out of, and the airlines will still be making good money there.”

Justice officials will approve a list of “low cost” carriers that will be eligible to purchase slots at Reagan National as well as gates and ground facilities, according to a press release.

“We anticipate that list will be only the low-cost carriers, the seven or eight we all know about,” Steve Johnson, US Airways executive vice president for corporate and government affairs, said yesterday during a conference call. “We don’t expect the list will include any legacy carriers.”

Low-Cost Carriers

JetBlue will be allowed to buy the 16 arrival and departure slots it leases from American, according to the Justice Department release.

US Airways is the leading carrier at National, which is one of four airports where flights are limited by the U.S. government, with 55 percent of flights. That amounts to as many as 471 arrivals and departures a day, according to the U.S. Department of Transportation.

Under the agreement, the merged carrier will have 58 percent or 485 flights. The airport has a maximum of about 830 flights on its busiest days, Rob Yingling, a spokesman for the Metropolitan Washington Airports Authority, said in an interview.

“It appears that competition will ramp up significantly” at the airport, Charles Leocha, director of the Springfield, Virginia-based Consumer Travel Alliance, said in an interview.

The group had urged the Justice Department to insist that the airline divest flights at Reagan National, also known by its three-letter designation DCA.

Competition Debated

“This isn’t going to increase competition,” said Michael Boyd, a former airline executive who leads aviation consultant Boyd Group International Inc. “It’s only going to have other airlines operating monopoly routes into DCA.”

The new American will get the proceeds of the sale of slots and other assets. The flights must be bundled together to give an airline a viable schedule, according to the Justice Department release.

Preference will be given to airlines that “do not currently operate a large share of slots or gates,” the agency said in the release. The department can appoint a trustee to monitor the sales.

The combined carrier will also give up 34 flights at New York’s LaGuardia Airport.

Slots Trade

US Airways, the fifth-largest U.S. airline, went to 55 percent of flight slots at Reagan National in 2011 from 44 percent in a trade that let Delta Air Lines Inc. (DAL:US) grow at LaGuardia. Fort Worth, Texas-based American, the third-biggest U.S. carrier, is restructuring in bankruptcy.

US Airways, based in Tempe, Arizona, and American currently operate as many as 140 flights a day at Reagan National on commuter aircraft.

The airlines will operate 75 percent of those into smaller, non-hub airports and 25 percent into medium-sized airports, according to a separate agreement with the Department of Transportation. They can’t fly those planes to any of the 29 largest U.S. airports under that deal.

To contact the reporter on this story: Alan Levin in Washington at alevin24@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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