American gets $381 million for New York, Washington assets

03/10/2014 8:19 AM

11/12/2014 4:15 PM

American Airlines received $381 million in cash for the takeoff and landing slots it was required to divest at Washington, D.C.’s Reagan National Airport and New York’s LaGuardia Airport, the company’s top executive said Monday, a bigger-than-expected windfall for the Fort Worth-based company.

Speaking at an investor conference in New York on Monday, Chief Executive Officer Doug Parker said the airline got more than it had anticipated for 34 slots at LaGuardia and 86 slots at Reagan.

“We’re very pleased with the result,” Parker said, saying the slots had been recently appraised at $225 million.

In a court filing on Monday, the U.S. Department of Justice valued the slot deals at $425 million, including slots American swapped with JetBlue Airways. JetBlue received 16 slots at Reagan in exchange for giving American 24 slots at New York’s JFK airport.

“The competitive significance of the remedy is reflected in the value being paid for the divested Reagan National and LaGuardia slots — over $425 million — which is unprecedented in the airline industry and among the most substantial merger remedies in any industry,” the filing said.

As part of its antitrust settlement with the federal government to gain approval for its merger with US Airways, American was required to sell 104 takeoff and landing slots at Washington Reagan National and 34 slots at New York’s LaGuardia airport. These included a dozen slots that JetBlue Airways had been leasing from American at Reagan and 10 slots Southwest Airlines had been leasing from American at LaGuardia.

“The remedy is a major victory for American consumers. It will enable Low Cost Carriers (“LCCs”) to fly millions of new passengers per year to destinations throughout the country,” the filing said.

JetBlue purchased an additional 24 slots at Reagan while Virgin America bought eight slots at Reagan. Southwest bought 56 slots at Reagan but will be returning 2 to the Federal Aviation Administration because they are only for a Sunday flight.

At LaGuardia, Southwest bought an additional dozen slots while Virgin America purchased the other 12.

Also on Monday, Parker discussed the financial impact of canceling thousands of flights in the first two months of the year due to winter storms.

In a traffic report released Monday, American said it canceled more than 14,000 flights in February, up 149 percent from the same month last year. During the first two months of 2014, American said it canceled about 28,000 flights, 164 percent more than January and February of 2013.

“One of the things that happens when you’re the biggest airline in the world is you have big numbers like this,” Parker said. “You don’t cancel 28,000 flights without having some [profit and loss] impact.”

Several carriers also released flight cancellation numbers for the month with Southwest saying it canceled more than 2,800 flights in February. Delta Air Lines and United Airlines canceled 8,000 and 11,000 flights respectively.

Despite the storms, American said it expects unit revenues to be 2 to 4 percent higher in the first quarter of 2014; it plans to disclose the impact on its profitability in early April. Unit revenue is a key measure in the airline industry that tracks how much money an airline collects for every seat mile flown.

American said passenger traffic rose slightly, up 0.5 percent in February as the carrier increased capacity 0.8 percent in the month. Its load factor, which measures how full American’s planes are, dropped 0.3 percentage points to 78.4 percent.

Separately, American and JetBlue Airways announced that they will no longer sell tickets on each other’s networks for select flights out of New York and Boston.

The companies will also end their frequent flyer agreement that allowed customers to earn miles or points on certain routes operated on the other airline.

The end of these agreements is effective April 1.

The partnership, announced in March 2010, allowed JetBlue customers to connect to American’s international flights out of Boston and New York’s JFK Airport while American customers were able to connect to JetBlue flights to domestic cities where the carriers didn’t compete, such as JFK to Portland, Maine, or Nantucket, Mass.

The end of the partnership was expected by Wall Street analysts.

“This is not a complete surprise as we expected US Airways could provide American the feed they need in New York. More to the point, we expect New York to be less important to American going forward as US Airways has a large hub in Philadelphia,” wrote Cowen and Company analyst Helane Becker in an investor note Monday morning.

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