By Melissa Ruby,
Domestic News Writer
In June of 2015, United Airlines Holdings Inc. entered into a business transaction with Delta Airlines Inc. that would essentially swap slots at Newark Liberty International Airport for slots at John F. Kennedy International Airport. Delta will lease 24 of their takeoff and landing slots at Newark to United, while a separate deal concluded that United would lease 24 year round slots at JFK to Delta. As a result of this arrangement, Delta would increase its traffic to and from JFK, while United would cease all flights from that same airport.
According to the New York Times, “United said that it planned to move out of Kennedy because it had failed to make a profit there for seven years.” Instead, they decided to focus on improving Newark. Newark, as a hub for United flights, has long been a secondary airport for New York City business travelers, but United hopes to make it more attractive to its business clientele. According to a United News Release in June of this year, “(t)he company also announced today [June 16, 2015]that it is making a multi-million dollar investment to renovate United’s Terminal C lobby…United already has invested more than $2 billion to build a world-class gateway at Newark Liberty…” In addition, they have also discussed plans to build a subway line from Newark Airport into New York City.
This is a desirable arrangement for United, seeing as it is not competitive at JFK and instead it would rather funnel money into an enterprise that profitable. As a result, United would increase its slot holdings at Newark from 73 percent of allotted slot times to 75 percent, two times more than any other carrier out of Newark according to the complaint filed by the DOJ. This arrangement would allow United to increase prices and keep out smaller competing airlines. According to a press release from the DOJ, “(a)s a result, the 35 million air passengers who fly into and out of Newark every year likely would face higher fares and fewer choices.”
On Tuesday, Nov. 10, 2015 the Justice Department filed a complaint against United with the U.S. District Court for the District of New Jersey claiming that “the proposed transaction is a contract that would unreasonably restrain interstate trade and commerce in violation of Section 1 of the Sherman Act” and that “(t)hrough the proposed transaction and other actions, United is monopolizing and/or maintaining and enhancing its current monopoly over markets for Newark slots and for scheduled air transportation in Newark in violation of Section 2 of the Sherman act.” The Sherman Act, in part, forbids monopolies on the basis that they are part of a scheme to end competition and the past few years of Airline mergers and acquisitions are part of the evidence for taking this action.
In 2010, when Continental and United were planning for a merger, the Justice Department took notice and intended to quash the deal on basis of it creating a perceived monopoly. The American airline industry is headed by four major airlines (according to the New York Times), while smaller participants struggle to offer competitive flights at major locations. The proposed merger was a warning sign to the DOJ, but when United agreed to give up its 36 slots at Newark, the DOJ permitted the deal. The merger proceeded and the new airline held 894 of Newark’s 1,233 total slots. These slots were originally held by Continental. According to the complaint filed, United’s reason for releasing their 36 slots was because they believed it “would be a fair solution that would allow Continental and United to create an airline that will provide customers with an unparalleled global network…while enhancing domestic competition at Newark.”
At first, these 36 slots created more competition. United was forced to lower their prices. However, they have been attempting to regain these lost slots ever since. “In June 2014, United sought to buy back the slots from Southwest but dropped the plan after antitrust authorities objected,” according to the New York Times. In Mar. 2015 they tried again to gain more slots, this time from American. Again the DOJ intervened. Finally in June 2015 they attempted the current transaction.
Another controversy that has been brewing is that United is attempting to gain these slots, but has no use for them. As it currently stands, United has rights to 902 take-off and landing slots, but “grounds” on average 82 slots per day. For the DOJ, this equals 82 slots per day that are wasted, 82 slots that competitors cannot use. The 82 slots that United wastes is greater than the total number of slots that any other airline has. It seems both wasteful, unnecessary and monopolizing to add more to this wasted number. United, however, defends the decision by stating that they only “ground” flights on certain days and seasons, while these slots are used during peak seasons.
In the end the issue comes down to whether United is monopolizing the market, and how that “market” is defined. If the market is all flights in the New York/Newark area, then United does not have the same monopoly as it would have if the market is only defined by Newark.
A version of this article appeared in the Tuesday, November 17th print edition.
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