U.S. sues to block United Airlines from Newark expansion

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DOJ Sues to Stop United 'Monopoly' at Newark Airport

The U.S. Justice Department on Tuesday sued to stop United Continental Holdings Inc from acquiring 24 take-off and landing slots at Newark Liberty International Airport, a move that could thwart United's expansion at its New Jersey hub.

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In essentially a swap, Delta Air Lines Inc, which is also named in the lawsuit, took over United Airlines' slots at New York's John F. Kennedy International Airport and then United planned to acquire Delta's slots at Newark.

United scheduled extra flights from Newark starting Oct. 25 as it ended flights at JFK Airport, where it failed to profit because it offered few connections.

But the Justice Department said in its complaint that United's expansion in Newark, where it is already dominant, would lead to higher fares and fewer choices for travelers in New York, New Jersey and parts of Pennsylvania who use the airport.

"There are 35 million air passengers who fly into and out of Newark every year. And we know that air fares at Newark are among the highest in the country while United's service at Newark ranks among the worst," said Assistant Attorney General Bill Baer on a call with reporters.

United said it will "vigorously defend our ability to operate effectively, efficiently and competitively at Newark."

The suit could set back plans by United, the second-largest U.S. airline by capacity, to raise the profile of the New Jersey airport.

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U.S. sues to block United Airlines from Newark expansion
In this May 1, 2015 photo, United Airlines jets are parked at Newark Liberty International Airport as the sun rises behind the New York City skyline, in Newark, N.J. United Airlines on Tuesday, June 16, 2015 said it will stop flying to New York's Kennedy Airport in October and shift the remaining cross-country flights there to its nearby hub in Newark. (AP Photo/Julio Cortez)
A United Airlines passenger plane lands at Newark Liberty International Airport Wednesday, Sept. 9, 2015, in Newark, N.J. On Tuesday, Sept. 8, 2015, United Airlines abruptly replaced its CEO as a federal investigation continued into whether the airline gave preferential treatment to a former chairman of the agency that operates the New York-area airports who has political ties to New Jersey Gov. and presidential candidate Chris Christie. United Continental Holdings Inc. said Tuesday that Jeffery Smisek and two other senior executives had stepped down. Oscar Munoz, a railroad executive and head of United's audit committee, was named CEO and president. (AP Photo/Mel Evans)
Passengers pull their luggage at Newark Liberty Airport Monday, June 15, 2015, in Newark, N.J. Earlier Sen. Bob Menendez, D-NJ, addressed new rules proposed to reduce the size of airline travelers' carry-on bags. Menendez says the new rule would force many travelers to pay for checked baggage. He says statistics from the federal Department of Transportation show the 27 U.S.-based airlines made $3.5 billion in baggage fees last year. (AP Photo/Mel Evans)
A man cleans windows as a passenger pulls his luggage at Newark Liberty Airport, Monday, June 15, 2015, in Newark, N.J. Sen. Bob Menendez, D-NJ, addressed new rules proposed to reduce the size of airline travelers' carry-on bags. (AP Photo/Mel Evans)
Brazilian tourists sit at a terminal at Newark Liberty International Airport after their flight home was canceled a day earlier because of a snowstorm, Tuesday, Jan. 27, 2015, in Newark, N.J. On Monday night, up to two feet of snow was forecast for parts of northern New Jersey. Instead, snow totals ranged from as little as half an inch in Bellmawr, Camden County, to eight inches in North Bergen, Hudson County, according to the National Weather Service. (AP Photo/Julio Cortez)
FILE - In this Thursday, Nov. 14, 2013 file photo, New Jersey Gov. Chris Christie walks through Terminal C at Newark Liberty International Airport in Newark, N.J. before a news conference. On Monday, Nov. 17, 2014, United Airlines, which operates the terminal, announced a $120 million makeover of Terminal C that will include food offerings from two dozen acclaimed chefs as well as table service for customers. Among the chefs who will showcase their food are Marc Forgione, Alain Ducasse, Paul Liebrandt and Mario Carbone. There will also be a whiskey bar, wine bar and beer garden. (AP Photo/Mel Evans,file)
In this photo from Thursday, July 10, 2014, Irwin Carbajal, 23, a aircraft cabin cleaner, poses for a photograph at Newark Liberty International Airport in Newark, N.J. Carbajal, who makes $8.25 an hour, is hoping to benefit from a pay increase which the Service Employees International Union is pushing for. (AP Photo/Julio Cortez)
US President Barack Obama disembarks from Air Force One, with One World Trade Center in the background, upon arrival at Newark Liberty International Airport in Newark, New Jersey, November 2, 2015. Obama is traveling to Newark, New Jersey to speak about the re-entry process for formerly incarcerated individuals and New York City to attend Democratic fundraisers. AFP PHOTO / SAUL LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
An Airbus Group SE A350 XWB jet sits parked during a media tour at Newark Liberty Airport in Newark, New Jersey, U.S., on Thursday, July 16, 2015. Airbus had 781 confirmed orders for the A350 XWB jet at the end of June, according to Air Transport World. Photographer: Michael Nagle/Bloomberg via Getty Images
Economy class seats are seen on an Airbus Group SE A350 XWB jet during a media tour at Newark Liberty Airport in Newark, New Jersey, U.S., on Thursday, July 16, 2015. Airbus had 781 confirmed orders for the A350 XWB jet at the end of June, according to Air Transport World. Photographer: Michael Nagle/Bloomberg via Getty Images
NEWARK, NJ - JULY 08: People wait at the United Airlines terminal at Newark Liberty Airport on July 8, 2015 in Newark, New Jersey. A computer system glitch caused thousands of United Airlines flights throughout major airports to be grounded Wednesday morning. The issue was resolved by late morning with some ripple delays still being felt at airports throughout the country. (Photo by Spencer Platt/Getty Images)
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United has marketed the hub as a closer alternative to JFK for professionals in New York City's financial district. It has invested $2 billion to add new restaurants and technology displays to the airport and has pushed for the extension of a subway line to Newark from downtown Manhattan.

