August 25, 2009 

BY EMAIL/MAIL

The Honorable Christine A. Varney 

Assistant Attorney General 

Antitrust Division 

United States Department of Justice 

950 Pennsylvania Ave. NW 

Washington, DC 20530 

Re: Competition Concerns re Delta/USAirways Slot Swap

Dear Ms. Varney: 

 We write on behalf of Spirit Airlines, Inc. (“Spirit”), a Florida based Ultra Low 

Cost Carrier, to raise strong concerns regarding the negative impact the proposed “slot 

swap” deal announced by Delta Air Lines and USAirways will have on competition at 

LaGuardia Airport (“LGA”) and more generally for New York City (“NYC”). If this 

transaction is permitted to go forward without requiring Delta to divest any of the Federal 

Aviation Administration (“FAA”) issued Operating Authorizations or “slots” at LGA, 

Delta will operate 50% of the departures and control 47% of passenger seats at LGA. 

Together, Delta, American Airlines and USAirways will control 78% of LGA departures. 

As discussed further below, given that no new entry is possible, the proposed slot 

exchange, if allowed to proceed, will lead to higher prices and less competition in 

multiple markets unless some of the slots are reallocated to limited incumbent carriers 

like Spirit which serve LGA. As the Department responsible for antitrust issues 

involving domestic aviation, we would appreciate the opportunity to meet to discuss with 

you this important opportunity to promote competition at LGA. 

Spirit Background and Service at LGA

 Spirit is a relatively small scheduled airline that currently operates a fleet of 28 

Airbus A319/321 aircraft with its primary gateway at Fort Lauderdale International 

Airport (“FLL”). In March 2007, Spirit became the first Ultra Low Cost Carrier (“Ultra 

LCC”) operating in the U.S. Its business model is similar to that developed by the highly 

successful European carrier, RyanAir, which it adapted to the U.S. market. Spirit 

initiated à la carte pricing of optional services in the U.S., enabling it to continue 

lowering fares in competitive markets. Passengers pay extra if, for example, they want to 

check bags, make advanced seat selection or consume beverages and snacks on board. 

Based on 2008 data, Spirit’s average system-wide fares are more than $100 below the 

industry average adjusted for length of haul. Despite its relative small size, Spirit has 

proven to be a strong competitor to larger airlines in domestic and international markets 

connected through South Florida. Since 2006, Spirit has expanded service throughout the 

Caribbean and Central America as well as to Colombia and Peru. It now serves 22 

international destinations in Latin America and the Caribbean and 18 U.S. cities 

(including in Puerto Rico and U.S. Virgin Islands). Spirit carries approximately seven 
The Honorable Christine A. Varney 

Delta Air Lines – USAirways Slot Swap 

August 25, 2009 

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million passengers a year – many of whom would not be able to travel but for its 

consistently low fares. It has 33 aircraft on order for delivery between 2011 and 2015. 

 Spirit currently holds 22 slots at LGA which it uses to provide service to Detroit, 

Myrtle Beach and Fort Lauderdale. Through its gateway at Fort Lauderdale LGA 

passengers can connect to Spirit’s Latin American network and to other points such as 

Atlanta, Orlando and Tampa. It provides highly competitive fares and tends to be the 

price leader in all the markets it serves from LGA. 

 Spirit began its quest for LGA slots in the early 1990s. Given the High Density 

Rule imposed by the FAA in 1969, obtaining slots for new entrants since passage of the 

Airline Deregulation Act in 1978 has proven extraordinarily difficult. Indeed, it was only 

through Congressional intervention in the Wendell H. Ford Aviation Investment and 

Reform Act for the 21st Century (AIR-21) in 2000, which required DOT/FAA to issue 

exemptions to new entrants to ensure they could have 20 slots, that Spirit and other new 

entrants were able to provide even minimal service at LGA.1 In the almost 10 years since 

it obtained AIR-21 slots, Spirit has been unable to obtain through purchase or lease the 

additional 10 pairs of slots necessary to enable it to efficiently utilize a second gate. If 

Spirit could obtain these additional LGA slots or operating authorizations, it would be 

able to provide the traveling public with additional, badly needed competitive options. 

