Encouraging competition at Newark Liberty International Airport

In this week’s article we examine an antitrust lawsuit brought by the U.S. Department of Justice (DOJ) in November of 2015 “seeking to block a proposed transaction between United Continental Holdings Inc. (United) and Delta Air Lines Inc. (Delta) in order to preserve competition at Newark Liberty International Airport” [DOJ Press Release (11/10/2016)]. The complaint in the case, United States of America v. United Continental Holdings, Inc. and Delta Air Lines, Case No: 2:15-cv-07992-WHW-CLW (D.N.J.)(filed 11/10/15)(the United Landing Slots Lawsuit) is instructive. Motions to dismiss the Complaint were filed January 13, 2016.

Travel Law Update

Zika Update

In Tavernise, C.D.C. Investigating 14 New Reports of Zika Transmission Through Sex, nytimes.com (2/23/2016) it was noted that “Health authorities in the United States said they were investigating 14 new reports of the Zika virus possible being transmitted by sex, including to pregnant women. If confirmed, the unexpectedly high number would have major implications for controlling the virus, which is usually spread by mosquito bites…In all the cases the C.D.C. is examining, women in the continental United States had sex with men who had traveled to countries where the virus is circulating, and developed symptoms associated with the virus within about two seeks of their male partners’ symptoms”.

Uber Driver On A Rampage

In Smith & Perez-Pena, Kalamazoo Shooting Suspect Charged, but Motive Remains Mystery, nytimes.com (2/22/2006) it was noted “An Uber driver admitted his involvement in a Saturday night shooting rampage that left six people dead and two others injured, the county prosecutor said on Monday as the driver was formally charged with murder. But the motive of the man, who had no criminal history, remained a mystery”.

Uber Driver Attacked In Kenya

In Thome, Kenya police call attack on Uber driver attempted murder, www.eturbonews.com (2/23/2016) it was noted that “Nairobi’s cab drivers have again shown utter disregard for the rule of law and exposed themselves to more allegations of having hooligans and criminals among their ranks, when another Uber driver…was attacked and his car set on fire yesterday. He sustained serious burns and only barely managed to get out of his car before it burned out”.

Uber Rate Reduction Protests

In Feuer, Uber Drivers Up Against the App, nytimes.com (2/19/2016) it was noted that “Uber had reduced the drivers’ rates by 15 percent, prompting protests at the company’s Long Island City office as well as in a parking lot at La Guardia Airport where vehicles wait for passengers…It has been nearly five years since Uber arrived in New York City. With its Randian philosophy and proprietary algorithms, the company promised to reshape the driving industry and in many ways that promise has come true…More recently, however, Uber indomitable rise has been clouded by an insurgency from a small but vocal portion of its own drivers who say they feel neglected, even used…As Uber has obtained a solid foothold in the market (and a $60 billion valuation) the drivers are complaining that it has slashed its prices in an effort to destroy the competition and to finance its expansion on their backs”.

BA Frequent Flier Program In Court

In Ebersole, British Airways Distorting Surcharge Evidence, Fliers Say, law360.com (2/25/2016) it was noted that “Passengers accusing British Airways PLC of violating the terms of a frequent flier program by slapping inflated fuel charges on rewards flights told a New York federal court Thursday that the company has misrepresented evidence and distorted the record of their putative class action. The four named plaintiffs said the testimony in the case clearly shows the fuel surcharge was not meaningfully tied to the actual price of fuel, slamming the airline for allegedly breaching its contract”. The case is Dover v. British Airways, PLC (UK), Case No. 1:12-cv-05567-MKB-MDG (E.D.N.Y.). Stay tuned.

Lawsuit Over Storm Cruise

In Ampel, Lawsuit Filed Over Royal Caribbean Storm Cruise, low.com (2/25/2016) it was noted that “Royal Caribbean Cruises, Ltd., should be required to pay punitive damages to passengers on its Anthem of the Seas for ‘knowingly sailing directly into’ a strong winter storm with 120-mph winds, a class action lawsuit filed in Miami federal court claimed Thursday… People aboard the Anthem of the Seas were ‘subjected to hours of sheer terror as the gigantic cruise ship was battered by hurricane-force winds and more than 30-foot waves’, said the complaint filed on behalf of passenger Frank DeLuca. Passengers said the ship tilted up to 45 degrees, and Coast Guard inspectors found damage to the ship’s propulsion system…Royal Caribbean said it does not comment on pending litigation. The company apologized when the cruise ended and offered passengers a full refund plus a certificate for half-off a future cruise”.

