US Airways, Delta seek to trade some flight slots

US Airways and Delta jets pass at Philadelphia's airport, which the airlines' plan would not affect.
US Airways and Delta jets pass at Philadelphia's airport, which the airlines' plan would not affect. (MIKE MERGEN / Bloomberg News)
Posted: June 03, 2011

US Airways Group Inc. and Delta Air Lines have again asked regulators for permission to swap some takeoff and landing rights at New York's LaGuardia and Washington's Reagan National Airports.

US Airways would get 42 Delta slots, which translate into round-trip flights, at Reagan; international rights to fly to Sao Paulo, Brazil, in 2015; and $66.5 million in cash.

In return, Delta would get 132 slots at LaGuardia, currently used by US Airways Express flights, to increase its presence in New York, where it already has a hub at John F. Kennedy International Airport.

US Airways is the dominant carrier at Philadelphia, but the deal would not affect service here, officials said.

The slot trade is subject to regulatory approval, and a similar deal in 2009 fell apart after the Transportation Department imposed restrictions that the airlines said were too onerous.

Analysts expect it will go through this time because there's more competition from discount carriers at those airports. Southwest Airlines Co.'s acquisition of AirTran gives it access to Reagan National for the first time, and JetBlue has begun flying there as well. Southwest also flies out of LaGuardia now.

"It appears highly likely the proposal will be approved within weeks or even days," wrote airline analyst Hunter Keay of Wolfe Trahan & Co. in a client note.

"In what are critically important cities for each airline, Delta's increased LaGuardia presence should alleviate strain on its JFK operation," which would likely become more internationally focused, Keay wrote.

Meanwhile, US Airways would retain its profitable Boston-to-Washington shuttle while adding at least 15 destinations from Washington. US Airways said previously that it had expected to earn $75 million a year from the deal.

"It would certainly be earnings positive for both companies in the sense that LaGuardia tends to be a money loser for US Airways and Reagan National is one of their most profitable operations," Keay said.

US Airways president Scott Kirby said at a recent transportation conference in New York that employees often asked him why the airline wanted to reduce flying in the "biggest air-travel market in the world. How can you give up slots in a place like LaGuardia?" Kirby said.

"We don't make money here, and don't have a path to being profitable in LaGuardia. So we're willing to stop flying places that lose money."

The arrangement does not mean that Delta would pull out of Reagan National, or that US Airways would stop flying to LaGuardia.

US Airways would continue to operate more than 60 daily flights from LaGuardia on "mainline," or larger, jets.

"It has zero impact for Philadelphia," US Airways spokesman Todd Lehmacher said.

US Airways will focus on service between LaGuardia and its two East Coast hubs - Philadelphia and Charlotte, N.C. - and to Washington, Boston, and Pittsburgh.

After the transaction is completed, 99 percent of US Airways flights will originate or end at one of its hubs - Philadelphia, Charlotte, and Phoenix - or Washington and Boston, Kirby said.

US Airways will operate 230 departures from Reagan National on its busiest days, about a 20 percent increase.

On routes from LaGuardia that US Airways now operates with small turboprops, Delta said, it will operate larger jets. Delta also would take control of US Airways' Terminal C at LaGuardia and spend $117 million to expand and renovate Terminals C and D over the next two years.

If required, the airlines are offering to give up eight slots at Reagan and 16 at LaGuardia. The government would approve a process to transfer them to other competitors.

Airline analyst Daniel McKenzie with Hudson Securities Inc. said in a client update that the deal would begin to improve US Airways' earnings in 2012, at which time the airline would control about 55 percent of all takeoff and landing slots at Reagan National.

US Airways could gain even more slots at Reagan in the coming months if Congress relaxes the perimeter rule, allowing US Airways to fly to destinations such as Los Angeles or San Francisco, Keay said. "The value of this transaction to both of these companies should not be overlooked by investors."

The perimeter rule at Reagan restricts destinations to within 1,250 miles to control aviation noise and send major traffic volume to outlying Dulles International Airport.

The loser in the slot trade is US Airways' wholly owned regional affiliate, Piedmont Airlines, which flies under the US Airways brand from LaGuardia. Piedmont will shed 300 jobs in New York.


Contact staff writer Linda Loyd

at 215-854-2831 or lloyd@phillynews.com.

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