To save merger, US Airways, American may seek changes at Reagan National
WASHINGTON — The fate of an $11 billion deal to create the world's largest airline might hinge in large part on one airport, but not just any airport: It's the one right across the Potomac River from the nation's capital.
When the Justice Department sued in August to block the merger of American Airlines and US Airways, it cited the deal's potential impact on Ronald Reagan Washington National Airport. The combined airline would control 69 percent of the takeoff and landing slots at the terminal, a deal-breaker for the department's antitrust division.
“Blocking the merger will preserve current competition and service at Reagan National Airport, including flights that US Airways currently offers to large and small communities around the country,” Assistant Attorney General Bill Baer said when he announced the lawsuit in August.
While the two sides are preparing to go to trial late this month, they brought in a mediator last week to work out possible solutions. If the airlines and the government settle the case before going to court, aviation observers think that any deal would involve the merged airline giving up some of its dominance in Washington.
On Monday, Attorney General Eric Holder said at a news conference that “divestitures of facilities at key constrained airports” would be part of any resolution to the case.
But other carriers that might take over the slots might not be interested in flying to markets with lower traffic, perhaps one or two direct flights a day in smaller regional jets.
“The new American is the only airline that can feasibly serve those markets,” said Tom Reich, the director of air service development at AvPORTS, a consulting firm in Dulles, Va., that owns and manages air facilities.
Reagan National's unusual location, noise restrictions and congressionally imposed rules limit the number of flights and the distances they can travel.
“You've got some markets that simply won't be served,” said Bob Mann, an aviation analyst and consultant based in Port Washington, N.Y. “Some of those people are going to lose service.”
The Washington area is served by two other major airports, Dulles International and Baltimore-Washington International Thurgood Marshall, but they're at least half an hour away. For most visitors and lawmakers, Reagan National is the most convenient gateway. It's a short subway or taxi ride from monuments, museums and the U.S. Capitol.
Since the airlines announced their intent to merge in February, lawmakers with smaller airports in their districts that now are served directly from Washington have worried they might lose those connections. Anticipating that the Justice Department might force the merged company to divest some of its slots at Reagan National, more than 100 members of the House of Representatives asked Holder in May to consider the impact.
“Requiring a reduction of slots by the merged company could reduce the flights to our communities and the economic benefits these flights provide,” they wrote in a letter to Holder.
For example, US Airways has direct flights from Washington to several smaller airports in North Carolina and South Carolina. The merged company might decide it could serve communities such as Myrtle Beach, S.C., or Fayetteville, N.C., through its hub in Charlotte instead. The new American would dominate Charlotte as well, but without Reagan National's constraints and with connections to more destinations. Still, Mann said, it may be less than ideal.
“Charlotte is a vibrant connecting opportunity, but given the choice, everyone wants to fly nonstop,” he said.
Reagan National is unique among the nation's major airports because of long-standing restrictions on operations caused by congestion and other concerns. For instance: To control noise, planes can't take off between 10 p.m. and 7 a.m., and they must navigate around Washington's heavily guarded airspace.
Southwest, Jet Blue
Also, few flights from Reagan can travel more than 1,250 miles — enough to get to Dallas or Houston, but not Denver or Austin. Congress approved that boundary and has granted limited exemptions for cities beyond it.
The most likely recipients of Reagan National slots would be Southwest Airlines and JetBlue Airways, both of which have small footprints in Washington and make no secret about their desire to expand.
But they wouldn't use the slots to serve smaller airports. Southwest, for instance, has hubs at Chicago Midway and Houston Hobby. And next year, when a long-standing restriction called the Wright Amendment expires, Southwest could fly from Washington to its home airport, Love Field in Dallas, for the first time since its founding in 1971.
Whitney Eichinger, a spokeswoman for Southwest, said the company would be interested in slots if they opened up.
JetBlue could expand its offerings to Fort Lauderdale, Fla., and San Juan, Puerto Rico, from Washington.
“The bottom line is JetBlue would serve markets where there is demand from National Airport,” said Mike Miller, a spokesman for the airline, adding that the company would be eager to expand its Washington service.
A spokeswoman for US Airways, the dominant carrier at Reagan National, declined to comment.
‘Not every deal fixable'
To the merger's opponents, however, simply handing over American's slots to other carriers wouldn't make much difference.
“Not every deal should be fixed or is fixable,” said Diana Moss, vice president and director of the American Antitrust Institute, who has testified against the merger in Congress.
Competition at issue
Moss echoed the Justice Department's complaints that the merger might hurt competition in markets that are served directly, as well as those that are reached through connecting hubs. While American and US Airways have accused the government of holding their merger to a different standard from the ones it's approved in the past decade — including Delta-Northwest, United-Continental and Southwest-AirTran — Moss said those deals explained why the latest one shouldn't proceed.
“We know consumers have suffered as a result,” she said.
In its complaint, the Justice Department cited increased fees for checked baggage and ticket changes, higher ticket prices and reduced competition on nonstop and connecting routes.
But Reich of AvPORTS, the consulting firm, called the Reagan National slots issue the “big fish” in the case and most of the other concerns “trivial.” He said the government and the airlines would come to the middle.
“My gut is they're going to solve it somehow,” he said.