In case you missed it, yesterday Delta and US Airways announced a massive slot swap. While there are some other small pieces to the deal, for the most part Delta traded its Washington/National (DCA) operation in exchange for the US Airways New York/LaGuardia (LGA) operation. The one big question I keep hearing is . . . why? Today I'll talk about what US Airways stands to gain. Tomorrow we'll look at Delta.
Delta is getting 125 slot pairs (1 slot pair = 1 departure + 1 arrival) at LGA while US Airways is getting only 42 at DCA along with route authorities to fly to Sao Paulo and Tokyo. That leaves each airline with enough slots to serve their own hubs and they each keep their respective Shuttle operations.
So why is US Airways settling for far fewer slots here? They have put much higher value on the DCA slots, and for good reason. The LGA operation wasn't exactly a beacon of profitability for them while the DCA operation was. I spoke with Andrew Nocella, US Airways SVP of Marketing and Planning and he said,
The core issue is that we don't have an intercontinental operation out of New York. The perimeter rule stops us from competing out of New York. We couldn't take the assets and really run with them.On the other hand, US Airways runs a profitable operation at DCA with over 175 slot pairs now. The extra 42 slot pairs can be put to good use. In fact, they say that these moves will instantly improve profitability by $75 million a year.
The biggest hit in New York will be on regional subsidiary Piedmont which does a lot of the small city flying with Dash-8 turboprops. Those are going to be removed from the fleet. Meanwhile, US Airways will start flying Embraer 190s and A319s on the new routes out of DCA. Remember, they've pulled down a lot of flying lately, including Vegas, so there are plenty of planes around to make this work.
The international authorities are a little different. The Charlotte to Sao Paulo flight they want to start seems like a great win. They've wanted to get into Sao Paulo but the market is heavily restricted. So this is a good way to start. The Tokyo one is not the same. They will start flying in 2012 and will be subleasing back to Delta until they're ready to go. I'm not as convinced that the Phoenix - Tokyo market is a winner, but they have a couple years to figure it out, assuming they're still an independent airline by then. It's certainly the best place for them to start Tokyo flights, but will it be good enough?
It seems clear that US Airways really thought this one out. They're giving up a largely unprofitable drain on the operation in New York and getting more in DC where things work for them. They've put out a concrete plan for how they want this to go, and they're really communicating it well.
There was only one thing I wasn't sure about. Those LGA slots were used as collateral to raise money in the past, so what would happen to that debt? I asked Andrew, and he said that while he wasn't the finance guy, he knows that it's all been worked out and the DCA slots they're getting can be used for the same purpose.
This is a good move for US Airways. Tomorrow we'll talk about Delta.