UPDATE: Delta, US Air To Swap Slots, Expand Domestic Service

US Airways Group Inc. (LCC) and Delta Air Lines Inc. (DAL) plan to swap 167 pairs of take-off and landing slots at two of the nation's most congested airports, with each airline adding service to small U.S. cities.

The move comes as U.S. airlines have cut capacity to cope with a decline in both business and leisure travel.

At the same time, airlines are coming under increasing scrutiny from U.S. regulators, especially at New York's LaGuardia, where slots for each take-off and landing are tightly controlled by the Federal Aviation Administration.

The proposal would more than double Delta's non-stop flights at LaGuardia, adding 125 slots, and essentially forming a hub for domestic flights. Delta, the world's biggest airline, already operates an international hub out of New York's John F. Kennedy International Airport.

Delta declined to comment on how profitable it expects the transaction to be, a spokesman said Wednesday. The carrier plans to add service to more than 30 small and medium-sized markets.

US Airways will get 42 pairs of slots at Ronald Reagan Washington National Airport, now operated by Delta. It will also acquire rights to fly to two new markets, Tokyo and Sao Paulo. Delta said the loss of those slots won't affect passenger service.

US Airways will keep a "significant" presence at LaGuardia, the low-cost carrier said, remaining as the third-largest airline there. But it plans to cut 300 jobs at its regional airline subsidiary, Piedmont Airlines, eliminating Express flights. The move is expected to boost US Airways' bottom line by more than $75 million annually, Scott Kirby, president, said in a message to employees.

Doug Parker, US Airways' chairman and chief executive, said the deal will add service from Washington, D.C., to smaller communities, serving 15 new locations from Reagan National. It will increase seat capacity by one-third through the new flights and use of larger planes.

The swap at LaGuardia will consolidate all of Delta's operations into an expanded main terminal with 11 extra gates. Chief Executive Richard Anderson said increasing presence in New York is a key part of the airline's long-term strategy. Delta plans to invest $40 million at LaGuardia, once the deal is approved.

Delta spokesman Kent Landers said Delta will ask the FAA to grant a waiver from temporary slot restrictions at LaGuardia. The U.S. Department of Justice and Department of Transportation also need to sign off on the pact.

The airline decided earlier this decade to make New York into a hub, and has made investments in the region to add new routes and expand advertising.

Southwest Airlines Co. (LUV) the largest passenger carrier within the U.S., said earlier this year it would add service to LaGuardia.

Shares of US Airways recently were up 4% at $3.03, while Delta rose 2.4% to $7.19.

- By Ann Keeton, Dow Jones Newswires; 312-750-4120; [e-mail]