Delta, WestJet scrap JV plans

LaGuardia is more important than the rest of the US-Canadian market for Delta Air Lines and WestJet. This is the message sent by the two carriers late Friday as they withdrew their application for antitrust immunity on their joint venture.

The loss of these slots would deprive the Joint Applicants of critical operating rights at one of the most important strategic hubs in Delta’s global network at a time when Delta is investing billions of dollars of its own capital in a comprehensive facilities improvement project at this airport. Moreover, it would force the Joint Applicants to sell these strategic corporate assets during a global pandemic that has inflicted an unprecedented crisis on this industry, virtually ensuring that they would be sold at a fire sale price far below their long-term economic value.

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Citing the conditions imposed in the tentative approval as “arbitrary and capricious” the carriers withdrew the application, asking the Department to dismiss the proceeding and close the docket.

LaGuardia slot loss would decrease competition

The carriers argue that losing the slots would guarantee a reduction in competition in the NYC-Toronto or even the general trans-border market that the two carriers intended to operate in. None of the carriers likely to secure the slots – Southwest Airlines, JetBlue, Spirit Airlines or Allegiant – operate to Canada today. And eight slots at LaGuardia would not change that situation.

Moreover, Delta cites a litany of other airports around the country where the dominant carrier holds more slots than its 45% at LaGuardia:

United has at SFO (49%), Denver (53%), and Houston (82%); than American at Dallas/Ft. Worth (86%), Charlotte (90%), Miami (74%), and Washington National (57%), which is slot-controlled; and smaller than Southwest at gate-restricted Dallas Love Field (92%).

To claim that the West Jet slots “exacerbates Delta’s dominance at LaGuardia “ignore the basic reality of a hub and spoke business model” according to the filing.

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Other objections

The carriers also objected to the Swoop carve-out, claiming “no support for the assertion that including Swoop in the JV would ‘restrain capacity and competition.'”

While the applicants write of including Swoop in the JV as though its flights would participate in the immunized service. But the original filing would only include the ULCC “for financial purposes, but not for the purpose of integrating Swoop’s operations into the metal-neutral JV, because Swoop’s low-cost business model is as incompatible with the commercial strategy of the proposed JV as it is with that of WestJet.”

Delta and WestJet argue the Rouge did not face similar scrutiny under the Air Canada/United Airlines JV but that argument fell on deaf ears at the DOT.

The carriers also opposed the requirement for WestJet to offer interlining services to any carrier that comes asking, converting “WestJet’s Canadian network into a de facto public utility for almost any U.S. carrier as the price of ATI, forcing WestJet to partner with and provide transborder access to its U.S. competitors.”

They also point out that the cost of implementing the interline service could be significant, as the DOT does not mandate a new entrant arrive with any particular technology platform minimums:

The mandatory interlining condition would force WestJet to bear the costs (e.g., IT, personnel and resources, PSS providers) of setting up and maintaining interline relationships with no ability to obtain a return on investment. Indeed, WestJet cannot even estimate the costs of this condition because there is no requirement that the interlining U.S. carriers have compatible technical platforms, thereby leaving open the possibility that WestJet would need to determine how to enable interlining with carriers that lack standard industry capabilities. The Department does not appreciate the commercial and technological complexity of the forced interline relationships which it is trying to artificially engineer by regulatory fiat. In a deregulated environment, it is an abuse of discretion for the Department to industrial engineer forced access to WestJet’s Canadian network.

But none of that matters, because the DOT ruling is set. And the two carriers are unwilling to accept these conditions.