by Michael Lowrey
The DOT is currently holding a proceeding to award more rights to fly to Brazil. At this stage, only right to Sao Paulo (GRU), Brazil’s largest market, are really at issue. Before we get to the specifics, a brief recap.
• Through 2008, the U.S.-Brazil bilateral was pretty restrictive. It allowed only four U.S. airlines (American, Continental, Delta, United) to fly to Brazil and then only for a combined total of 105 flight a week (=15 a day if they were held by airlines in multiples of seven; they aren’t, thus it’s best to talk about flights per week.) These rights though are unlimited in that they can be used to any Brazilian airport.
• In 2009 and 2010, the U.S. and Brazil slightly expanded the treaty, scrapping the limit on airlines and adding 28 new weekly flights. There was only one limit: these new rights couldn’t be used to Sao Paulo. US Airways was awarded seven of these rights to start service to Rio de Janeiro (GIG), Brazil’s second largest market.
US Airways also wanted to add flights to Sao Paulo, which meant acquiring some of those earlier unlimited rights. They used two different approaches to try to do this: renting rights from United (they had seven that they only used sparsely throughout the year for Washington, DC – Rio) and from Delta as part of the slot swap deal. The deal with United expires in spring 2015 while under the final version of the slot swap, Delta is to give US Airways seven weekly rights to make up for those. US Airways, after finally accepting that they were going to get horrible landing and takeoff times at GRU, will begin Sao Pulo service in June.
• In 2011, the U.S. and Brazil agreed to an “open skies agreement”, eliminating all restriction on the number of flights from fall 2015 on. From 2011 through 2014, more flights would be allowed between the two countries. The 2013 and 2014 expansions include 14 extra weekly Sao Paulo flights per year.
Which brings us to the 2013 and 2014 Sao Paulo applications. Note that American Airlines and US Airways are still considered separate entities for purposes of this route award:
• American Airlines: 7 weekly to Los Angeles (2013), 7 weekly Chicago (2014)
• United: did not apply
• Delta: Atlanta (second daily, 2013), New York (second daily, 2013), Detroit (2014): “In its filing, Delta also requested approval to continue its daily nonstop service between its hub in Detroit and Sao Paulo. Delta’s right to operate that flight will transfer to US Airways in 2015 as part of a previously approved slot transaction that allowed Delta to expand at LaGuardia Airport in New York.”
• US Airways:
US Airways… filed an application with the U.S. Department of Transportation (DOT) for the rights to operate daily, year-round service between the airline’s hubs in Charlotte, N.C., and Philadelphia, and Sao Paulo, Brazil. US Airways will begin service between Charlotte and Sao Paulo on June 8 using frequencies leased from another carrier. An award of rights for Charlotte – Sao Paulo flights will ensure US Airways avoids a service interruption due to the frequency lease terminating prior to Open Skies between the United States and Brazil commencing in 2015.
US Airways’ proposed service between Philadelphia and Sao Paulo would be the airline’s third daily flight to South America and would complement its existing service to Sao Paulo and Rio de Janeiro from its Charlotte hub.
So kind of a feeding frenzy for Sao Paulo rights.
Analysis: So what exactly is going on here? Best guess is that the American Airlines/US Airways merger, if completed, would void the lease of GRU rights from United, hence the need to apply now for rights from CLT. And I’m sure Delta isn’t happy about this. And it’s very unclear what United would do with the rights it would get back, if anything. Of course, international rights are in theory use or loss, so if they didn’t use them, another airline could ask the DOT to strip them of the rights. All fun stuff for the DOT to sort through both at the route award stage (in the next couple months) and then probably again later this year as it crafts antitrust requirements for approving the merger.
Ordinarily, US Airways, as the small guy, would be favored in route proceedings. American Airlines, as the 800-pound ape to South America, gets additional rights only if there aren’t any reasonable bids by anyone else. Which could mean that US Airways could get right which the combined carrier may lose as a condition of the merger being approved. So the decision as to where the combined carrier would service Sao Paulo from could come sooner rather than later — New York, Miami, and Dallas (all with existing service) are givens — but maybe only two of Charlotte, Chicago, Los Angeles, and Philly can have GRU service before late 2015. And maybe only one of those four cities gets service this year.
No one applied for more Rio rights (28 available). Not sure which way that cuts for the existing CLT-GIG flight. The Philly-GRU application, if granted and the AA/US merger fails through, would severely reduce the possibility of additional intercontinental flights from CLT until late this decade as it ties up two widebodies.