Slot Swap: When The Dust Settles, Who Will Lose? We Bet Cincinnati

We haven't yet discussed the current New York slot swaps yet because we wanted to take a little time and digest. For those of you not paying attention, this airline game of Wife Swap (a TV show, really) has got Continental and AirTran trading a few slots at Washington National/LGA for Newark and a huge transfer between Delta and USAirways at New York LGA and Washington National.
The Continental/AirTran deal is fairly straightforward. AirTran gets more slots at airports where they have a decent presence and need to continue fending off Southwest. Continental picks up a few slots at their super hub at EWR and, most importantly, removes a low-fare competitor from the market. Without the need to match pesky AirTran's fares not just to Atlanta but to many destinations beyond, Continental will be able to dramatically improve their pricing power at EWR. Yes, they'll still have to match JetBlue and may opt to match fares from other New York airports but it certainly cleans things up for them.

Delta and USAirways is a much more interesting deal which will allow each carrier to fortify their existing strongholds. USAirways has been relegated to serving smaller, second tier markets from New York LGA for sometime. They have not had the international presence or business market presence to command corporate deals in the New York marketplace. These smaller markets such as Norfolk, Buffalo and Richmond have been served largely with Dash-8 turboprop aircraft which have become increasingly difficult to operate in and out of LGA due to the constant Air Traffic Control delays - all in all, a relatively poor use of valuable LGA slots.

Meanwhile at DCA, USAirways has the opportunity to dominate the preferred airport in the nation's Capital. Not only will USAirways be able to build additional connecting traffic but they will be able to dominate the local origin and destination market. Having fellow Star Alliance partner United as the dominate carrier at the other major airport, Dulles, certainly helps as well as it enables frequent fliers to pool their mileage earning across both carriers to gain status etc.

The one thing that has not been discussed is where Delta is going to get the aircraft to operate the additional 125 flights to/from LGA. Delta has promised to operate regional jets vs. the Dash 8 turboprops that USAir currently operates. (A few flights today are also operated by Colgan Air for USAir using 19 seat aircraft)

Delta certainly is not going to go out and acquire new aircraft for these flights. Our rough estimation is that around 30-40 aircraft are required to operate these flights based on an average flight of around 90 minutes, standard aircraft utilization etc.

There is probably one place where Delta can easily come up with the aircraft: Cincinnati. Long rumored to be on the chopping block and already dieing a slow death, we expect that Delta will pull substantial resources from CVG to operate in New York. A great posting by our friends at Cranky Flier details Delta's current regional jet operations at CVG - currently expected to be around 180 weekday departures in November, down from a high of nearly 400 in 2007. Those 180 departures (leaving a handful for the traffic CVG naturally generates) could easily fund the 125 new departures from LGA.

We expect the final de-hubbing of CVG to be accomplished by moving the lion's share of these aircraft to the New York LGA markets if and when the slot swap is approved - and we are confident it will be approved.

Sorry, CVG - wish we had better news but our bet is that your hub is going the way of American Airlines in Nashville and Raleigh/Durham or USAirways in Baltimore or Pittsburgh. The upside for the industry is that this rationalization will remove substantial capacity - something which is desperately needed.

These insights are excerpted with permission from Tom Botts' Hudson Crossing blog.