Delta, WestJet drop JV plans; claim DOT terms too onerous

Delta Air Lines (DL, Atlanta Hartsfield Jackson) and WestJet (WS, Calgary) have announced they have dropped their plans to establish a joint venture due to what they termed the “arbitrary”, “capricious”, “unreasonable”, and “unacceptable” conditions imposed by the US Department of Transportation (DOT). “The Department has issued a show cause order which proposes to deny antitrust immunity unless the Joint Applicants accept a set of conditions that are arbitrary and capricious, including slot divestitures that are unrelated to any alleged reduction in competition as a result of the JV,” the airlines said. The DOT tentatively approved the proposed transborder JV in late October 2020 albeit with a number of conditions. In particular, the airlines took issue with an order to divest eight slot pairs at New York La Guardia. The number corresponds with the package of slots which WestJet assumed from Delta itself when it was ordered to divest them in 2011. The airlines argued the slot divestiture was both unprecedented and unsubstantiated on the grounds that the slots would result in reduced capacity on the New York-Toronto route where WestJet currently deploys those slots, or else harm the public interest by forcing Delta to reduce or eliminate service Delta currently offers from La Guardia to small and medium-sized US communities. “The divested slots would almost certainly not even be used to compete with the JV. They would likely be redeployed by the recipient to use in domestic or other markets which are outside the JV scope,” the airlines said. The carriers underlined that the DOT’s efforts to prevent “exacerbating Delta’s dominance at La Guardia” was “arbitrary and capricious” as it exaggerated Delta’s market strength both at the airport and in the wider New York metro area. “The loss of these slots would deprive the Joint Applicants of critical operating rights at one of the most important strategic hubs in Delta’s global network at a time when Delta is investing billions of dollars of its own capital in a comprehensive facilities improvement project at this airport,” the airlines alleged. They also underlined that due to the current market environment, the slots would likely be sold below fair market price. The DOT also excluded WestJet’s LCC subsidiary Swoop (WO, Hamilton, ON) from the JV and mandated that the carriers remove certain “exclusivity provisions” from the terms of the agreement. The airlines said the former would “diminish consumer benefits from the JV”, while the latter “would impose unjustified administrative burdens and commercial harm on WestJet”. Delta and WestJet underlined that the Canadian Competition Bureau approved the JV with no objections in June 2019. They also stressed that the DOT’s conditions were unprecedented and unlike any other JV. The two airlines said they remained committed to the joint venture in the long-term but for now, they would look at other options of deepening their alliance.