FAA Treatment of Operating Authorizations:

Current Limitations Imposed by FAA Order: Pursuant to orders issued by the 

FAA, the total scheduled peak-hour operations currently at LGA are limited to 71 per 

hour. These operating authorizations, known as OAs or slots, are owned by the FAA and 

cannot be sold, but can be traded or leased for any form of compensation. These rules 

were established by a final Notice of Order (“Order”) issued by the FAA on December 

27, 2006 and subsequently amended several times.2

 As noted, the Order prohibits 

permanent buying, selling, and transferring of slots at LGA. Specifically, the Order 

states that “permanent sales, purchases, or transfer of Operating Authorizations will not 

be permitted.” See 71 FR 77854, at 77857 (December 27, 2006). The FAA decision to 

prohibit buying or selling of operating authorizations was based on its plan to issue a new 

final rule to address the long term treatment of slots at LGA and its desire not to 

encourage carriers to think the interim order was creating long-term rights in these 

authorizations once a final rule was issued. Id. at 77857. 

 

1 See, Public Law 106-181, 114 Stat. 61, Section 231 adding a new provision 49 USC §41716(b). 2 See 71 FR 77854, (December 27, 2006); as amended by 72 FR 63224, (November 8, 2007) (transfer, 

minimum usage, and reversion and withdrawal of OAs); 73 FR 48428 (August 19, 2008) (reducing the 

reservations available for unscheduled operations); 74 FR 845, (January 8, 2009) (extending the expiration 

date of the December Order until October 24, 2009); and 74 FR 2646, (January 15, 2009) (providing for 

reducing the peak-hour cap on scheduled operations to 71 through attrition). 
The Honorable Christine A. Varney 

Delta Air Lines – USAirways Slot Swap 

August 25, 2009 

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In comments on the proposed order, AirTran Airways and the Air Carrier 

Association of America (“ACAA”) urged the FAA to take steps to foster competition at 

LGA. AirTran urged the FAA to either create 10 additional slots for each limited 

incumbent carrier, which included carriers like AirTran and Spirit, or to withdraw slots 

from other carriers to create the needed slots. The ACAA urged the FAA to withdraw 

10% of the authorizations held by all carriers with at least 40 slots and distribute them to 

limited incumbents operating equipment with at least 110 seats. The FAA stated that 

these economic and policy issues should be addressed in the rulemaking and not in the 

context of its temporary Order. Id. at 77858. 

The FAA Order is scheduled to expire on October 24, 2009. However, by Notice 

of Order to Show Cause and Request for Information issued on June 17, 2009, the FAA 

sought comments to extend the Order through October 30, 2010. See 74 FR 28772 (June 

17, 2009). In their comments, Delta and USAirways have urged the FAA to “reinstate 

the buy-sell rule at LGA” by eliminating “restrictions on buying and leasing” slots on a 

long term basis. See Docket FAA-2006-25755. The comment submission period ended 

on July 1, 2009. 

Rulemaking for Long Term Congestion Management at LGA: In August 2006 

the FAA began a rulemaking to develop a solution to the allocation of the limited landing 

and take-off rights at LGA. This rulemaking was intended to develop the long-term 

approach to handling congestion at LGA but also sought to address the important issue of 

fostering competition at the Airport. Congestion Management Rule for LaGuardia 

Airport, Notice of Proposed Rulemaking (NPRM) Docket FAA-2006-25709, 71 FR 

51360 (August 29, 2006). One of the issues of concern for the FAA was the inability of 

limited incumbents and new entrants to stimulate competition at the Airport. In the 

NPRM the FAA, significantly referencing the requirements of the Airline Deregulation 

Act Statement of Policy at 49 USC § 40101(a), stated as its priorities: 

Keeping available a variety of adequate, economic, efficient and lowpriced air services; placing maximum reliance on competitive market 

forces and on actual and potential competition; avoiding airline industry 

conditions that would tend to allow at least one air carrier unreasonably to 

increase prices, expand competitive options, reduce service, or exclude 

competition in air transportation; encouraging, developing and 

maintaining an air transportation system relying on actual and potential 

competition; encouraging entry into air transportation markets by new and 

existing air carriers and the continued strengthening of small air carriers to 

ensure a more effective and competitive airline industry. 