The lawsuit, filed in U.S. District Court for New Jersey in Newark, alleged that United already has 902 take-off and landing slots at Newark while American Airlines, in second place, has just 70 slots. The Justice Department alleged that United failed to use as many as 82 slots daily.

Industry consultant Robert Mann said it is typical for airlines not to use slots during off-peak days and seasons.

United shares fell as much as 1.9 percent after the news of the lawsuit while Delta dropped as much as 2.1 percent.

Delta, which began flights with the JFK slots on Nov. 1, said the suit did not affect those slots.

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"Delta's agreement to lease slots at Newark to United, the focus of the Department of Justice lawsuit announced today, is an independent transaction and does not affect Delta's separate agreement to lease slots from United at New York-JFK Airport," Delta spokesman Trebor Banstetter said in a statement.

FEDERAL PROBE

The top four U.S. carriers American Airlines Group Inc , Delta, United and Southwest Airlines Co control some 80 percent of the domestic air travel market.

Prices of flights in and out of Newark would come down if Delta's slots were sold instead to low-cost carriers, said Kevin Mitchell, chairman of the Business Travel Coalition, Inc.

"It's going to go down as one of the best days for airline consumers in a very long time," said Mitchell.

The U.S. airline industry has seen a series of major mergers with Delta buying Northwest in 2008, United buying Continental in 2010 and US Airways buying American Airlines in 2014.

In July, the Justice Department acknowledged that it was investigating whether U.S. airlines worked together illegally to keep airfares high by signaling plans to limit flights.

"For a significant number of travelers, Newark is the only viable option," Baer said. "For somebody who wants to get to LaGuardia for a 9 a.m. flight or a 6 p.m. flight, or if you want to go from east coast to west coast, your only other option is JFK. The Hudson river at this point becomes for most of those people the Hudson ocean."

(Reporting by Lisa Lambert in Washington, Editing by Marguerita Choy)

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