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.
Recent images from Newark Airport:
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.
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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