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Tuesday, November 10, 2015

Justice Department Files Antitrust Lawsuit to Block United's Monopolization of Takeoff and Landing Slots at Newark Airport

Transaction Would Entrench United’s Dominant Position at Newark, New Jersey, Airport – Eliminating Competition and Resulting in Higher Fares and Fewer Choices for Consumers

The Department of Justice today filed a civil antitrust lawsuit seeking to block a proposed transaction between United Continental Holdings Inc. and Delta Air Lines Inc. in order to preserve competition at Newark Liberty International Airport.  

The Antitrust Division’s lawsuit, filed in the U.S. District Court for the District of New Jersey in Newark, New Jersey, alleges that United’s planned acquisition of 24 takeoff and landing slots at Newark would increase United’s already dominant position at the airport, and would strengthen a barrier that diminishes the ability of other airlines to challenge United at the airport.  As a result, the 35 million air passengers who fly into and out of Newark every year likely would face higher fares and fewer choices.

“A slot is essentially a license to compete at Newark,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division.  “United already holds most of them, and as a result, competition at Newark is in critically short supply.  United is already extracting a ‘Newark premium.’  Airfares at Newark are among the highest in the country while United’s service at Newark ranks among the worst.  Allowing United to acquire even more slots at Newark would fortify United’s monopoly position, and weaken rivals’ ability to challenge that dominance, leaving consumers to pay the price.”

To manage congestion at Newark, the Federal Aviation Administration (FAA) allocates takeoff and landing authorizations, or slots, in order to limit the number of flights that can service Newark during the majority of the hours of the day.  Slots are a scarce resource, and airlines seeking to initiate or expand service at Newark face significant challenges obtaining them in order to support new service. 

According to the department’s complaint, United already controls 73 percent of the slots the FAA has allocated to carriers at the airport – over 10 times more slots than its closest competitor.  No other airline has more than 70 slots:

The complaint also alleges that United “grounds” as many as 82 slots each day at Newark, depriving Newark passengers of flight options that would exist if the slots were flown.

The complaint also details how consumers benefit when slots are held by United’s airline rivals.  In response to the department’s concerns expressed during its review of the United/Continental merger in 2010, United divested its 36 slots at Newark to Southwest Airlines.  United’s then-CEO, Jeff Smisek, lauded the settlement as 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.”  Nevertheless, as alleged in the complaint, United’s proposed acquisition of slots from Delta is United’s third attempt to reverse the benefits of the 2010 divestiture by buying slots from its competitors at Newark.

According to the department’s complaint, the acquisition of Newark slots by rivals, such as Southwest Airlines, Jet Blue, and Virgin America, has forced United to compete, resulting in lower ticket prices and greater choice for consumers.  For example, Southwest’s acquisition of 36 slots from United allowed it to introduce new low-fare competition to United on five routes resulting in substantially lowered fares and increased service on five routes into and out of Newark:

Route

Year-over-year Percentage Decrease in Average Fare

Year-over-year Percentage Increase in Number of Passengers

Newark-St. Louis

-27 percent

66 percent

Newark-Houston

-15 percent

53 percent

Newark-Phoenix

-14 percent

57 percent

Newark-Chicago

-11 percent

35 percent

Newark-Denver

-5 percent

49 percent

 

Similarly, when Virgin acquired slots at Newark in 2012 after several years of trying unsuccessfully to obtain slots, it introduced competing nonstop service to Los Angeles and San Francisco, and fares on these routes dropped precipitously.  United later calculated that competing on these routes in response to Virgin’s entry cost it approximately $66 million in annual revenue.

United Continental Holdings Inc. is a Delaware corporation headquartered in Chicago.  Last year United, the third largest airline in the world in terms of revenues, flew over 138 million passengers to over 352 destinations throughout the world. 

Delta Air Lines Inc. is a Delaware corporation headquartered in Atlanta.  Last year Delta, the second largest airline in the world in terms of revenues, flew over 170 million passengers to 316 destinations throughout the world. 

US v United Complaint (236.24 KB)

15-1384
Topic: 
Antitrust
Updated February 4, 2016