The FAA NPRM proposed an average minimum aircraft size and withdrawing and 

reallocating 10% of the capacity of the airport annually to stimulate competition and new 

entry. 
The Honorable Christine A. Varney 

Delta Air Lines – USAirways Slot Swap 

August 25, 2009 

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In the Supplemental Notice of Proposed Rulemaking (SNPRM) 73 FR 20846, 20852 

(April 17, 2008) the FAA noted: 

Congress has directed the Department [of Transportation] to place 

“maximum reliance on competitive market forces and on actual and 

potential competition” (49 U.S.C. 40101(a)(6)). This maximum reliance 

means the FAA is obliged not to simply walk away from an airport once it 

has imposed caps, but rather to take steps to ensure that there are, in fact, 

competitive market forces and actual and potential competition. 

Competition at an airport benefits the flying public by providing price 

competition and expanded service. The ability of carriers to initiate or 

expand service at the airport is hindered, in large part by the imposition of 

the cap. Accordingly, the FAA believes it must strike a balance between 

(1) promoting competition and permitting access to new entrants and (2) 

recognizing historical investments in the airports and the need to provide 

continuity. It is not the role of the Government either to dictate particular 

business models or to constrain a market and provide no means for others 

to enter that limited market. 

On October 10, 2008, the FAA issued a final rule on Congestion Management for 

LGA. See 73 FR 60574 (October 10, 2008). Under the rule the FAA determined it 

would withdraw five percent of the slots and retire them. An additional 10 percent would 

be reallocated via a blind auction over a five-year period, representing approximately 112 

operating authorizations – enough for 66 roundtrips. The remaining 85 percent of the 

slots would be grandfathered to their current operator. The rule was challenged in the 

Court of Appeals for the District of Columbia by the Air Transport Association and 

others, who opposed the use of an auction, or the withdrawal of slots or both. On 

December 8, 2008 the Court entered a stay preventing implementation of the rule. 

Subsequently, on May 14, 2009 the FAA announced it was withdrawing the rule. See 74 

FR 22718 (May 14, 2009). 

At this point the FAA has not indicated how it will proceed other than to 

announce that it will not institute an auction procedure to reallocate operating 

authorizations. Accordingly, as has been the case for 40 years, it remains virtually 

impossible for limited incumbents and new entrants to obtain slots at LGA. No change in 

this situation is likely to occur in any reasonable time frame to ensure new competition at 

the Airport. 

 

The USAirways-Delta Transaction Will Further Constrain LGA Competition Unless 

Slots are Made Available to New Entrants

The Department of Transportation as well as the Department of Justice have long 

recognized that LGA is not interchangeable with other New York airports and that 
The Honorable Christine A. Varney 

Delta Air Lines – USAirways Slot Swap 

August 25, 2009 

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competition at LGA is badly constrained. In 1997 the GAO testified before the Senate 

Commerce, Science and Transportation Committee: 

We have found little progress has been achieved in lowering the barriers to 

entry since we first reported them in 1990. Slot controls continue to block 

entry at key airports in the East and upper Midwest. We recommend that 

DOT take action to promote competition in regions that have not 

experienced lower fares as a result of airline deregulation by creating a 

pool of available slots by periodically withdrawing some grandfathered 

slots from the major incumbents and redistributing them in a fashion that 

increases competition. 

GAO Official John H. Anderson, Jr., Testimony before the Senate Commerce, Science 

and Transportation Committee, October 28, 1997 (GAO/OT-RCED-98-32, p.2 

In its Notice of Alternative Policy Options for Managing Capacity at LaGuardia Airport 

and Proposed Extension of the Lottery Allocation, Docket FAA-2001-9854, 66 FR 

31731, 31732 (June 12, 2001) the FAA noted: 

Each airport [operated by the Port Authority of New York and New 

Jersey] plays a different role, targeted for different users and designed to 

accommodate different types of operations. LGA, just seven miles from 

midtown Manhattan is the close-in airport offering frequent, short-haul 

service to meet the needs of the business community. 

