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Jeff Smisek returns…in DOJ’s lawsuit against United

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DOJ appears to want to cap United’s control of Newark where it is now, preventing any further expansion.

Jeff Smisek, the former chairman, president and CEO of United Airlines who abruptly resigned in September, made a return of sorts today in the federal antitrust lawsuit the US Department of Justice filed against United. DOJ is quoting Smisek, both in the lawsuit and in comments to the media, to help buttress its case that United is “unlawfully seeking to maintain a monopoly” at Newark International Airport (EWR).

The irony here is rich. Smisek, after all, was forced out amid a DOJ investigation into the Port Authority of New York and New Jersey. Federal lawyers are, among other things, probing whether United improperly operated low load factor flights from EWR to Columbia, South Carolina, near a vacation home owned by former PANYNJ chairman David Samson, presumably to curry favor with Samson and get wanted projects at EWR approved.

Now the feds are using a Smisek quote to, in their estimation, show that United is going back on its promise—made when DOJ approved the United-Continental merger in 2010—to allow fair competition at EWR.

Of course, Smisek is being used as an unwitting witness against United. And the transaction DOJ is trying to prevent—United acquiring 12 EWR slot pairs from Delta Air Lines—was negotiated when Smisek was still in charge of United. So DOJ is in effect accusing Smisek of duplicity: saying one thing to get DOJ to clear United-Continental and then attempting to cut deals to reverse the sentiment of his statement.

The Smisek quote came after United agreed to divest 18 EWR slot pairs to Southwest Airlines in 2010. That was enough to get the merger cleared by DOJ, which was worried about the new United’s control over then-Continental hub Newark. Smisek was then running Continental, but was poised to take over the merged carrier.

Here is DOJ assistant attorney general-antitrust division Bill Baer speaking to reporters today, citing a Smisek quote that is also used in the text of the lawsuit: “United inherited most of its Newark slots from Continental Airlines when those two merged in 2010. At the time, Continental had 894 and United held 36 [total EWR landing and takeoff slots]. We were concerned then that the merged airline would control too many slots. United agreed to divest all 36 of its slots to Southwest to allay the department’s competitive concerns … United understood our concern at the time … Jeff Smisek acknowledged the importance of introducing competition at Newark. He said: ‘We think this would be a fair solution that would allow Continental and United to create an airline that will provide customers with an unparalleled global network and top-quality products and services, while enhancing domestic competition at Newark.’ He was right. This divestiture allowed Southwest to introduce new low-fare competition to United on five routes, which resulted in substantially lower fares and increased service on these routes into and out of Newark.”

But Baer went on to say that “ever since then United has been trying to acquire additional slots and stifle competition at Newark. This is United’s third attempt in the last year-and-a-half to reverse the benefits of that divestiture by buying up additional slots from its competitors at Newark.”

According to Baer, United tried to reacquire the 18 EWR slot pairs divested to Southwest in July 2014, but abandoned the plan after DOJ raised objections. “Then, in March 2015, United floated a proposal to acquire 18 slots from American Airlines, but when the department again voiced competitive concerns, the deal went away,” Baer said. “This proposed transaction with Delta is United’s latest attempt to bolster its dominance at Newark.”

There is clearly a contingent at DOJ that has misgivings about the department’s clearance of the US’s latest round of airline consolidation—the investigation into possible collusion on capacity planning is likely a fruit of those misgivings—and Baer is the contingent’s public voice. His and DOJ’s tone today was unmistakable: From DOJ’s perspective, United and Continental told DOJ what the department wanted to hear to approve their merger, but later behaved in a way that revealed the airlines’ assurances to be disingenuous.

And so now DOJ is going to court. DOJ through the lawsuit appears to want to cap United’s control of Newark where it is now, preventing any further expansion, and perhaps even diminishing United’s current level of dominance. DOJ is making a big deal about United sitting on unused EWR slots. United “operates only 386 daily roundtrip flights at Newark when its slots would allow it to operate 451,” Baer said.

It’s not clear legally what can be done about this (it doesn’t appear to be enough slots for United to be violating FAA rules). But in the court of public opinion, pointing this out can allow DOJ to paint United as actively stifling competition at Newark to charge higher fares for what Baer derisively called service that “ranks among the worst.”

United has promised to “vigorously defend” itself. It will need to do so, because it is squarely in DOJ’s crosshairs.

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