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Westjet and Delta blame U.S. in scrapping joint venture

 

  • Calgary Sun
  • 22 Nov 2020
  • DAVID SHEPARDSON

WASHINGTON, D.C. — Calgary-based Westjet and U.S. carrier Delta Air Lines said late Friday they had s c rapped a proposed U.s.-canada joint venture after the U.S. government demanded changes the airlines insisted were “unreasonable and unacceptable.”

Last month, the U.S. Transportation Department, as part of its tentative antitrust immunity approval, said it would require the carriers to remove Swoop, an ultra-low-cost carrier affiliate of Westjet, from the alliance, and divest 16 takeoff and landing slots at New York's Laguardia Airport.

The airlines said in a filing that the U.S. demands were “arbitrary and capricious,” especially the slot divestitures. They had argued the alliance would “optimize aircraft utilization, enhance schedules, and lower costs.”

The airlines said in a joint statement they remain committed to developing a joint venture, “but in the meantime will explore deepening the alliance.”

The U.S. Transportation Department did not comment.

The Westjet-delta joint venture would have had a combined 27% share of scheduled air carrier transborder capacity, while the dominant carrier, Air Canada, has 45%. Westjet is owned by private equity firm Onex Corp.

Canada is the second-largest U.S. international passenger air market after Mexico, with Toronto flights accounting for more than 50% of transborder air travel demand.

U.s.-canada transborder flight capacity has grown 15% over the last five years to 39 million seats annually, but passenger traffic has plummeted sharply in the face of the COVID-19 pandemic.

The airlines' application had been pending with U.S. officials for more than two years. The Canadian Competition Bureau conducted its own review and granted an unconditional “no action” letter in June 2019.

U.S. air carriers had urged slot divestitures at Laguardia, noting American Airlines, Delta and United Air Lines control 83% of slots, with Delta controlling 45% of flights.

Westjet and Delta said losing slots would deprive them “of critical operating rights at one of the most important strategic hubs in Delta's global network at a time when Delta is investing billions of dollars of its own capital in a comprehensive facilities improvement project at this airport.”

They would be forced, the airlines added, “to sell these strategic corporate assets during a global pandemic that has inflicted an unprecedented crisis on this industry, virtually ensuring that they would be sold at a fire sale price.”

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What if Right sizing means getting rid of a large percentage of the fleet? Should a government help pay the rent or loan payments for underutilized/stored aircraft? I don't how many Westjet aircr

I think it was one of several prerequisites, as was a revised Transat deal.  If the government is to support the industry, it must be based on some kind of sustainable basis going forward. Trying

I have family that is transitioning from CERB as well.  Although they do qualify for EI they took another route.  They got a JOB.  

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1 hour ago, Malcolm said:

The airlines said in a filing that the U.S. demands were “arbitrary and capricious,” especially the slot divestitures.

I’m pretty sure Delta was forced to relinquish slots in LGA as a condition of their merger with Northwest.  16 of those slots were picked up by Westjet.  This JV, also referred to as a “virtual” merger by some, would see those slots returned.  Not sure I buy into the arbitrary and capricious comment.

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2 hours ago, Turbofan said:

I’m pretty sure Delta was forced to relinquish slots in LGA as a condition of their merger with Northwest.  16 of those slots were picked up by Westjet.  This JV, also referred to as a “virtual” merger by some, would see those slots returned.  Not sure I buy into the arbitrary and capricious comment.

More re the slots:

Delta, WestJet scrap JV plans

20 NOVEMBER 2020 BY SETH MILLER LEAVE A COMMENT

delta-westjet-tails-1024x662.jpg

LaGuardia is more important than the rest of the US-Canadian market for Delta Air Lines and WestJet. This is the message sent by the two carriers late Friday as they withdrew their application for antitrust immunity on their joint venture.

