The Port Authority of New York and New Jersey is considering dropping a long-standing "perimeter rule" that bars flights of more than 1,500 miles at LaGuardia Airport, according to The Wall Street Journal. (Flights to and from Denver and flights on Saturdays are already exempt.)
As I recently described, Delta Air Lines and American Airlines would benefit from this movebecause they control the most slots at LaGuardia. As a result, they'd be able to add lots of lucrative flights to the West Coast by dropping less-profitable short-haul routes currently operated with small regional jets.
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Delta hopes to fly nonstop from its hub at LaGuardia Airport to the West Coast.
Other carriers with significant transcontinental service from New York -- including JetBlue Airways , United Continental , and Virgin America are more at risk. But a change in the perimeter rules might not hurt them as much as some industry analysts assume.
Shifting the balance of powerLaGuardia Airport is much closer to midtown Manhattan than the other New York-area airports (JFK and Newark). Business travelers in particular tend to prefer flying from LaGuardia. As a result, if the perimeter rule is withdrawn, airlines would clearly want to fly nonstop from LaGuardia to key West Coast business markets like Los Angeles and San Francisco.
Today, Delta, American, United, JetBlue, and Virgin America all fly from JFK to Los Angeles and San Francisco. These are some of their most lucrative routes, and the airlines offer premium amenities on these flights to cater to their high-paying customers.
Of those five airlines, Delta and American have the largest slot holdings at LaGuardia by far. If they were to become the only airlines offering frequent flights from LaGuardia to the West Coast (and particularly to L.A. and San Francisco), it would be a major competitive advantage for them.
The view from Virgin AmericaVirgin America is perhaps most at risk. First, transcontinental flights from JFK and Newark to Los Angeles and San Francisco account for nearly 30% of Virgin America's capacity. Disruption in these markets could be painful.
Virgin America has high exposure to the transcontinental market. Source: Virgin America.
Second, Virgin America controls just six slot pairs at LaGuardia Airport. That wouldn't be enough for it to move its entire JFK-Los Angeles and JFK-San Francisco flight schedules to LaGuardia -- even if it dropped all of its other flights there.
Thus, Virgin America has argued that if the rules change, the slot allocations at LaGuardia must also be revisited. It would try to convince federal regulators to mandate slot sales by Delta and American to create more space for smaller carriers. If Virgin America acquires more LaGuardia slots, that would mitigate most of the negative impact of the potential perimeter rule change.
JetBlue could pick up short-haul businessJetBlue has expressed a similar sentiment. If LaGuardia is opened to transcontinental service, it wants an opportunity to pick up more slots there in order to offer competing flights.
However, while JetBlue's long-haul operations at JFK might suffer from a LaGuardia perimeter rule change, its short-haul flights there could benefit. Delta and American would have to drop numerous regional flights at LaGuardia Airport to free up slots for long-haul flights -- even more so if they also have to divest some of their slots.
JetBlue currently flies from JFK to several small-to-midsize cities in the Northeast, such as Portland, Maine; Burlington, Vermonth; and Syracuse, Rochester, and Buffalo, New York. Delta currently flies to all of those cities from LaGuardia.
JetBlue's short-haul routes could benefit from a reduction in regional flights at LaGuardia. Source: JetBlue.
If Delta were to cut some of those flights to free up capacity for new long-haul service, JetBlue's flights from JFK would benefit. A reduction in short-haul service at LaGuardia also might open up new opportunities for JetBlue at JFK. This would lessen the sting of reduced demand for transcontinental flights from JFK Airport.
United could cut costsAs one of the big three legacy carriers, United probably wouldn't be allowed to bid for extra slots at LaGuardia Airport. However, in a pinch, it could probably move its transcontinental "p.s." (Premium Service) flights from JFK to LaGuardia by cutting service to Cleveland (which it dropped as a hub in 2014) and flying somewhat less frequently to its other hubs.
United has the advantage of maintaining a dominant presence at Newark Airport, the only "true" hub in the New York area. This alone ensures that it has adequate service from the New York area to every major U.S. metro area, as well as numerous international markets. In contrast, Delta and American have their operations split between LaGuardia and JFK.
Whatever happens, United will still have the only true hub in the New York area.
The p.s. flights to Los Angeles and San Francisco are United's only flights from JFK. Moving them to LaGuardia would allow United to consolidate its New York operations at Newark and LaGuardia. This would reduce its staffing and facility rental costs. United could also probably monetize its remaining slots at JFK Airport.
This won't happen soonThus, while Virgin America, JetBlue, and United could be at risk if the Port Authority opens LaGuardia Airport to long-haul flights, the damage may be smaller than it first seems.
Furthermore, major changes are unlikely for the next few years. LaGuardia's Central Terminal Building -- which houses most of American's flights -- is already extremely overcrowded. While the building is slated for a complete rebuilding and expansion, the project could take nearly a decade to be completed.
Swapping 50-seat regional jets for 150-seat mainline planes would push the terminal well beyond its current capacity. Even Delta's somewhat more modern terminals would be strained by a significant increase in mainline operations. The time needed to sort out these issues will give carriers like United, JetBlue, and Virgin America plenty of time to adapt.
The article Long-Haul Flights at LaGuardia: Who Would Lose Out? originally appeared on Fool.com.
Adam Levine-Weinberg owns shares of JetBlue Airways and Virgin America 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.
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