You’re probably thinking that B looks best, and there’s no chance anyone is going to pick deal A, right? But that’s exactly what’s just happened now that the Department of Justice (DOJ) has given its approval to United and Continental to merge. All Continental has to do is take United’s 18 daily flights and give those slots (or equivalent) to Southwest. Done deal. Those other two deals? Yeah, that would be the rejected slot swap between Delta and US Airways in Washington (C) and New York (B).

I know, I know. These are totally different things and the approvals came from different branches of government. True, but it also shows how screwy it can be dealing with the feds. I should be clear here. I think the Continental and United deal should be approved. I just think the slot swap should have been approved as well.

Let’s start with the Continental/United deal. Apparently, the Department of Justice (which tends to be more strict than the Department of Transportation) had no concerns about this deal outside of Newark. Newark, of course, is a highly-congested airport with no slots available. So Continental agreed to permanently lease 18 slot pairs (the same number of flights United operates today) to Southwest. In other words, United gives up its slots to Southwest and everything else is fine. Here’s the state of the airport after this deal.

I’m sure Southwest is thrilled to be getting in there, but it’s still a pretty small number of flights in the scheme of things. And of course, everyone else is still frozen out for now. Contrast that with the slot swap deal. First, here’s the Washington/National chart had the deal been allowed to go through.

Here you can see an airport with more balance and greater low cost carrier penetration than Newark, but that’s nothing compared to LaGuardia.

When compared to National, there’s a greater transfer of slots here, but the dominant carrier would still have held a smaller position than at the other airport. Note the even higher LCC penetration of 12.7%. That’s more than double where Newark will be after Southwest gets its 18 slot pairs. So what gives?

Well it’s hard to say exactly what’s going on when you’re dealing with political bodies. Making sense is never the highest priority. But in this case, I would assume it’s simply an issue of looking at current versus potential scenarios. Continental won’t grow in Newark with this transaction while Delta and US Airways would have grown at LaGuardia and National respectively in that deal. Really, that shouldn’t be the issue here.

If the feds want to act like they’re sticking up for the consumer, they have the ability to hold airlines over a barrel. The Department of Justice chose not to do that with Continental and United while the Federal Aviation Administration has apparently gone the opposite route with the slot swap. Go figure. One thing we do know is the feds do seem to love Southwest these days.

You’ll remember that Southwest voiced a large number of objections when it came to the slot swap. The feds came back and agreed with the airline. Remember, Southwest actually said that open auctions were the best outcome. Now it’s gone and done a back-room deal. Not bad for Southwest, and certainly not bad for Continental and United. Then again, it probably just frustrates Delta and US Airways even more. Or maybe not.

Maybe this suggests that the better path for US Airways is to get bought (as they’ve been saying for some time anyway). Then it won’t need to get an FAA waiver to give its LaGuardia slots to another airline. It’ll be that other airline, so the FAA won’t get to ruin the party. If this helps build up US Airways’ efforts to get bought, then that’s good news for the airline.

Never a dull moment inside the Beltway, that’s for sure.

I’m talking more about this from the Continental/United perspective at BNET, but here I want to focus on Southwest. An airline that used to consider Islip a New York City airport will now be serving two of the biggest and most congested airports serving New York. Crazy.

This slot deal will allow Southwest to have 18 flights in and 18 flights out per day, unless they figure out some magical way to have more departures than arrivals. I’m gonna guess that physics makes that a tough sell. The first flights will begin next March with the full amount of slots going into Southwest’s possession by June.

This move is really funny when you think about it. It’s old-school Southwest meets new-school Southwest. Yes, the airline is flying into one of the most crowded, delay-filled airports in the US. You never would have seen that 10 years ago. But it’s also the tried and true Southwest strategy of bracketing a big metro area. You now have LaGuardia on the east (along with Islip on the waaaaay east) and Newark on the west. (It also conveniently brackets New Jersey with Philly on the South. That’s about as close as you’d want to get to NJ anyway.)

So what is Southwest gonna do with this? Well, 18 flights is a lot. It’s more than double the measly 8 flights they were able to squeeze into LaGuardia. At LaGuardia, there are five daily flights to Chicago/Midway and 3 down to Baltimore. But for Newark, we have some good guidance. Take a look at what the DOJ had to say about this:

The proposed merger would combine the airlines’ largely complementary networks, which would result in overlap on a limited number of routes where United and Continental offer competing nonstop service. The largest such routes are between United’s hub airports and Continental’s hub at Newark airport, where Continental has a high share of service and where there is limited availability of slots, making entry by other airlines particularly difficult.

In other words, Chicago/Midway, Denver, and Houston/Hobby have to be a lock. Baltimore? Probably. (And, as I talk about on BNET today, Continental and United must be happy not to have exact airport competition on these routes.) You could probably fill a schedule with that pretty easily, but there could be other cities as well.

Unlike from LaGuardia, Southwest can run Phoenix or Vegas from Newark, if it so chooses. The reality is that with Southwest’s focus on business travelers, Florida might not make as much sense. Sure, you can always fill those airplanes, but with scarce slots, that doesn’t seem like the best plan. Then again, maybe we’ll see Florida at some off-peak times.

