2 Airlines Looking at American Airlines' Slots
Oct 29th 2013 10:55PM
Updated Oct 29th 2013 10:56PM
Having the best routes is important for airlines, but to operate the best routes, airlines need the best slots. Like any other piece of real estate, location matters, and supply is often limited. However, two airlines are looking to gain slots if the latest proposed airline merger succeeds.
In August, the Department of Justice, alongside several states, filed a lawsuit to block the proposed merger between US Airways and American Airlines parent company AMR . The DOJ complaint stems from an alleged lack of competition, especially at certain airports.
We don't know what the internal position of the DOJ is, but if a settlement is being considered, concessions relating to slots are likely to be on the agenda.
Near the top of the list has been Washington National Airport, where the combined US Airways/AMR combination would control nearly 70% of the slots. The airlines defended their large slot position at Washington National even going as far to say that if forced to give up slots, the first flights cut would be on less profitable routes to small towns.
This announcement prompted many members of Congress to sign a letter telling the DOJ not to force the airlines to give up any Washington National slots, partly out of concern for small towns that may be part of their districts, and partly because the members themselves enjoy flying direct into the more convenient Washington National.
With the lawsuit filed, slot concessions would probably be part of any settlement, and two airlines are already positioning themselves to acquire the forfeited slots.
Opportunity from consolidation
In September, JetBlue Airways noted its opinion on the Washington National situation. With the current US Airways controlling around 55% of the slots, JetBlue CEO Dave Barger said, "That should be the ceiling." In the end, he wants the merged airline to forfeit the equivalent of the current number of AMR slots at the airport so total controlled slots remain at current US Airways levels.
Although JetBlue's opinion is not as focused on acquiring slots, decisions here clearly affect JetBlue itself. With a major northeastern presence, JetBlue would be naturally fearful of having one airline gain such control over a valuable airport like Washington National. In addition, if slots at the airport were to become available, JetBlue would probably be among the contenders, as it would give the airline another path for growth.
More recently, Southwest Airlines has thrown its hat in the ring asking for some of the new American Airlines Group's Washington National Airport and New York LaGuardia Airport slots. Like JetBlue, Southwest is seeking expansion and large presences at top airports for its network.
Southwest and JetBlue are both looking to expand their networks in an industry where slots are often tightly held. But the potential merger of US Airways and AMR could free up some slots if the merged airline grants concessions.
For US Airways and AMR's perspective, there is a slight positive here. The nature of the requests by Southwest and JetBlue suggests that they believe a completed merger between US Airways and AMR is a meaningful possibility. Southwest Airlines CEO Gary Kelly even went as far to say that he is "reasonably confident" the merger will eventually proceed.
Combined, this opens up many opportunities for airline investors to either play the merger through the merging parties themselves or through other airlines looking to grab forfeited slots.
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The article 2 Airlines Looking at American Airlines' Slots originally appeared on Fool.com.Alexander MacLennan owns shares of AMR and has options on US Airways Group. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. 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 don't 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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