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.

Why Delta Airlines Decided to Invade Iceland – BNET Headwinds
Delta’s going to Iceland, just like everyone else. But I don’t think it’s a bad move.

Stressed JetBlue attendant not flying solo – Crain’s New York Business
Crain’s asked me about the now famous JetBlue flight attendant who popped a slide and walked away.

JetBlue’s Stress Test: A Peek at the Secret Fantasy of Every Flight Attendant – BNET Headwinds
I honestly didn’t want to write about this, but the story blew up so fast, that I had to jump in.

Pilot Outsourcing a Tough Challenge for United-Continental Merger – BNET Headwinds
Pilot scope clauses are going to be front and center in the United/Continental merger. Did the SkyWest acquisition of ExpressJet have something to do with that?

JetBlue Plays It Smart (and Serious) After Steven Slater Incident – BNET Headwinds
It’s been an interesting week for JetBlue, and now the airline is talking directly to its employees about the Steven Slater incident. It’s an excellent letter.

US Airways Shows Stellar Operational Improvement, but Nobody Knows It – BNET
US Airways has really done wonders for its operation and that’s great, but nobody else knows about it. They need to work on that.

How JetBlue Tends To Its Brand – BNET
There was a good interview with JetBlue SVP Marty St George about how JetBlue focuses on its brand.

A road trip is a great way to tell a person’s story, as The Cranky Flier proves -Budget Travel
Sean over at Budget Travel had a great review of my newly-released book.

Why Allegiant Shuffles Airports in Ways Most Airlines Wouldn’t Dare – BNET
Allegiant is switching its Idaho Falls flights from LAX to Long Beach. Seems strange, but there is a method to the madness.

American, oneworld Step Closer to Legitimacy with EU Approvals – BNET
The EU has approved the American and BA joint venture along with the BA and Iberia merger.

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.

Last year, Hubert Horan wrote a guest post here on why consolidation over the North Atlantic was bad. Now he’s extended that thought process to oppose the United/Continental merger. In fact, he testified in front of Congress this week and he was kind enough to send me a transcript of what he said.

In short, he argues that these mergers will cause great harm to travelers. I’ve heard that argument before, but it’s never really struck a chord with me until now. His argument breaks down into four pieces.

1) Consumer Welfare Losses From Anti-Competitive Pricing Power Already $5+ Billion and Rising

Hubert argues that since airlines have been granted antitrust immunity over the Atlantic, fares have risen dramatically. This chart says it all:

In 2004, the number of competitors on the North Atlantic decreased, and that led to higher fares. More than just higher fares, it led the Atlantic fares to decouple from the domestic fares that they used to track with. This seems crazy because there was also a dramatic increase in capacity, but it happened and the lower number of competitors are the best way to explain that.

He’s also clear to point out that it’s not the alliances that cause problems but rather the antitrust immunity that allows airlines to coordinate schedules and fares. They were still competitive in regular alliances, but once they started receiving antitrust immunity, competition went down.

2) United/Continental is Part of a Well-Planned, Ongoing Process to Consolidate Virtually All Legacy Network Airlines Into Just Three Competitors That Will Control 80% of US Airline Traffic

Knowing what we know from #1, this shouldn’t make a difference, right? I mean, Continental and United already have antitrust immunity for international flying, so a merger shouldn’t change much. I needed the link between that and domestic flying to understand where the harm would come from. Now I think I understand the argument.

Over the last few years, we’ve seen legacy airlines rush to send their fleets into the international market. Domestically, big markets are covered by the low cost carriers so competition is high, and smaller markets are, well, small. So the big profit potential is internationally for the legacy guys. The problem is that as these airlines grow internationally, they end up squeezing out other competitors from succeeding over the ocean. That in turn makes the domestic network less valuable and that leads us to . . .

3) Domestic Consumers Are Threatened by Weakened, Distorted Competition that Low Cost Carriers Will Not Address; United/Continental Directly Threatens the Independent Survival of US Airways

So here’s where we get into the meat of the argument. Domestically, the low cost carriers are most efficient, and then we see US Airways. (You might remember that they have a cost advantage to make up for their revenue disadvantage, and that means they produce seats more efficiently.) The other legacy carriers continue to grow and dominate the international arena, so they can use those profits to subsidize their domestic operations, but US Airways, despite its greater efficiency, will get squeezed.

US Airways is likely to see reduced feed from partner airlines in this new world. A great deal of US Airways Atlantic traffic comes from Star Alliance partners. Those partners will now be more likely to send traffic via their own joint venture partners, Continental and United because it’s better for them. If Continental and United merge, they can coordinate domestic schedules to make connecting even more efficient within the airline. This leaves US Airways out in the cold and reduces the value of its domestic operation as well.

And that’s why we see US Airways saying that it will merge with someone. It sees the writing on the wall down the road. So that gets us to three legacy competitors.

The low cost carriers will continue to provide great competition on the biggest routes, as they do today, but they have yet to figure out how to compete in smaller cities and internationally. As the legacy carriers bump up their international profits, they can subsidize their domestic operations and be more aggressive with low cost carriers.

Meanwhile, in smaller markets, with less competition, airlines will be less concerned about maintaining service and can cut back to profitable levels. Nobody will step in to fill that void in smaller markets.

But should anyone? I mean, isn’t the point to make airlines healthier? So unprofitable capacity should go away. But . . .

4) Mergers Such as UA/CO and DL/NW Cannot Be Justified on Efficiency/Synergy Grounds and Are Strictly Motivated by the Potential for Increased Anti-Competitive Market Power

In other words, mergers don’t provide increased cost efficiencies or enough “synergies” to make up for the “enormous acquisition and implementation risks.”

Hubert looked at the mergers since deregulation and found only four that were successful. US Airways/America West was because it happened as part of a bankruptcy proceeding which allowed for real gains. The rest happened years ago and were either because two airlines consolidated a hub into one to gain efficiency (TWA and Ozark) or it was a very small, easy integration (Southwest and Morris).

I think this is my favorite quote.

The industry does have financial problems, but those problems will not be solved by suspending the antitrust laws so that mediocre airlines clinging to obsolete business strategies can exercise artificial market power at the expense of consumers and more efficiently run airlines.

Ziiiiiiiiiinnnnnnnngggggggg!

You can read Hubert’s full testimony here and his reponse to Vaughn Cordle’s pro-merger arguments here. I’d recommend digging in, because it’s a good argument.

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.

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.