As per media reports, U.S. budget carrier Southwest Airlines Co. (LUV - Analyst Report) and Virgin America will purchase slots at LaGuarida (LGA) airport in New York. The carriers will buy the slots from U.S. Airways Group Inc. and American Airlines Inc. which must sell these as part of their merger deal.
The low cost carriers are acquiring 34 landing and take-off slots at this busy international airport with limited capacity. However, the distribution of slots is unknown as neither of the carriers divulges any detail on the news.
If sources are to be believed, Southwest has already leased 10 of the slots at LGA from American and will be eyeing part of the remaining slots. Rival carrier JetBlue Airways Corporation (JBLU - Analyst Report) is believed to be interested in DCA slots.
Notably, the merger suffered a setback following opposition raised by the DOJ (Department of Justice) along with attorneys general of six states and the District of Columbia as they believe that it will result in concentration of power in the hands of a few airlines thereby posing difficulties for travellers.
Both the carriers have now cleared all litigations against them after they agreed to give up 52 take-off and landing slots at Washington Regan (DCA) and 17 pairs at LGA in New York. Further the carriers have to divest two gates and related facilities at each of the Boston, Chicago, Dallas, Los Angeles and Miami airports.
The DOJ has argued that opening up of slots will induce more competition within the industry and is believed to be favouring the low cost carrier. Meanwhile, Delta Airlines Inc. (DAL - Analyst Report) wished to get an equal opportunity to bid for slots and facilities at these airports particularly in DCA and Love Field Airport at Dallas. It remains to be seen whether incumbent carriers like Delta can get some slots, which depends upon the discretion of the DOJ.
If successful, Southwest will only gain from the process as it will give the Dallas-based carrier an opportunity to expand its network in New York, which remains a strong foothold for JetBlue and bigger rival Delta.
Southwest currently carries a Zacks Rank #2 (Buy).