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Delta Air Lines and WestJet have decided to cancel their plans for a joint venture (JV). This came after the United States Department of Transportation (DOT) tried to get airlines to give up some slots at New York’s LaGuardia Airport (LGA), a move the two airlines called “draconian.” As an airport heavily controlled by slots, giving up slots in LaGuardia was an undesirable requirement on the part of the DOT, leading the two carriers to give up their plans.
JV plans of Delta and WestJet ax
Delta and WestJet withdrew their antitrust immunity application on Friday, November 20, after DOT asked the two airlines to give up slots at New York’s LaGuardia Airport. In a harsh rebuke to the DOT, the two airlines outlined what they considered an unfair set of conditions for receiving joint venture approval.
Delta and WestJet had pursued the joint venture in part due to the link between Air Canada and United Airlines. Star Alliance carriers have a dominant position in the market, reaching over 8,100 US-Canada city pairs, which is far superior to the Delta / WestJet network.
Delta and WestJet also highlighted the strength of their complementary route networks. The two airlines did not compete on any route. The only way the two compete on any route is if you consider all three New York City airports as one market, in which case Delta flies between New York and Toronto, but out of John F. Kennedy (JFK) and not from LGA.
LaGuardia slots were at the center of the controversy
DOT previously stated that it wanted a 100% divestiture of WestJet’s slots portfolio to LaGuardia. Either WestJet would have to give up all eight pairs of slots, or Delta would have to get rid of eight other pairs of slots from its wallet. Both carriers were unhappy with this.
Delta and WestJet do not compete directly on any route outside of LaGuardia. WestJet flies to Toronto and Delta does not. Delta and WestJet have highlighted concerns that the New York-Toronto route would see reduced capacity with WestJet retirement, or WestJet will continue to serve the route while Delta should shut down service to small and medium-sized communities outside LaGuardia. Neither of these options appealed to any of the carriers.
Delta also targeted DOT’s claim that the lack of slots divestment would “exacerbate Delta’s dominance in LGA.” Not to mention that Delta has no control over how WestJet uses LGA routes, the airline only has a 45% market share on LGA, which is far below what many other airlines have in their respective. hubs, including United at Newark Liberty. (EWR), which is another New York area airport.
Delta went out and provided stats for other hubs. For example, United’s 49% stake in San Francisco, 53% stake in Denver, 82% in Houston and nearly 70% of Newark’s operations. Meanwhile, American Airlines has a 57% stake in Washington-National, 86% in Dallas / Fort Worth, 90% in Charlotte and a 74% stake in Miami. Meanwhile, Southwest has a 92% stake in the restricted Dallas Love Field.
An OAG report cited by Delta found that, during the 12 months ending October 2019, Delta operated only 28% of flights to and from the entire New York metropolitan area. All of this comes in addition to Delta’s largest multi-billion dollar investment in LaGuardia.
Delta also stated the following in its filing:
“The loss of these slots would deprive joint applicants of critical operating rights in one of the most important strategic hubs of Delta’s global network at a time when Delta is investing billions of dollars of its own capital in a comprehensive facility improvement project in this airport. “
Delta and WestJet’s other concern was that the sale of these slots might be far below their long-term economic value given how they would be sold in the midst of an ongoing crisis. Furthermore, in disparaging the obligation to divest these slots, airlines noted that the slots were likely to be used for domestic routes and not for services between La Guardia and Canada.
Removal of LCC Swoop from the joint venture
Delta and WestJet aimed for DOT to consider Swoop separate from WestJet and out of the joint venture. The airlines were quick to indicate that Air Canada’s Rouge branch has been included in the connection of United and Air Canada.
Delta and WestJet have tried to use Swoop to target price-sensitive leisure travelers between the United States and Canada. Swoop would not be a major participant, but would rather maximize synergies in the combined joint venture network to maximize Swoop’s success in cross-border markets.
Swoop doesn’t even offer connections, so its only role in the Delta and WestJet joint venture would be to leverage the data and synergies that the two major airlines see and let Swoop cover the price-sensitive leisure market.
Request WestJet to interact with other US airlines
In addition to United Airlines, DOT has also proposed that WestJet interline on request for any US airline. In essence, WestJet would be open to interlining – that is, through ticketing and baggage handling – for any other airline in the US looking for a cross-border partner.
WestJet and Delta argued that this would cost WestJet enormously, which would have to establish and maintain interlining relationships when there may be system incompatibilities and other complexities.
So what comes next?
For now, Delta and WestJet have canceled their joint venture plans. However, this does not mean the end of cooperation between airlines through code-share and reciprocal frequent flyer agreements. However, this cooperation is on a much less intense scale than a joint venture and wouldn’t come close to what United and Air Canada have in the cross-border market.
Delta and WestJet may reapply later and hope the DOT will be a little more lenient and accept the joint venture without requiring any of these conditions. However, this could take a few years. Which means, for now, Air Canada and United will continue to remain the dominant force in the US cross-border market.
It also shows that, for Delta and WestJet, these LaGuardia slots are far more important to carriers than the joint venture overall.
Are you sad to see Delta and WestJet abandon plans for a cross-border joint venture? Let us know in the comments!
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