Slot Swap Ruling Demonstrates Hostile Washington Climate for Airlines

Last Updated May 5, 2010 11:40 AM EDT

Yesterday, I wrote about the climate in Washington and how that would impact the United-Continental merger. Today we have living proof that things aren't getting any friendlier for the airlines. The FAA has issued its final order maintaining the hard line requirement that US Airways (LCC) and Delta (DAL) divest a significant number of slots in order to get their Washington/New York slot swap approved. This is an ominous sign for anyone who needs federal approval, including United and Continental.

Let's get one thing clear. What happened yesterday with the slot swap is technically unrelated to what will happen with Continental and United. It's simply a glimpse into the current climate in Washington. The slot swap fell under FAA jurisdiction. The Continental (CAL) and United merger will be under the Department of Justice. Unfortunately, the DOJ seems to be taking a harder line and that's not good.

In the slot swap ruling, the FAA showed real concern for the ability of low cost carriers to get into capacity-constrained airports. For the Continental-United merger, that means the focus will be on Newark, where Continental has one of its largest hubs.

Though United's presence at Newark is absolutely tiny, it wouldn't surprise me to see the DOJ try to wrest away slots to give to low cost carriers. Can they do that? I'm sure Continental and United would fight it in court if the judgment was too onerous (and win), but it's certainly something that can delay the merger at best.

This really is a difficult time for airlines to be doing business in Washington.