In comments submitted in response to this FAA Notice filed June 20, 2002, the Justice 

Department stated at p.5: 

The high demand for LGA slots indicates that many airlines consider 

service to this airport to be a valuable part of the service they offer to 

travelers (fn. 6). For many passengers traveling to New York markets, 

other airports in the metropolitan area (Newark, JFK) are a substitute for 

LGA. It appears however, that same passengers, including many high 

yield business passengers, have a strong preference for LGA and the 

airlines therefore place a high value on the ability to serve LGA.) 

The Justice Department went on to discuss the fact that new entrants “find it difficult to 

acquire sufficient slots to establish a viable service pattern in a city pair,” and further that: 

incumbents with market power in city pairs the new carrier might like to 

enter will always have an incentive to outbid an equally efficient entrant 

for any slot offered (fn. omitted) Indeed, an incumbent with market power 

may well be able to outbid a more efficient entrant, simply because 
The Honorable Christine A. Varney 

Delta Air Lines – USAirways Slot Swap 

August 25, 2009 

Page 6 of 8 

 

maintaining market power is more profitable than entering a competitive 

market. 

 

In its submission, the Department specifically supported reallocating some 

percentage of LGA slots to promote needed competition and favored a blind auction, the 

approach chosen by the FAA. 

Currently, legacy airlines control 86% of the Operating Authorizations 

(frequencies) at LGA. Of these, approximately 78% are controlled by three airlines – 

Delta/NW (26%), USAirways (34%) and American (18%). Following the proposed slot 

swap, these same three carriers will continue to dominate LGA. However, Delta’s 

market share will go up to 50% and US will drop to 9%. United currently controls five 

percent of the flights at LGA. The four firm concentration ratio as measured by the 

Herfindahl-Hirschman Index (HHI) will increase from an already high 2177 to 2930 - an 

increase of almost 900 points. As stated in the Horizontal Merger Guidelines at 1.51(c): 

Where the post-merger HHI exceeds 1800, it will be presumed that 

mergers producing an increase in the HHI of more than 100 points are 

likely to create or enhance market power or facilitate its exercise. The 

presumption may be overcome by a showing that factors set forth in 

Sections 25 of the Guidelines make it unlikely that the merger will create 

or enhance market power or facilitate its exercise, in light of market 

concentration and market shares. 

While the overall New York market is somewhat less constrained, if the DL/US 

slot swap goes forward without requiring DL to surrender any slots, Continental and 

Delta will together control 54 percent of all New York frequencies. The HHI four firm 

concentration ratio for New York City, following the swap, would go from 1237 to 1731 

As discussed above, other than the AIR-21 mandated slots, there has been 

virtually no new entry at LGA since the High Density Rule was initially imposed in 1969. 

When coupled with the capacity cap of 71 scheduled operations per hour imposed by the 

FAA, along with no blind auction or lottery to reallocate authorizations in a way that 

could generate sufficient slots for new entrants to mount reasonable new service, there is 

an insurmountable barrier to entry.3

 Accordingly, unless Delta is required to surrender 

3

 While Newark and JFK may be alternative airports for some passengers who would prefer to use LGA, 

there are no operating authorizations available at these airports either. Moreover, as reflected in the recent 

small slot swap between Continental and AirTran, where AirTran abandoned service to Newark to obtain 

more slots at LGA, it is difficult for smaller airlines to operate out of more than one New York airport. 

Spirit simply would not have the resources to divide its service between LGA and another New York 

airport. 
The Honorable Christine A. Varney 

Delta Air Lines – USAirways Slot Swap 

August 25, 2009 

Page 7 of 8 

slots to low fare carriers like Spirit, the obvious byproduct of the DL/US slot exchange, 

will be higher prices for passengers at LGA.4

 

While Delta claims that consumers will benefit through the use of larger aircraft 

as it replaces US on various routes to small and mid-size cities, Delta will be reducing 

frequencies and raising prices. The exchange of slots will eliminate direct competition 

between Delta and USAirways from LGA to Charleston, SC; Columbus, OH; 

Indianapolis, IN; Raleigh, NC and Savannah, GA. Importantly, Spirit which has a very 

small presence at LGA, fully expects DL will further increase service in the LGA-Ft 

Lauderdale market, where it recently has gone from four to six daily frequencies. DL is 

also likely to expand in both the DTW-LGA market, which as a result of the DL/NW 

merger is now a hub-to-hub market for DL, and in the MYR market. Given the 

unavailability of operating authorizations at LGA, it is impossible for Spirit to mount a 

competitive response to DL’s expansion. 

