One would usually expect a Friday afternoon in August to be a pretty slow time for news, and in most cases, that’s right. But last week it was a different story when the Department of Justice announced that it was signing off on the Continental-United deal.
But that itself wasn’t the big news – it’s just one of the steps that needs to be completed. What’s more interesting is what they had to do to get it happen – and that’s transferring over 18 Newark slots to Southwest through a permanent lease. Assuming everything goes according to plan, Southwest can start service there this March.
Why 18? It seems arbitrary. But if I’m reading my timetables right that’s the number of departures United has from Newark. So, essentially, Southwest is a replacement for competition from United that would be lost in the merger anyway.
My guess is United and Continental learned from the slot swap here. US Airways and Delta tried to spread their divestiture among a few carriers, and the DOT/DOJ weren’t the biggest fans. And the DOJ likes this deal, since it took care of their anti-trust concerns. (What other carriers think is probably a very different story.)
But this seems like a great deal for Southwest. They’ve wanted to grow in New York, and they’ve said that prices for LaGuardia slots have been too high. 18 slots gives a lot more flexibility than their 8 at LGA, and they probably got a sweet deal since Continental and United wanted to get any anti-trust concerns out of the way quickly.
The announcement only strengthens the case for Southwest to acquire 737-800s – though for that happen Southwest needs to get a new agreement with its flight attendants negotiated and ratified in three months.
So what destinations will Southwest serve here? The airline’s launches at Minneapolis and Boston shed some light, I think – Southwest will hook up Newark to its hubs focus cities that provide access to the rest of the network. Chicago Midway and Baltimore are gimmes, I think. Denver and Phoenix would provide good connectivity out West. I’m also thinking Houston or St. Louis, which would allow Southwest to provide one-stop Dallas service while it waits for Wright to go away in 2014.
Meanwhile, maybe it’s just me – but I’m finding Southwest a little hypocritical here. I mean, the deal sounds like Southwest was approached last week and offered a permanent lease on the 18 slots pairs, and took it.
Earlier this year, Southwest had some very different things to say about slot divestitures when they were blocked out of the slot swap compromise, and was railing against Delta and US Airways having any influence over who got any divested slots.
The airline said in an April government filing that “a cash-only auction process, without influence by the selling carriers, was the only way to ensure that divested slots would be put to their highest and best use for the benefit of the public.”
It seems that when the carriers divesting slots at an airport want to give them to Southwest, then it’s okay for those carriers to have influence.
I realize we’re talking about two different deals here, but the contract in rhetoric is very interesting.
Anyway – I call this is a smart move for all parties involved.
Think you’re right about Baltimore, Chicago Midway, Denver, Phoenix, and St. Louis, but also see Fort Lauderdale, Las Vegas, Orlando, and perhaps Palm Beach and Salt Lake as logical choices.
The 737-800 would definitely make several places on my list more feasible.
This is all very interesting. Yes, it might be hypocritical, but do you blame them? I would be angry if I was left out of something, but would have no problem getting exclusive access
David
@Don – I’m not sure WN is going to want to launch Florida, and particularly FLL or MCO, service from EWR, it’s relatively low-yielding and given the costs and operational difficulties of operating from EWR, and competition from CO and JetBlue (and frequent cheap connections at CLT on US), I think WN will look for more lucrative uses.
If they do launch Florida, I think PBI and/or TPA are more likely, as JetBlue only has one daily flight to each and might pull those if challenged.
Dan,
What is this Wright law that expires in 2014? Could you in some way elaborate about this law. It seems to be very significant for some reason and it is very unclear to me what it means to the industry.