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United Continental to No Longer Buy Newark Slots from Delta

Chicago-based United Continental Holdings Inc. UAL has retracted on its plans to expand further at the Newark Liberty International Airport, thereby vindicating the stance of the U.S. Justice Department. The department had expressed its fears that further expansion of the carrier’s already dominant position at Newark will be detrimental to passengers. This is because the already-high fares at Newark can move further up owing to United Continental‘s uninhibited monopoly amid limited competition at the airport.

The Story So Far

United Continental is already a major player at the Newark Liberty International Airport controlling the majority (73%) of the slots – over 10 times the number of slots held by any other carrier. The slot holdings at Newark do not exceed 70 for any other carrier.

United Continental, in a bid to expand further at this key airport, announced plans (in Jun 2015) to buy 24 take-off and landing slots from Delta Air Lines DAL in exchange of its slots at the John F. Kennedy (JFK) International Airport.

With average fares already very high at Newark, the Justice Department was naturally concerned about United Continental’s decision to expand its already dominant position therein and viewed the move as passenger-unfriendly. Consequently, the department sued United Continental as well as Atlanta, GA-based Delta in Nov 2015 in an attempt to block the purchase, in a bid to sustain competition and control ticket prices at the airport.

Challenging the proposed transaction, the department opined that United Continental’s share of slots would go up to 75% or 926 in the event of the purchase materializing. According to an Associated Press report, Delta has been using the JFK slots from Nov 2015 as they were in no way affected by the department’s case filed against the two carriers.

Following United Continental’s move to abandon its plans for further expansion at Newark, the Justice Department heaved a sigh of relief and dropped its case against the carriers.

FAA’s Move Prompted UAL’s Decision

United Continental’s decision to call off its purchase agreement with Delta follows the Federal Aviation Administration’s (FAA) decision, announced on Apr 1, 2016, to lift controls over the number of takeoffs/ arrivals per hour at Newark. The controls were imposed in 2008 to limit congestion at the airport.

The FAA believes that currently some of the allotted slots remain underutilized. Moreover, the FAA’s decision will make fares pocket-friendly as ticket prices at Newark could see a downward revision owing to increased competition arising out of easier entry. Following the decision, other carriers will find it easier to hold slots at Newark. No wonder, the slot purchase agreement has been terminated following the FAA’s announcement.

Zacks Rank

United Continental currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the airline space include Deutsche Lufthansa Aktiengesellschaft DLAKY and China Eastern Airlines Corp. Ltd. CEA. Both the stocks sport a Zacks Rank #1 (Strong Buy).

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DELTA AIR LINES (DAL): Free Stock Analysis Report
CHINA EASTN-ADR (CEA): Free Stock Analysis Report
LUFTHANSA -ADR (DLAKY): Free Stock Analysis Report
UNITED CONT HLD (UAL): Free Stock Analysis Report
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