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What does DOJ really want from its lawsuit against United and Delta?

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DOJ wants Delta to keep competing with United at Newark.

There is a lot of colorful language surrounding the US Department of Justice’s civil antitrust lawsuit against United Airlines and Delta Air Lines over a slot transaction at Newark International Airport (EWR). DOJ assistant attorney general-antitrust division Bill Baer has accused United of “unlawfully seeking to maintain a monopoly” at EWR and of charging passengers a “Newark premium”—using its dominant position at the airport to charge higher fares for Newark flights vs. comparable flights at other New York-area airports. United, he said, is “deliberately limiting its Newark service” by sitting on slots, thereby stifling competition at the hub so it can charge high fares for service that “ranks among the worst.”

But beyond the bluster, what does DOJ really want? When one files a lawsuit, one asks the court to impose specific judgments. And in DOJ’s lawsuit, it does ask for specific things. These include permanently enjoining United from acquiring the 12 EWR slot pairs it has agreed to lease from Delta for $14 million “or any similar acquisition that would result in United acquiring slots from Delta at Newark.” DOJ also wants the court to require United to notify the department’s antitrust division “at least 90 days in advance of any acquisition, lease, or agreement whereby United assumes long-term control of slots at Newark within the next five years.” DOJ additionally asks the court to force United and Delta to pay DOJ’s costs associated with the lawsuit.

Bottom line: DOJ wants Delta to keep competing with United at EWR or, if Delta is content with lessening its presence at the airport, to give the slots it no longer wants to another carrier that would compete with United at EWR.

The inclusion of Delta as a “defendant” in the lawsuit is interesting. DOJ can argue that it is a technical requirement; since Delta is part of a transaction that DOJ believes would violate the Sherman Act, the 1890 US federal law that prohibits anticompetitive business activities, the Atlanta-based airline must be included. But the way in which DOJ has framed the case seems, to me, to give Delta every incentive to abandon Chicago-based United in the lawsuit, leaving the latter with less room to maneuver.

Delta had agreed to lease 12 of its 32 EWR slot pairs to United in exchange for leasing a similar number of slots from United at New York JFK International Airport, which United is pulling out of all together. The deal is effectively a straight swap—with each carrier agreeing to pay the other $14 million for the slots at the respective New York-area airports—but the lawsuit has revealed it is not actually technically a swap. The transactions are separate, and Delta has pointed out that its acquisition of United’s JFK slots is a done deal and not a subject of the lawsuit.

So Delta has nothing to lose. Delta may decide to stand up for the broader principle of airlines being allowed to swap and sell slots without government interference, but Delta is not exactly a “team player” in the US airline industry. In fact, it has just recently made a very public departure from Airlines for America (A4A), the lobbying group that represents the US airline industry. What’s to stop Delta from settling its part of the lawsuit with DOJ by simply agreeing not to sell or lease its EWR slots to United? United is, after all, a competitor. Why should Delta help out United?

United does have a bigger fight here with DOJ. Newark is critical to its network, ever more so since it has pulled out of JFK. If DOJ is successful in this lawsuit, it would essentially mean that United’s growth at EWR is capped. It now controls 73% of EWR’s slots and this lawsuit could enshrine that as United’s limit at the airport.

This lawsuit also brings up a broader issue about the New York-area airports. In its statement responding to the lawsuit, United said, “With three major airports, the New York/Newark area is the most competitive air transportation market in the country.” One of the premises of DOJ’s lawsuit appears to be that, rather than viewing EWR, JFK and New York LaGuardia as part of one big market, each of the three airports is a market on its own. United will certainly argue that its position at Newark should be seen in the wider context of its overall position in the New York air transport market, where it does not have any sort of “monopoly.”

In fact, United would be gaining the slots at EWR after giving up slots at JFK and moving its premium service transcontinental Boeing 757-200 flights from JFK to EWR. It can plausibly argue that, while it is gaining a greater position at EWR, its overall position in New York is unchanged.

This lawsuit is ostensibly about just 24 slots out of more than 1,200 daily slots at EWR. But it is really about much more.    

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