New York – Southwest Airlines may soon double the number of its flights to the New York City area as a result of a deal that would allow Continental and United to move forward with the carriers’ $3.15 billion merger agreement.
Southwest said it would lease 36 time slots at Newark Liberty International Airport from Continental Airlines, giving the domestic budget carrier first-time access to the constrained and busy facility.
“This will help [Southwest] establish a pretty good presence in the Northeast, and it’s enough to have the Southwest effect: substantially lower airfare,” said Terry Trippler, travel advisor with the consultancy Rules to Know, in a Monday interview.
Southwest already flies eight round-trip flights from New York’s LaGuardia Airport. It also operates 21 daily flights out of Islip Macarthur Airport, on nearby Long Island.
The new flights out of Newark would begin in March.
Southwest has a record of offering less expensive ticket prices because of a low-cost business model, which includes a strategy of using a single model of aircraft to keep training and maintenance costs down. Whenever the airline enters a new market, Trippler said, ticket prices generally decline.
Agreeing to the slot transfer cleared the way for the Justice Department to close its investigation into the competitive effects of the merger proposed between Continental and UAL Corp., the parent of United Airlines. See related story on Justice Department approval.
It “will likely significantly benefit consumers on overlap routes as well as on many other routes,” the Justice Department said in a statement. Continental has hub operations at Newark Airport.
Shares of UAL rose 2.4% to $20.95 and Continental added 1.5% to $22.12 in Monday trading. Shares of Southwest slipped 2% to $10.90.
Michael Derchin, analyst with CRT Capital Group, said that regardless of any decline in ticket prices from having to compete with Southwest, United-Continental will more than make up for this through some $800 million to $900 million in merger-related cost reductions.
“It’s such a good merger that it’s pretty small in the scheme of things,” Derchin said in an interview. “It’s a modest negative” for United and Continental, he said.
By contrast, Delta Air Lines and US Airways worked to exclude Southwest when they proposed swapping time slots at LaGuardia and at Ronald Reagan Washington National Airport. Shutting out the discount carrier in part led to the airlines withdrawing the plan in July, according to Derchin.
New York represents just a small part of Southwest’s total business, but it has a lot of potential for growth, according to Southwest spokesperson Katie Coldwell.
“We would love to have more slots at LaGuardia and Newark,” Coldwell said.
The airline currently operates Boeing Co. 737-300, -500 and -700 jetliners, but it’s considering the addition of the larger 737-800, with would increase its number of seats per flight.
Such an aircraft would be better suited for the New York area, which sees a high demand for traffic and yet is constrained by size of its three major airports.
Combined, Newark, LaGuardia, and John F. Kennedy International airports are No. 3 in terms of passenger traffic, just after Atlanta’s Hartsfield-Jackson and Chicago’s O’Hare, according to data from Airports Council International