DOT Gives Delta a Second Chance and Snubs Hawaiian Airlines

By Markets Fool.com

For the past few years, U.S. airlines have engaged in on-again, off-again squabbles about the allocation of flight slots at Haneda Airport, the closest airport to downtown Tokyo. U.S. carriers can only offer four round-trip flights to Haneda each day, and these slots are fiercely contested.

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For the past several months, American Airlines and Hawaiian Holdings have each tried to convince the U.S. Department of Transportation to reallocate a slot used by Delta Air Lines for service to Seattle. American wants to use the slot for flights to Los Angeles; Hawaiian wants to fly to Kona, Hawaii. But on Friday, the DOT tentatively allowed Delta keep the slot.

Shifting slots
In 2010, the U.S. and Japan reached an agreement allowing the DOT to allocate four slots for U.S. carriers to fly to Haneda. The slot allocation has changed over time, but Delta presently has two slots for flights to Los Angeles and Seattle. United Continental uses one slot for flights to San Francisco. Hawaiian uses the last slot for service to Honolulu.

American Airlines wants a chance to return to Haneda Airport. Photo: American Airlines.

American Airlines -- which canceled its lone Haneda route in late 2013 -- wants to get back into the Haneda market now. Meanwhile, Hawaiian Airlines wants a second slot so it can fly to both Kona and Honolulu. For either of those things to happen, the DOT would need to take back one of the few existing slot allocations. Delta's Seattle-Haneda route is the weakest link.

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Mixed success in Seattle
Delta inaugurated its Seattle-Haneda route as part of a broader buildup of Seattle as a key international gateway hub. However, the route has not performed well, so Delta last year cut back on service during the seasonally weaker winter season.

In fact, in the past six months, Delta flew the Seattle-Haneda route on just 17 days, essentially the bare minimum to avoid automatically losing the slot. American and Hawaiian cried foul, in hopes of convincing the DOT to revisit its slot allocation. Both carriers argued Delta is wasting a valuable slot by operating this seasonal service.

Delta's (successful) defense
Delta employed several arguments to defeat the attacks from American Airlines and Hawaiian Airlines. First, the airline pointed out it was resuming daily service in late March for the summer season.

Second, Delta noted that it was fulfilling the letter of the DOT's requirements despite operating only sporadic service during the winter season. The company argued if the DOT wanted to change the rules, it should at least give Delta the right to operate its Seattle service under those new rules.

Delta fought hard to retain its slot for Seattle-Haneda flights. Photo: The Motley Fool

Third, Delta announced plans to continue its daily Seattle-Haneda flights year-round going forward. It claimed the expansion of its domestic service in Seattle will improve the Haneda route's profitability.

Considering that the economic rationale for Seattle-Haneda flights was just as strong as it was when the slot was originally awarded to Delta, it's not surprising the DOT sided with Delta here. It did impose stronger conditions, though, to ensure Delta does use its Haneda slots year-round.

The fight for second
The DOT also awarded a "backup authority" in case Delta violates any of the conditions governing its Haneda slots. It chose American's proposed route to Los Angeles over Hawaiian's proposed Kona route for this purpose.

Hawaiian Airlines was frustrated again in its attempt to get a second Haneda slot. Photo: Wikimedia Commons.

Hawaiian Airlines' management was clearly extremely frustrated by the DOT's decision. In a prepared statement, CEO Mark Dunkerleynoted that Kona-Haneda is a larger travel market than Seattle-Haneda. He added:

Sadly, by dismissing Hawaiian's proposed Kona route as just simply being additive to the routes already serving Hawaii, the DOT has once more failed to appreciate the geography of the 50thstate. Kona and Honolulu are separate markets, separate communities and indeed are located on separate islands. The tentative ruling also reveals a long-held institutional bias among decision makers favoring the interests of U.S. business travelers over those of U.S. travel-related businesses and travelers in general.

Indeed, the DOT's "Order to Show Cause" made it quite plain that the department believes flights for U.S.-based business travelers should be given priority over flights for foreign leisure travelers coming to the U.S. Yet bringing tourists to the U.S. to spend money on hotels, restaurants, shopping, etc., is at least equally good for the U.S. economy as encouraging business travel abroad.

In the end, this potential pro-business/anti-tourism bias probably didn't have a big impact on the outcome. Once Delta agreed to operate year-round daily service from Seattle going forward, it became very unlikely the DOT would take the slot away.

That said, the DOT's decision to support a third daily Haneda-Los Angeles flight (Delta and Japanese carrier ANA both fly the route already) over a single Kona flight shows Hawaiian Airlines' prospects of winning another slot at Haneda Airport are slim indeed.

The article DOT Gives Delta a Second Chance and Snubs Hawaiian Airlines originally appeared on Fool.com.

Adam Levine-Weinberg owns shares of Hawaiian Holdings, The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.