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American Slots Shift at Reagan National (revised)

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As per media reports, airlines in the U.S. have submitted their bids to acquire slots at Washington’s Reagan National Airport (DCA) as part of the mega-merger deal between American Airlines and U.S. Airways Group Inc. that led to the formation of American Airlines Group Inc. (AAL - Free Report) .

According to sources, an announcement relating to the sale of the slots at DCA could be made as early as this week. However, they remain unclear about the number of carriers that have shown interest in the bidding process.    

In Nov 2013, both American and U.S. Airways got the nod for the merger after clearing a series of legal hurdles. As part of the deal, the carriers agreed to give up 52 take-off and landing slots at DCA and 17 pairs at La Guardia airport (LGA) in New York. Additionally, the carriers have to divest two gates and related facilities at each of the Boston, Chicago, Dallas, Los Angeles and Miami airports.

The Department of Justice (DOJ) argued that the opening up of slots to rival carriers will enhance accessibility at some of busiest airports and simultaneously heighten competition. On the flip side, legacy carriers like Delta Air Lines Inc. (DAL - Free Report) has previously insisted that the DOJ should not be biased toward low-cost carriers while divesting airport slots and assets.

The divesture process has already begun with Southwest Airlines Co. (LUV - Free Report) acquiring 22 take-off and landing slots, while Virgin America acquired 12 such slots at LaGuardia.

Apart from Southwest, Delta and JetBlue Airways Corp. (JBLU - Free Report) have shown interest in acquiring slots at Reagan National. Notably, 16 of the 104 slots at DCA are already leased to JetBlue, and the New York-based carrier will try to purchase as many slots as possible to strengthen its position in the nation's capital.  

Divesture of these important slot pairs will give smaller players a meaningful opportunity to expand their presence in Washington. However, it remains to be seen whether Delta will win any slots, given the inclination of the DOJ toward budget carriers.

Improved operational performance in Dec 2013 has already pushed the major airline stocks upward. We believe this news could provide further impetus to investors to remain bullish on these stocks.

AAL currently carries a Zacks Rank #3 (Hold).

(We are reissuing this article to correct a mistake. The original article, issued yesterday, January 13, 2014, should no longer be relied upon.)

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