JV would have created a formidable competitor to Air Canada and United on transborder routes

Westjet and Delta object to requirement to sell off valuable slots at New York’s La Guardia Airport

Westjet and Delta Air Lines have withdrawn their application for a cross-border joint venture.

“WestJet and Delta Air Lines today withdrew their joint application before the U.S. Department of Transportation for antitrust immunity,” the company said in a blog post late Friday afternoon. “As a result, the airlines will not implement the proposed U.S. – Canada Joint Venture at this time.”

Canada’s Competition Approved the joint venture in 2019. The United States Department of Transportation followed suit last month.

The DOT took two years to issue a so-called ‘show cause order‘ on October 23. In it, the agency gave its blessing and antitrust immunity to the joint venture. However, it ordered the two airlines to divest themselves of 16 slots at New York’s La Guardia Airport. That was one of a number of conditions the airlines found objectionable.

In a scathing filing Friday, Westjet and Delta called the conditions “arbitrary and capricious.”

“Several of the conditions proposed by the Department on its grant of ATI are unreasonable and unacceptable and therefore the Joint Applicants must withdraw their Application,” the airlines wrote in an objection to the DOT’s position.

In particular, the partners objected to a requirement that Westjet sell off all its slots at La Guardia.

“The proposed divestitures in this case are not designed to address any potential reduction of competition arising as a result of the JV,” they wrote. “In fact, the divested slots would almost certainly not even be used to compete with the JV.”

New York is key to the joint venture

In dropping their application, the airlines argued Delta’s hub New York was key to their venture.

“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,” they said.

Because of the pandemic, the partners worried the slots would be sold at fire sale prices.

But the loss of slots at La Guardia was not the partners’ only objection.

The DOT also ruled Westjet ultra low-cost brand Swoop would have to be carved out of the proposal. Swoop recently launched a major move to Toronto, and Westjet saw it as key to the cross-border alliance.

“The carve-out of Swoop and the WestJet Parent would diminish the consumer benefits of the JV,” the filing said. “The Department has never imposed any similar requirement on the [anti-trust immunity] it granted to United/Air Canada/Rouge despite the fact that Air Canada has also operated its own ULCC subsidiary carrier – Rouge – since 2012.”

Westjet also objected to a requirement that it allow connections with other U.S.-based airlines. That condition was imposed as a way to allow smaller carriers access to Westjet’s Canadian network, particularly in Western Canada.

“The requirement that WestJet submit to mandatory interlining with almost any U.S. airline that requested it would impose unjustified administrative burdens and commercial harm on WestJet,” they said. “In effect, this condition would convert WestJet’s Canadian network into a de facto public utility for almost any U.S. carrier as
the price of ATI, forcing WestJet to partner with and provide transborder access to its U.S. competitors, and would create significant and unjustified administrative and financial burdens upon WestJet.”

A formidable competitor

Together, Westjet and Delta would have become a formidable competitor for Air Canada and United, who already have a joint venture together.

Before the pandemic, Air Canada and United held about 57% of the market between Canada and the U.S. Air Canada, in particular, developed a network designed to funnel U.S. passengers through its Canadian hubs and onto overseas destinations.

“The JV would deliver significant public benefits, one of the most compelling of
which would have been that together the Joint Applicants could achieve the critical mass necessary to compete more effectively against the much larger United/Air Canada alliance, which the Department has allowed to operate in the U.S.-Canada transborder markets with ATI for more than twenty years,” Westjet and Delta argued.

Now that they have withdrawn their joint venture application, the path forward is not clear.

“We will explore deepening the alliance through extensive codesharing, joint corporate solutions, and frequent flyer earn and redeem relationships,” said Westjet President and Chief Executive Officer Ed Sims.

“Onward and upward.”