Justice Department to United Airlines: you can not have a monopoly in Newark

In June, United said it was dropping service at New York’s Kennedy airport – where JetBlue Airways Corp. and Delta are the leading tenants – to consolidate operations at Newark.

Delta Air Lines (DAL – Get Report) stock is down 0.26% to $50.50 in early afternoon trading on Tuesday after the Department of Justice filed an antitrust lawsuit to block United Continental Holdings (UAL) acquisition of 24 Delta slots at Newark global Airport.

“Delta’s agreement to lease slots at Newark to United, the focus of the Department of Justice lawsuit announced today, is an independent transaction and does not affect Delta’s separate agreement to lease slots from United at New York-JFK Airport”, said Delta spokesman Trebor Banstetter in a statement. “That would leave the 35 million air passengers who fly in and out of Newark every year holding the bag”.

Under the deal, Delta was planning to sell 24 slots (each slot consists of a takeoff and landing) to United.

United had agreed to lease the Newark slots from Delta in a $14 million transaction, according to the complaint. “United is already extracting a ‘Newark premium.’ Airfares at Newark are among the highest in the country while United’s service at Newark ranks among the worst”. “Allowing United to acquire even more slots at Newark would fortify United’s monopoly position, and weaken rivals” ability to challenge that dominance, leaving consumers to pay the price”.

The lawsuit, filed in federal court in Newark, New Jersey, alleges that United already controls roughly 73 percent of the slots allocated by the Federal Aviation Administration, or over 10 times more than its closest competitor. In fact, the DOJ said in its suit, United Airlines sometimes fails to use more slots (up to 82 per day) than a few airlines even have.

United expected the deal with Delta to clear regulatory approval.

“We are also charging United and Delta Airlines, the seller of the slots, with violating Section 1 of the Sherman Act by entering into an agreement that restrains trade”, Baer said.

In response to the lawsuit, United said in a statement that it will “vigorously defend our ability to operate effectively, efficiently and competitively at Newark”. United ceased operating from JFK altogether on October 25 in anticipation of leasing the slots from Delta at EWR.

Five small, mostly low-fare airlines are pressing federal regulators to change “slot management” practices at New York’s three big airports to boost competition there.

United acquired the bulk of its slots in a 2010 merger with Continental Airlines – a move that raised concern by the Justice Department at the time and resulted in United divesting 36 slots, according to the lawsuit.

United challenged this depiction, saying that with three major airports, the New York/Newark region is the most competitive market in the country.

Slots are takeoff and landing rights.

“… This divestiture allowed Southwest to introduce new low-fare competition to United on five routes, which resulted in substantially lower fares and increased service on these routes into and out of Newark”.