Recommended Divestiture to Preserve Competition 

Spirit urges the Department to require Delta to surrender 40 pairs of operating 

authorizations which would still leave it with 85 new pairs of slots at LGA. These 40 

pairs of authorizations would be controlled by the FAA which would hold a lottery to 

allocate them. The FAA successfully used a lottery to allocate AIR-21 exemption slots 

when the number created by DOT exceeded the capacity of the airport. See 67 FR 65826 

(October 28, 2002). No carrier could initially receive more than 10 pairs. Any 

unallocated slots would be distributed in a second round. After the second round if any 

slots were not allocated, they could be returned to Delta. The carriers receiving the 

operating authorizations could swap them with other LGA carriers to adjust flight times, 

but could not otherwise lease or transfer them to other carriers. If a carrier did not meet 

the use-or-lose requirements those slots could be reallocated by the FAA using a blind 

auction or other allocation procedure. 

Eligible carriers would be those that fly to LGA with large aircraft of at least 110 

seats but currently are limited to 18 or fewer pairs of slots and do not also serve Newark 

or JFK. This would ensure that these operating authorizations would go to low fare 

carriers that can provide a competitive stimulus specifically at LGA. Since the legacy 

incumbent carriers received hundreds of slots for free, there is no policy reason why the 

limited incumbents should have to now initially bid for these operating authorizations. 

Conclusion 

 

4

 While Spirit is not discussing the situation at Ronald Reagan National Airport (DCA), the same result is 

likely at that airport. Indeed, USAirways CEO Doug Parker predicted that the exchange of slots and 

bolstering of USAirways position at DCA would “improve profitability by more than $75 million 

annually.” US Airways Press Release Aug. 12, 2009. 
The Honorable Christine A. Varney 

Delta Air Lines – USAirways Slot Swap 

August 25, 2009 

Page 8 of 8 

As discussed above, the proposed asset transfers between Delta and USAirways 

exacerbate a serious competitive issue at LaGuardia Airport. This airport has been 

capacity constrained for 40 years. Throughout this time LGA has been virtually the 

exclusive domain of the legacy carriers. The slot swap is not intended to enhance 

competition but rather to bolster DL at LGA and USAirways at DCA. 

Absent decisive action by the Department to discipline the DL/US slot exchange, 

it is apparent there will be no new mechanism to enable carriers like Spirit to obtain 

sufficient slots to add an effective level of competitive new service. With 125 new pairs 

of operating authorizations, DL will be able to add flights in markets where Spirit and 

other low-fare carriers now operate and potentially stifle this competition. Accordingly, 

we believe the Department should require DL to relinquish 40 pairs of operating 

authorizations as discussed above, for reallocation by the FAA to limited incumbents. 

We look forward to the opportunity to meet with you to discuss this important 

issue affecting one of the most important airports in the country and the public it serves. 

 Respectfully submitted, 

 

 Joanne W. Young 

 David M. Kirstein 

 Counsel for Spirit Airlines 

cc: Donna N. Kooperstein, Esq. 

 Chief, Transportation, Energy & 

 Agriculture, Antitrust Divison 

 Nancy D. LoBue 

 Acting Assistant Administrator for Aviation Policy, FAA 

 David Grizzle, Esq 

 Chief Counsel, FAA 

 The Honorable Susan L. Kurland, Esq. 

 Assistant Secretary, Aviation and International Affairs, DOT 

 Susan McDermott, Esq. 

 Deputy Assistant Secretary, Aviation and International Affairs, DOT 

 The Honorable Robert S. Rivkin 

 General Counsel, DOT