FAA could change how airlines gain foothold in New York

The Federal Aviation Administration proposes changes in the way airlines get the limited slots at airports around New York City, an effort to boost competition at the congested LaGuardia, John F. Kennedy and Newark airports.

Don't expect the changes to bring new airlines with lower fares right away. Rather than immediately changing which airlines serve those popular airports, industry observers say, the FAA proposal is geared to improve the way slots are bought or traded.

"Ultimately, what this is about is creating a more open, transparent marketplace so that it's easier to buy and sell slots to each other," says Henry Harteveldt, a travel industry analyst who founded Atmosphere Research Group in San Francisco.

Michael Boyd, an aviation consultant at Boyd Group, says the FAA tries to kindle competition at the busy airports by trying to attract low-fare carriers, but there aren't many left.

"When they try to reorganize slots, it comes from the totally inaccurate assumption that there are lots of low-fare carriers that want to come to New York," Boyd says. "There aren't."

The FAA developed its 119-page proposal, which will be published Thursday in the Federal Register, because rules for the New York airports will expire Oct. 29, 2016.

"This proposed rulemaking allows us to manage delays in this high-demand airspace and encourage competition at the same time," FAA Administrator Michael Huerta said.

Slots are assigned in pairs at busy airports, so each pair represents the ability to take off and land as a round trip.

The biggest change would be the creation of a secondary market for slots, where airlines could bid on slots as other airlines give them up, rather than just negotiating privately with each other as they do now.

The proposal suggests creating a bulletin-board system, so airlines could bid on slots like an auction. The names of airlines and details of their bids might or might not be revealed, depending on the comments the FAA gets to its proposal.

"The FAA believes the development of a robust secondary market ultimately is the best way to maximize competition," the agency says.

The proposal would maintain a requirement that airlines use their slots 80% of the time – barring strikes or bad weather -- or risk losing them.

Such "use-it-or-lose-it" rules have prompted airlines to fly money-losing flights to keep the slots until they could find a more lucrative destination, Harteveldt says.

"If you're holding onto slots you really don't need, we'd rather you sell them," Harteveldt says of the FAA position.

Because of how rarely slots become available, recent mergers and slot swaps illustrated the value of the limited access at popular airports.

The Justice Department agreed to drop its opposition to the merger of American Airlines and US Airways in December 2013 in exchange for American surrendering 52 slots at Washington's Reagan National Airport and 17 at LaGuardia. American said in March 2014 that it received $381 million for the slots at LaGuardia and Reagan, which was "quite a bit higher than the appraised value."

Southwest and Virgin America were among the buyers at LaGuardia, a popular airport because it is close to Manhattan.

"Southwest is reviewing the proposal," spokesman Brad Hawkins says. "In general, we welcome opportunities to expand our New York City service to provide more low fares to New Yorkers and people who travel there."

In December 2011, Delta Air Lines agreed to acquire 132 slots from US Airways at LaGuardia, and US Airways acquired 42 slot pairs from Delta at Reagan.

Federal regulators were concerned that concentrating each airline's presence at one of the airports would reduce competition. To resolve those concerns, Delta and US Airways divested 16 pairs of slots at LaGuardia and eight at National.

JetBlue acquired eight pairs of slots at each airport for a combined $72 million, and Canada's WestJet got eight at LaGuardia for $17.6 million.

Industry observers say an open auction could allow more low-fare carriers into airports dominated by Delta, United and American.

"There was nothing wrong with what Delta and US Airways did," Harteveldt says. "FAA wants more of an open marketplace, especially to allow more airlines with a smaller presence," such as Spirit or JetBlue.

American Airlines, which includes US Airways, is reviewing the FAA proposal, spokesman Matt Miller says.