In approving the merger between American and US Airways, the Justice Department insisted that the combined line sell 34 coveted “slots” at New York’s LaGuardia Airport. The Department essentially blocked Delta and United out of the bidding, instead favoring new low-fare competition. Southwest already bought 22 of them, and Virgin America is the presumptive buyer for the remaining 12.
Southwest’s interest is obvious. LaGuardia is by far the preferred New York airport for business travelers, and Southwest has mounted an intensive effort to attract more business travelers onto its flights. Moreover, although LaGuardia has a “perimeter rule” that limits nonstop flights to destinations within 1500 miles, with extensions for Denver and Saturday flying, Southwest already flies to most of the important business centers within that 1500-mile radius.
Virgin America’s interest is a different story. Currently, all Virgin America flights from the northeast are transcontinental nonstops. And the only airports within the 1500-mile perimeter it currently serves are Chicago, Dallas-Ft Worth, Orlando, and Ft Lauderdale. It might well target Chicago and Dallas-Ft Worth, both of which are important business destinations. And it might even ask for—and get—the 20-mile exemption required to fly to Austin, another important business center. It could also target Denver, although it doesn’t currently fly there. Orlando and Ft Lauderdale, sure, but those are low-yield leisure markets.
Of course, Virgin may figure that, somewhere along the line, that perimeter rule will disappear. The reason it was initially imposed—to force more traffic to use the new and then-underutilized Idlewild airport, now JFK—is ancient history. But the rule has some staunch supporters in Congress, so it may live many more years.
Next up are the 52 slots the merged lines have to sell at Washington/Reagan National. The usual suspects here are, again Southwest and Virgin America, along with JetBlue and potentially everybody else other than Delta and United. That airport, too, has a perimeter rule, at 1250 miles, but it has authorized 20 daily round-trip exemptions for flights as far as the West Coast. Moreover, some leaders, led by Sen. John McCain, have proposed lifting the rule entirely, but other members of Congress who live in the Northeast fear that lifting the rule would reduce the number of flights to their home states. The fallout here will also be interesting.
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