The loss of these slots would deprive the Joint Applicants of critical operating rights at one of the most important strategic hubs in Delta’s global network at a time when Delta is investing billions of dollars of its own capital in a comprehensive facilities improvement project at this airport. Moreover, it would force the Joint Applicants to sell these strategic corporate assets during a global pandemic that has inflicted an unprecedented crisis on this industry, virtually ensuring that they would be sold at a fire sale price far below their long-term economic value.



Citing the conditions imposed in the tentative approval as “arbitrary and capricious” the carriers withdrew the application, asking the Department to dismiss the proceeding and close the docket.

LaGuardia slot loss would decrease competition

The carriers argue that losing the slots would guarantee a reduction in competition in the NYC-Toronto or even the general trans-border market that the two carriers intended to operate in. None of the carriers likely to secure the slots – Southwest Airlines, JetBlue, Spirit Airlines or Allegiant – operate to Canada today. And eight slots at LaGuardia would not change that situation.

Moreover, Delta cites a litany of other airports around the country where the dominant carrier holds more slots than its 45% at LaGuardia:

United has at SFO (49%), Denver (53%), and Houston (82%); than American at Dallas/Ft. Worth (86%), Charlotte (90%), Miami (74%), and Washington National (57%), which is slot-controlled; and smaller than Southwest at gate-restricted Dallas Love Field (92%).

To claim that the West Jet slots “exacerbates Delta’s dominance at LaGuardia “ignore the basic reality of a hub and spoke business model” according to the filing.



Other objections

The carriers also objected to the Swoop carve-out, claiming “no support for the assertion that including Swoop in the JV would ‘restrain capacity and competition.'”

While the applicants write of including Swoop in the JV as though its flights would participate in the immunized service. But the original filing would only include the ULCC “for financial purposes, but not for the purpose of integrating Swoop’s operations into the metal-neutral JV, because Swoop’s low-cost business model is as incompatible with the commercial strategy of the proposed JV as it is with that of WestJet.”

Delta and WestJet argue the Rouge did not face similar scrutiny under the Air Canada/United Airlines JV but that argument fell on deaf ears at the DOT.

The carriers also opposed the requirement for WestJet to offer interlining services to any carrier that comes asking, converting “WestJet’s Canadian network into a de facto public utility for almost any U.S. carrier as the price of ATI, forcing WestJet to partner with and provide transborder access to its U.S. competitors.”

They also point out that the cost of implementing the interline service could be significant, as the DOT does not mandate a new entrant arrive with any particular technology platform minimums:

The mandatory interlining condition would force WestJet to bear the costs (e.g., IT, personnel and resources, PSS providers) of setting up and maintaining interline relationships with no ability to obtain a return on investment. Indeed, WestJet cannot even estimate the costs of this condition because there is no requirement that the interlining U.S. carriers have compatible technical platforms, thereby leaving open the possibility that WestJet would need to determine how to enable interlining with carriers that lack standard industry capabilities. The Department does not appreciate the commercial and technological complexity of the forced interline relationships which it is trying to artificially engineer by regulatory fiat. In a deregulated environment, it is an abuse of discretion for the Department to industrial engineer forced access to WestJet’s Canadian network.

But none of that matters, because the DOT ruling is set. And the two carriers are unwilling to accept these conditions.

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For the sake of history.  Posted from 2010

 

https://ca.proactiveinvestors.com/companies/news/74208/-air-canada-and-united-airlines-form-joint-venture-deal-for-us-canada-flights-9035.html

Air Canada (AC.A:TSX) and United Airlines struck a revenue-sharing joint venture deal on Thursday for transborder flights between the US and Canada, potentially generating substantial service and pricing benefits for consumers traveling between the two countries.

The airlines said that the deal, which is expected to become effective in early 2011, will allow them to compete more effectively.

 

This Transboarder joint venture was also abandoned because of the divestitures required by the DOT.  If it was resurrected I missed it.  Which makes this statement confusing.  Moreover Rouge didn’t exist in 2010

Delta and WestJet argue the Rouge did not face similar scrutiny under the Air Canada/United Airlines JV but that argument fell on deaf ears at the DOT.

 

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