United Airlines is having yet another problem with the federal government

This week, the United States Department of Justice filed a lawsuit against United Airlines in an attempt to stop a deal that would allow the carrier to increase its presence at Newark Liberty International Airport.

Newark Liberty, along with LaGuardia and JFK International, form the trio of major airports in the New York/New Jersey area.

This is United’s second run-in with the federal government in recent months, after former CEO Jeff Smisek resigned in September as a result of a federal corruption investigation.

According to the DOJ, United’s deal to acquire 24 sets of take off and landing rights called “slots” from Delta Air Lines is a violation of the Sherman Anti-Trust Act.

“We filed this lawsuit because we determined that allowing United to acquire even more slots at Newark would fortify United’s monopoly position and weaken the ability of other airlines to compete,” assistant attorney general Bill Baer said on a conference call on Tuesday.

“This lawsuit is necessary to protect [Newark Airport’s 35 million annual passengers] from higher fares and fewer choices.”

United denied the government’s allegations that its increased presence in Newark is anti-competitive.

“With three major airports, the New York/Newark area is the most competitive air transportation market in the country,” United Airlines said in an emailed statement.

“We firmly believe this transaction benefits our customers and the region by enabling us to enhance service at our Newark hub and manage congestion at the airport.”

United Airlines is, by far, Newark airport’s biggest customer.

In total, the Federal Aviation Administration has granted the facility 1,233 slots, of which 902 belong to United Airlines. That equates to control of 73% of the take-off and landing slots into and out of Newark. With the addition of Delta’s 24 slots, United’s share goes up to 75%.

United’s “fortress hub” in Newark (EWR, in airport code) isn’t entirely uncommon in the airline industry. Delta has one in Atlanta. American has two in Dallas/Fort Worth International and Charlotte Douglas International, where it accounts for 93% of all traffic;

But what differentiates Newark is that the airport is “slot limited” by the FAA due to heavy congestion. This means that there are severe barriers for any new or current competitors, if they want to increase their presence at EWR.

“A slot is a scarce resource: an airline cannot fly to or from Newark without them, but they are limited in number,” Baer said. “Airlines seeking to initiate or expand service at Newark face significant challenges obtaining slots in order to support new service.”‘

In addition to the limited slots, two converging factors have created great demand for flights out of the airport.

“Not only does Newark Liberty offer great proximity to Manhattan, it also serves as the main airport for travellers out of Northern and Central New Jersey,” Airways News senior business analyst Vinay Bhaskara said.

However, even hallmarks of a monopoly, such as overwhelming market share by a single entity and high barriers to entry for competitors, United’s business in Newark isn’t necessarily anti-competitive.

According to Bhaskara, it all depends on perspective. The likelihood of United’s Newark Liberty operation being found to be a monopoly changes based on whether Newark is considered a destination in and of itself; or as part of the greater New York market.

If EWR is treated as a separate market, then United’s 73-75% slot share is overwhelming. However, if Newark is considered to be part of a larger market, including JFK and LaGuardia, then United’s share is down to only 20%.

This is because United operates only a limited amount of flights from LaGuardia and completely abandoned its JFK operation earlier this year.

The DOJ has also accused United of artificially deflating supply to drive up prices.

“United is also sitting on many of its slots — deliberately limiting its Newark service,” Baer said. ” Over the course of a year, it operates only 386 daily round trip flights at Newark when its slots would allow it to operate 451.”

In response to that accusation, United issued the following statement: “United, like all airlines, varies flight schedules seasonally and by day of week to match changes in passenger demand. Our use of Newark Airport slots complies fully with FAA rules and enables us to offer the frequent flights and destinations travellers want while minimising airport congestion, especially on bad-weather days.”

Delta has also been named as a defendant in the DOJ’s suit. In addition to leasing its Newark slots to United, Delta has leased United’s abandoned JFK routes. However, Delta insisted that the two transactions are not connected.

“Delta’s agreement to lease slots at Newark to United, the focus of the Department of Justice lawsuit announced [earlier this week], is an independent transaction and does not affect Delta’s separate agreement to lease slots from United at New York-JFK,” the airline said in a statements. “

“Delta began flights with those slots on Nov. 1 and continues to operate that expanded JFK service.”

The DOJ filed the lawsuit this week in the U.S. District Court in Newark, New Jersey.

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