Southwest has to be thrilled to have benefited from the merger here. Apparently the feds were happy with this deal as well. It may not seem like a huge number of slots, and really, it isn’t. For United and Continental’s nearly 450 flights per day, this is a drop in a bucket. Then again, Southwest does know how to make a drop in the bucket feel like a tidal wave.

American’s Express Seats: How Not to Introduce New Fees to Customers – BNET Headwinds
American has a new fee, and while it could be relatively straightforward, the way American released it was anything but.

US Airways Positions Itself as a Takeover Target with New York Moves – BNET Headwinds
The US Airways build-up in New York seems goofy, but it could actually be a smart play to get itself bought.

Passengers shocked by new touchy-feely TSA screening – Boston Herald
I didn’t even know that the TSA was tightening its screening process until I was contacted for this article. Sounds like a cheap way to get felt up to me.

Hmm. Alaska Air Group May Be Looking to Sell Horizon Air – BNET Headwinds
Horizon Air has changed its business model, and that has me wondering if Alaska is looking to sell.

Mammoth Mountain Lures United to Bring Bay Area Folks to Ski – BNET Headwinds
Another small town getting new air service. But this one makes more sense than many.

American Mechanics Shoot Down Tentative Agreement, Move Closer to Strike – BNET Headwinds
Unsurprisingly, American’s mechanics voted against the tentative agreement that had been presented. They’re moving toward a strike, but I doubt they’ll ever get there.

JetBlue and American: Why Frequent-Flier Sharing Makes Sense – BNET
JetBlue and American have gotten one step closer to each other by starting frequent flier earning on select flights.

Delta Earnings: Outlook Weak Despite Strong Industry Premium Traffic Trends – BNET
Lots of conflicting information out this week. Huge profits but weaker outlook = confusion.

LA World Airports Smartly Reconsiders Regionalization Strategy – BNET
Interesting words from the LA airport folks – they’re thinking twice about the regionalization strategy now that traffic is so far down at LAX itself. Good.

Continental and Wired: How Not to Do a Promotional Partnership – BNET
Continental has teamed up with Wired to do a pretty awful job of promotion.

Pinnacle Acquires Mesaba — and Can’t Wait to Erase the Tarnished Colgan Brand – BNET
Delta sold off two subsidiaries last week. The first is Compass, and that’s not a surprise.

Trans States Wants to Join the Big Leagues of Regional Airlines – BNET
And here’s the other sell-off, which was a much bigger surprise. Trans States buys Compass?!

Bad News: United, Continental Merger Already Seeing Pilot Unrest – BNET
That didn’t take long. The pilots and management are already fighting at the merging airlines.

Spring Thaw: American’s Pilots Turn Toward Reconciliation with Management – BNET
More pilot fun! American’s pilots are looking to talk to management again. It’s a change for the better.

Spirit’s Pilot Strike: Management Is Winning the PR Battle – BNET
Regardless of how the strike is going, management is easily winning the PR battle, even though they probably shouldn’t be.

Continental and United: This “Merger of Equals” Isn’t a Great Plan – BNET
They keep talking about a merger of equals, but I’m not a fan of that plan. There are better ways to do this.

When Airports Should Subsidize Airlines – BNET
Usually, airport subsidies fail miserably in attracting sustainable airline service, but every so often, they work.

Good Move: American Protects Its Elite Members From the Unwashed Masses – BNET
American rolls out “Your Choice” and it’s not a bad way to approach a la carte pricing.

Flying from Houston to Auckland is not something you’d expect to see from an airline. I mean, Continental’s marriage partner United dropped LA to Auckland years ago, so Houston – Auckland? Sounds insane.

But is it really? Houston is a huge operation for Continental and it provides one stop service to Auckland for many places around the midwest and south that can’t get there today. In addition, as a Star Alliance member, Continental can feed people into the Air New Zealand network in Auckland, so there are good opportunities on both sides.

So if it sounds so good, why wasn’t it flown before? It wasn’t really an option. Sure, you could have slapped a 747 on the route, but that’s a huge airplane and it would have bled badly.

A 767 might be the right size, but you’ll inconveniently run out of gas somewhere over the vast Pacific. That’s probably not a sound business strategy.

Enter the 787. This bad boy gives you 747 range in a 767 body. So routes like Houston to Auckland become possible when they really weren’t an option before.

Now why the heck is Continental announcing this so early? It probably is looking to drum up merger support. After all, it does say in the release:

On May 3, Continental announced that it has agreed to merge with United Airlines in a merger of equals to create the world’s leading airline. The success of the Houston-Auckland route will be enhanced by the additional traffic flows through Houston that are expected to result from the merger.

So I suppose there’s no guarantee that this will ever start, but I’d like to think it will. Hopefully this will be a good example of what we can look forward to when more 787s start flying. Smaller cities will be able to have nonstop flights to cities that previously wouldn’t have been considered or even possible. That’s a great thing.

