Antitrust Law Daily Wrap Up, TOP STORY: United’s latest attempt to acquire slots at Newark Airport challenged, (Nov 10, 2015)

By Jeffrey May, J.D.

Efforts by United Continental Holdings, Inc., parent of United Airlines, to acquire 24 takeoff and landing slots at Newark Liberty International Airport are being challenged by the Department of Justice Antitrust Division. The government is seeking to enjoin United’s proposed acquisition of the slots from Delta Air Lines, Inc., which is one of the largest competitors of United at its Newark hub. A complaint was filed today against both United and Delta in the federal district in Newark, New Jersey (U.S. v. United Continental Holdings, Inc., Civil Action No. 2:33-av-00001).

A “slot lease agreement” pursuant to which Delta would lease 24 slots to United violates Sec. 1 of the Sherman Act, according to the government’s complaint. Moreover, through this proposed transaction and other actions, United is allegedly monopolizing and/or maintaining and enhancing its current monopoly at the Newark airport in violation of Sec. 2 of the Sherman Act.

The government contends that United is the largest airline at Newark by a substantial margin and that it already fails to use all of the 902 slots that it controls out of the 1,233 slots allocated to all airlines by the Federal Aviation Administration at Newark. United operates only 386 daily roundtrip flights at Newark when its slots would allow it to operate 451, according to the government. Moreover, no other airline has more than 70 slots.

“In the hands of anyone other than United, these slots would result in more competition for United at Newark,” the complaint alleges. “By contrast, if the slots are acquired by United, such competition is foreclosed.”

Earlier attempts to acquire slots. The attempt to acquire the slots comes after United agreed to divest 36 slots at Newark to Southwest Airlines in order to resolve Justice Department concerns over the 2010 merger of United and Continental Airlines. The government contends that, in the intervening years, United has attempted three times to increase its slot dominance at the airport. The two prior efforts were abandoned. In July 2014, the government objected to United’s attempt to reacquire from Southwest the very 36 slots it had divested as a condition of the merger. In March 2015, United proposed to acquire 18 Newark slots from American Airlines in exchange for 26 slots at John F. Kennedy International Airport (JFK); however, the deal fell apart when the Justice Department expressed competitive concerns. In announcing today's complaint, William Baer, Assistant Attorney General in charge of the Antitrust Division, described the challenged agreement is described by as “United’s latest attempt to bolster its dominance at Newark.”

Relevant markets. The government identified two relevant markets: (1) the market for Newark slots, and (2) the market for scheduled air passenger service between Newark and other destinations. Because a slot can be shifted as needed to serve any route to or from Newark, the Justice Department contends that it was appropriate to aggregate all routes that either originate or terminate in Newark for the purpose of defining a relevant market. Service at other airports, such as New York's LaGuardia and JFK airports, were not considered by the government to be reasonable substitutes for service offered at Newark.

American Antitrust Institute statement. “The importance of the government's pursuit of monopolization and conspiracy claims in this case cannot be understated,” said American Antitrust Institute (AAI) President Diana Moss. “The U.S. airline industry is marked by a history of strategic slot swaps, deals, and withholding by and between the large legacy carriers that control the domestic markets. Competition and consumers have suffered greatly for this, and the enforcement action puts them all on notice that we've had enough.”

AAI has been a vocal advocate of greater Justice Department scrutiny of competition in the airline industry. In a letter to the Antitrust Division in September, the group urged the agency to scrutinize both price and non-price dimensions of competition involving the four major carrier carriers—American, Delta, United, and Southwest.

Private litigation against the major carriers. Reports of a government investigation into possible collusion in the airline industry to limit capacity and prop up fares have resulted in the filing of dozens of antitrust lawsuits against the nation’s four largest airlines in recent months. The antitrust suits, which name United, Delta, American, and Southwest, were centralized in the federal district court in Washington, D.C. for pretrial proceedings last month.

Companies: United Continental Holdings, Inc.; Delta Air Lines, Inc.

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