Limitation Of Liability Act

In Mercante, Admiralty’s Arsenal: Limitation f Liability, newyorklawjournal.com (2/24/2016) it was noted that “Maritime law is truly a unique animal, or mammal, as the case may be… Indeed, it is one of only two law specialities mentioned in the U.S. Constitution. One of the ‘oldies but goodies’ in the proctor’s arsenal is the ability to limit the liability of a vessel owner to the past-casualty value of the vessel…The Limitation Act, 46 U.S.C. 30501…is premised on the notion that a vessel owner should not be liable beyond the value of the vessel for incidents that occur outside the owner’s control in the inherently risky business of the sea. The procedure surfaces in most maritime cases…such as marine personal injury, collision, allision, sinking, stranding, marine insurance disputes, cargo loss and vessel fires…The Limitation Act becomes household news in major cases such as the Staten Island Ferry crash, British Petroleum (BP) oil spill and the sinking of the EL FARO”. We have previously discussed the Limitation Act in Accident During Airboat Tour of Henderson Swamp in Louisiana, www.eturbonews.com (12/20/2015) and Recreational Boating Accidents-duty to warn of bad weather, www.eturbonews.com (4/23/2015). See also Travel Law at Section 3.02[3][d].

Airplane Crash In Nepal

In Deadly Plane crash in Nepal: Tourists killed, www.eturbonews.com (2/24/2016) it was noted that “This may be another blow to travel and tourism to Nepal. A Tara Air Two Otter passenger aircraft taking trekkers and tourists on Wednesday on an adventure mountain climbing mission traveling on a domestic flight from Pokhar to Jomsom in Nepal has been found…It was carrying 23 passengers and crew. Local Police state that there are no survivors”.

Travel Law Article: The United Landing Slots Complaint

Introduction

In the United complaint it was alleged that “1. Over 35 million passengers fly in and out of Newark each year to destinations across the United States and around the world. Newark serves the New York-New Jersey metropolitan area and is the most convenient airport for passengers traveling to or from locations in populous Northern New Jersey and portions of Manhattan. To serve Newark, an airline must have ‘slots’, which are takeoff and landing authorizations issued by the Federal Aviation Administration (FAA) to manage airport congestion and delay”.

Slot Control

“2. Air passengers flying out of Newark pay among the highest fares in the country. United is the monopoly nonstop provider to 139 of the 206 destinations served nonstop from Newark, and already controls 902 (or 73%) of the 1,233 slots the FAA has allocated to airlines at the airport-over 10 times more slots than the next largest airline. No other airline controls more than 70 slots…”

“3. United does not use all of the slots it controls at Newark. Each day, it ‘grounds’ as many as 82 slots at Newark-more slots than any of its competitors have the option to fly. United’s failure to use the slots it already controls deprives Newark passengers of flight options that would exist if the slots were flown”.

United Wants More

“4. Yet United wants more. It is now attempting to acquire 24 slots from one of its largest competitors at Newark, Delta Air Lines (Delta). But with each additional slot it acquires, United reduces competition and forecloses entry or expansion of a rival that would otherwise use the slot to compete. In doing so, United strengthens an already formidable barrier to competition at Newark. In short, permitting United to acquire more slots would further entrench United’s dominance at Newark and foreclose competition that is already in critically short supply. As a result, passengers at Newark would face even higher fares and fewer choices”.

The Challenged Transactions

“7. On June 16, 2015, United and Delta entered into the transaction challenged here: a so-called ‘slot lease agreement’ pursuant to which Delta would lease to United 22 Newark slots that are usable year-round, and two Newark slots that are usable during the March to October summer season, for $14 million. The lease is long term and automatically renewable and, despite FAA regulation prohibiting the sale of Newark slots, is intended to effectuate a permanent transfer of the slots to United. This slot agreement gives United control over these Newark slots”.

“8. Also on June 16, 2015, United and Delta entered into a separate slot lease agreement pursuant to which United leased to Delta 24 year-round, three summer, and three winter slots at JFK Airport (October to March), also for $14 million. The lease is long term and automatically renewable, and is intended to effectuate a permanent transfer of the slots to Delta. This slot lease agreement gives Delta control over these JFK slots. That transaction close in June 2015″.

