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Hubs At Slot-Controlled Airports Suppress Competition

Hubs At Slot-Controlled Airports Suppress Competition

2014.03.26 — Much has been written this week on which airports were winners, and losers, in the slot divestment by AA/US at Ronald Reagan Washington National Airport (DCA).  The Cranky Flier, as usual, has one of the better synopses. For us, WHO lost is less important than WHY they lost, and what can be done about it in the future.

For the cities losing service, the real bad guy is a system that with one hand slot controls a clearly-preferred airport in a catchment, and with the other allows carriers to dilute those slots (from a local O&D perspective) with RJs and connecting passengers. For instance, Newark (EWR) isn’t the clearly-preferred NYC airport; a hub there doesn’t really bother us. Laguardia (LGA) and DCA are altogether different matters, as they are the clearly-preferred airports in their respective regions.

If you have to slot control LGA and DCA, by definition they aren’t deregulated. If they’re regulated (to whatever degree), we believe the goal of slots should be to provide access for as many O&D passengers as possible. That means RJs and connecting seats each should, at the very least, be limited to that percentage consistent with the goal. The hub, in particular, insulates AA/US at DCA, and DL at LGA, from the effects of oversubscribing to capacity in order to keep competitors out. Not that they do that, of course – but they could (does sarcasm come through in a blog? Anyway…). What are those percentages? We don’t know, but will say two things about them: (1) they’re almost certainly lower than the current set-up; and (2) it’s the kind of issue that deserves a public policy debate.

Disallow or restrict the LGA and DCA hubs, and limit RJs at them, and the operations would have to succeed more, or entirely, on local O&D traffic. How to accomplish this? As a condition of mergers (too late this time, we know, but there will always be a next time); or via some other mechanism (magic wands, perhaps?). The incumbent, formerly-hubbing carriers could retain and use all their slots, of course, but they’d bear the full cost of that business decision. Today, they externalize it through the hub. Whatever they might choose to do, then and only then would we see a public benefit in the form of lower fares, more nonstop destinations, or both – what DOJ said it wanted at DCA but obviously did not produce. It would also benefit passengers at nearby airports (e.g., BWI and EWR) whose hub carriers would now have stiffer competition for O&D passengers.

As our regular readers know, we believe in airport competition. These restrictions on RJs and hubs at slot-controlled airports would improve airport competition significantly in the DC and New York areas. It’s probably a pipe dream, we know – a messy, politics-laden pipe dream – but if it could be done, we think it should be explored. Let us know what you think…

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