[Original photo via Flickr user geoftheref]

Southwest Airlines’ March Meltdown — Less Than Meets the Eye – BNET
Southwest had a rough March, but it hardly means that things are heading south.

How will the new United-Continental treat customers? – Cleveland Plain Dealer
I talked about some of the issues that the combined United/Continental will face (in the infobox) on the side.

AirTran-Frontier: Once Friendly Airlines Are Now Kicking, Gouging Eyes -BNET
The hammer has finally dropped. The once-cozy AirTran-Frontier deal is now over. It’s been fun to watch the fight.

spice up your flight – antibride.com
If you’re traveling for your wedding, it can’t hurt to try to get some perks.

Mesa Air Group Loses Battle with Delta, and US Airways Must be Smiling – BNET
Mesa’s contract with Delta is toast, and that means US Airways has even more leverage.

Spirit Airlines: Why a Threatened Pilot Strike Could Take the Company Down – BNET
Not quite as dramatic as the title would suggest, but a strike threat at Spirit is a bigger deal than at a larger airline.

United-Continental Merger: Continental Is Taking the Reins, No Question – BNET
Another clue about the leadership team at United/Continental is out there. There is no trace of United President John Tague on the integration team.

United-Continental Merger: A Good Fit (If It Happens), but Cleveland Won’t Like It – BNET
It’s merger time and now it’s time to start picking off the winners and losers. Let’s start here with the cities at risk.

The Mike Siegel Show (radio – MP3 file) – Business Talk Radio Network
I spent more than half an hour talking with Mike Siegel about the proposed Continental/United merger and about Cranky Concierge (starts at the 18 minute mark).

United-Continental Merger: Will Regulators Approve? They Should – BNET
Everyone wants to know if this will get federal approval. It should.

united and continental get married – antibride.com
Writing for a wedding site, I couldn’t resist drawing parallels between a wedding and a merger.

Slot Swap Ruling Demonstrates Hostile Washington Climate for Airlines – BNET
Now that the final order has been issued on the Delta/US Airways slot swap, we might have a window into how things will go for United/Continental.

Why the Volcano Airspace Shutdown Was Actually an Overreaction – BNET
At the Phoenix symposium, I had the chance to hear BA CEO Willie Walsh go on a rant about why the airspace shouldn’t have been closed. I find myself starting to agree.

Why Japan is the Most Interesting Aviation Market in the World – BNET
It’s incredible when you think about all the changes happening in Japan right now. I spoke with ANA’s Director of International and Regulatory Affairs about the challenges ahead.

Here’s what we know (and it’s not much). Continental and United will merge into a single brand. The brand will be called United, but everything else will be Continental including the logo, aircraft livery, and general branding. The headquarters will be in Chicago where United is currently based. (This was apparently a condition of the deal, otherwise I’m sure it wouldn’t have been this way.) Continental CEO Jeff Smisek will run the show while United CEO Glenn Tilton will sit up top as Chairman for two years, but probably won’t actually be doing anything. He’ll just get to hang out with his cool-guy title and count all the money he’s made over the last few years.

Really, that’s about all we know. Here are a list of questions that I’d like answered, but I’m sure that won’t happen for a long, long time.

• Will they keep Economy Plus?
• Will they keep international First Class?
• Will their labor groups figure out an integration plan before the America West/US Airways pilots do?
• Will Channel 9 survive the merger?
• Will any United execs other than Tilton be asked to stay?
• If not, which small island country will they buy for their retirement?
• How long will it be before the Cleveland hub disappears?
• What will they do for inflight entertainment?
• Did United really just use US Airways to get Continental back to the table?

I’m sure you have more questions, but we just aren’t going to get any answers for awhile. Though talks had been on and off for some time, this latest round was quick and dirty. I think they just had their checklist of big things to figure out and assumed everything else would work itself out later. Apparently, the pilot integration wasn’t on that list, because that still has to be decided.

Labor will be a big issue here because the cultures at the two airlines are so different. I mean, I hear that people at Continental sometimes even enjoy their jobs. Crazy, right? But the work rules are pretty different and there will be some issues as they try to come together, that’s for sure.

This should be very good news for front line United folks. They’ll finally have a leadership team that’s interested in running an airline instead of prettying one up until someone else decided to come along and buy it. But for Continental people, it’s a mixed bag. They should be able to make some gains in some areas, but having that headquarters move to Chicago threatens the strong culture that has helped Continental succeed in the last 15 years. I’d be cautiously optimistic if I were at Continental, but I’d have a lot of concerns.

Who else will love this merger? No, not US Airways. They’re pretty mad. I was thinking about Walter T. Varney. Who? In 1925, Walter started Varney Air Service in Pasco, Washington. He sold it in 1930 to United Aircraft and Transport which became United Air Lines in 1933. In 1934, he founded Varney Speed Lines in El Paso, Texas. He got out within a year, but in 1937, the airline would become Continental. Can you imagine what he would think if he saw his two airlines become the largest in the world?

I like this merger a lot from a United perspective, especially if it means fresh blood at the top. For Continental, it’s a bit more of a question mark. If done right, this should be a rock star merger. Now let’s just see if they can avoid screwing it up.