July 2 (Bloomberg) -- Delta Air Lines Inc. and US Airways Group Inc. won’t pursue a swap of takeoff and landing slots in New York and Washington under regulators’ terms, a setback to strengthening their holds on two eastern U.S. markets.
The airlines instead will challenge in federal court the U.S. requirement that they give rivals more access to flights at New York’s LaGuardia Airport and Ronald Reagan Washington National Airport, according to a filing with the U.S. Transportation Department and Federal Aviation Administration.
Delta had sought to expand at LaGuardia to complement its hub at Kennedy International Airport. US Airways sought to build its base in Washington and secure the right to serve valuable international routes. The decision avoids a requirement that some flight slots be auctioned, opening the door to low-cost rivals like Southwest Airlines Co.
“Market-share dominance means an ability to command a higher pricing premium,” said Jay Sorensen, president of airline consultant Ideaworks in Shorewood, Wisconsin. “US Airways obviously wants to plant their flag into the Reagan beachhead and call that their own. Delta would like to push American Airlines out” of the New York market.
Modified Plan Opposed
Trebor Banstetter, a spokesman for Atlanta-based Delta, declined to comment beyond the filing. The transportation department also declined to comment on the airlines’ decision, said Bill Mosley, an agency spokesman.
“While we certainly would have preferred to move forward with the transaction as we proposed, we’re very confident with our operations at LaGuardia and Reagan moving forward,” James Olson, a US Airways spokesman, said in an interview.
Delta declined 69 cents, or 5.9 percent, to $11.03 at 4 p.m. in New York Stock Exchange composite trading, while US Airways slid 46 cents, or 5.3 percent, to $8.19. Other airlines also fell after Continental Airlines Inc. reported June unit revenue below analyst estimates.
The Transportation Department and FAA, which had to approve the deal, had sought since February to scale back the exchange the carriers announced on Aug. 12 to ensure competition. Southwest, the largest fare discounter, opposed a modified plan from Delta and US Airways that would have given some slots to smaller low-cost airlines and kept them from bidding for the space.
Southwest, which said it wants to expand at LaGuardia and begin flights at Reagan, “looks forward to the opportunity to participate in the judicial process to address the important competitive issues that are at stake in this attempted transaction,” said Paul Flaningan, a spokesman for the Dallas-based airline.
The agencies said in May that a compromise offered by the carriers was insufficient, and asked them to yield 75 percent more flights. Delta and US Airways in March had offered to surrender 19.5 slot pairs. The U.S. proposed they give up 34.
The trade would reduce competition at both airports unless additional flights were relinquished, Transportation Secretary Ray LaHood and FAA Administrator Randy Babbitt wrote in May.
US Airways’ share of slots at Reagan National, including the airline’s affiliates, would rise to 54 percent from 44 percent, LaHood and Babbitt said. At LaGuardia, Delta would control 49 percent, more than double the current 24 percent, they said.
“This maintains the status quo and only erodes future potential, not present market standing,” said Robert W. Mann of airline and labor consultant R.W. Mann & Co. in Port Washington, New York. “It seems to me they may have an argument on jurisdiction and procedure” in the legal appeal.
Under the final plan, the U.S. said the 34 slot pairs, 20 at LaGuardia and 14 at Reagan National, would have been made available in a blind sale to airlines with little or no service at the airports. Delta and US Airways would retain the proceeds.
Delta and US Airways said at that time they would drop their plan if regulators didn’t let them keep more slots.
Under the original proposal in August, Delta agreed to acquire 125 slots at LaGuardia from US Airways, in exchange for 42 at Reagan National, plus routes to Tokyo and Sao Paulo.
“The gates at Reagan would have really solidified their position,” Ray Neidl, an independent airline analyst in New York, said of US Airways. “They are weak long-distance and want to build their international presence and this would have helped.”
The Transportation Department said in February the plan needed to be scaled back, with Delta getting 105 of the pairs it sought and US Airways 28. The remainder would be sold to rivals.
The carriers in March offered to cut back so that Delta could keep 110 slots and US Airways 37. The proposal also would let AirTran Holdings Inc., Spirit Airlines Inc. and WestJet Airlines Ltd. buy as many as five LaGuardia pairs, while JetBlue Airways Corp. would get access to Reagan National.
Southwest objected, saying Delta and US Airways were seeking to “hand-select their competitors,” according to a March 23 regulatory filing. Southwest was interested in slots in both cities and would have been shut out under the plan.