Slots Are A Barrier To Entry

“12. Lack of access to slots constitutes a barrier to entry and expansion at Newark. To serve Newark, the FAA requires that an airline have slots…Newark is one of four airports in the United States on which the FAA has imposed slot restraints. The FAA uses slot restraints to manage congestion and delay caused by the fact that demand for service exceeds the airport’s capacity during certain times of the day”.

“13. At Newark, the FAA has imposed slot restraints from 6:00 A.M. to 10:59 P.M. Each slot is associated with a particular half-hour window during which the carrier may perform either a takeoff or landing. The FAA has limited Newark to 81 operations, or slots, per hour…”

“14. Carriers may use their slots to any route out of Newark with aircraft of any size. Thus, an airline can choose the destinations it will serve with its slots…Airlines continually reassess how to deploy their assets (and) deploy slots in different ways overtime to respond to changes in consumer demand and competitive moves by their rivals”.

Concentration Of Peak Demand Slots

“15. Slots at times of peak demand are particularly scarce assets and have historically been concentrated in the hands of large airlines that have little incentive to sell or lease slots to carriers that are most likely to compete aggressively against them. This is particularly true at Newark where United holds 73% of all allocated slots, the big three carriers (United, Delta and American) together control 84% and the significantly smaller slot holdings of low cost carrier and other domestic competitors at the airport are almost entirely the result of governmental intervention.”.

Entry Difficult For Other Carriers

“16. Over the years, carriers other than the big three largely have been unable to secure the slots necessary to enter or expand. For example, Virgin America tried to obtain Newark slots from the FAA for years before finally obtaining 15 slots in 2013. As Virgin Group’s founder, Richard Branson, explained: ‘It took us four years to get into Newark. The slots were locked into the legacy carriers…It was only when American went bankrupt that we actually managed to get some slots there’. JetBlue and Alaska Airlines have made similar attempts to add to their slim portfolios, but have been unable to obtain additional slots at commercially viable times”.

“17. In the same vein, Alaska Airlines, Allegiant Air, Frontier Airlines, Spirit Airlines and Virgin America have jointly advocated for reforms of the existing slot regimes at Newark and other airports, saying in a recent letter to the Department of Transportation and the FAA that they ‘have been frustrated in their attempts to obtain slots at commercially viable times of the day to provide the needed new service and competition at the NYC airports’”.

Competition Is Good

“25. When new entrants have acquired slots at Newark, they have forced United to compete on the merits, resulting in measurable benefits for consumers. For example, when United divested 36 slots to Southwest in 2010 to address the (DOJ’s) concerns with the United/Continental merger, Southwest initiated low fare service out of Newark. United was forced to compete and fares dropped significantly. Southwest used the slots to enter the five nonstop routes from Newark listed below… The introduction of head-to-head competition against the merged United/Continental on these routes resulted in substantially lower fares to consumers and increased seats available to travelers…Passengers flying on these nonstop routes after Southwest began service saved about $75 million annually compared to what they would have paid under United’s substantially higher fares before Southwest’s entry”.

“26. Similarly, when Virgin America acquired slots from American in 2012and launched service to Los Angeles and San Francisco in direct competition with United, United was forced to respond. It substantially increased capacity and reduced fares on those routes. Virgin Group’s founder described the benefits of this fierce competition in a public interview: ‘They’ve (United) slashed the fares by 40 percent to try to damage us. Obviously, we’ve matched the fares…The public is going to be very, very happy with that’. United later calculated that its pricing concession on these two routes in response to Virgin’s entry cost it approximately $66 million in annual revenue”.

Conclusion

“27. By buying up additional slots at Newark, United strengthens an already substantial barrier to entry and expansion and forecloses competition from its rivals. As past experience at Newark shows, such entry and expansion produces significant benefits for consumers”. Stay tuned for developments.

Justice Dickerson has been writing about travel law for 39 years including his annually updated law books, Travel Law, Law Journal Press (2016) and Litigating International Torts in U.S. Courts, Thomson Reuters WestLaw (2016), and over 400 legal articles many of which are available at nycourts.gov/courts/9jd/taxcertatd.shtml. Justice Dickerson is also the author of Class Actions: The Law of 50 States, Law Journal Press (2016). For additional travel law news and developments, especially in the member states of the EU, see IFTTA.org.

This article may not be reproduced without the permission of Thomas A. Dickerson.