Is Wright Wrong?

American Airlines and Southwest Airlines are at war over the law restricting flights out of Love Field. I know who’s right: The customer, as always.

October 2005By Comments

IF THE CIVIC AND BUSINESS LEADERS of Dallas and Fort Worth had gotten their way back in the sixties and seventies, the flight I took to Love Field on a steamy morning in late August would not exist today. Nor would Southwest Airlines, the nation’s largest (in terms of the number of domestic passengers boarded), richest, and most profitable commercial carrier. Every flight headed for the Metroplex—a graceless coinage if ever there was one—would be required to land at Dallas—Fort Worth International Airport, which opened in January 1974 on a plot of prairie between the two major cities that is larger than the island of Manhattan.

It is a familiar story by now that Southwest’s co-founder Herb Kelleher had to wage a twelve-year legal battle, from 1967 to 1979, against DFW’s two namesake cities and two airlines with now-forgotten names, Braniff and Texas International, to keep Love Field open. (Dallas even went so far as to make it a crime to land a commercial aircraft at Love Field.) Twenty times Southwest went to court and twenty times was victorious. No sooner had the final case been decided in its favor, however, than victory was snatched from its grasp by an act of Congress: the once-obscure but now suddenly famous Wright Amendment, fashioned by then—U.S. House majority leader Jim Wright, of Fort Worth, in 1979. The amendment, passed in response to Southwest’s just-inaugurated route between Love Field and New Orleans, restricted interstate flights from Love to the four states that border Texas; the planes could continue to remote destinations but the passengers who embarked at Love Field could not. The legislation addressed the nightmare scenario of the DFW-based airlines that one day Southwest, whose operations were largely limited to Texas at the time, would want to fly long-distance routes from Love that would draw Dallas passengers away from DFW. To retain them, airlines like American would have to start operating flights from Love Field, and the whole idea of a major hub airport that benefited the entire region could begin to unravel.

That day has come. Southwest has mounted a nationwide campaign to repeal the Wright Amendment. Banners supporting the campaign—reading “Wright Is Wrong” and “Set Love Free”—festoon the terminal at Love Field and the employee entrance to Southwest’s headquarters on the west side of the airport. The Wall Street Journal supports repeal. So do the Salt Lake City Chamber of Commerce; the City of Manchester, New Hampshire; and the Nashville Convention and Visitors Bureau. Legislation to that effect has been filed in both houses of Congress. Meanwhile, the opposition—the two cities that operate DFW, the airport board, and American Airlines, which, following the capitulation of Delta, now accounts for 84 percent of the departures from DFW—is mobilizing for a long confrontation that will be fought on three fronts: politics, law, and public relations.

The central issue is a familiar one in American business, particularly in industries that must deal with government regulation: Which is more important, low cost or reliable service? Before you answer “low cost,” consider what can happen when service isn’t reliable (and the cost isn’t low), as was the case in electric deregulation in California. In the airline industry, which was deregulated in 1978, the development of major hubs like DFW, which tend to be dominated by a single carrier, has not been conducive to low fares, but it has brought about a remarkably efficient transportation network. And yet, the airport with the greatest domination by one carrier, Love Field, also has the lowest fares in the country.

To be sure, no airline has profited more from the absence of competition at Love than Southwest. If the fledgling airline was legally barred from competing with DFW’s long-haul carriers, the long-haul carriers couldn’t compete economically with Southwest’s lucrative short-haul routes to Houston, San Antonio, Austin, and other Texas destinations. The amendment gave Southwest what amounted to a monopoly at Love Field, because although any airline could choose to operate flights at Love, the Wright Amendment rules made it impractical and inefficient for them to do so.

For Texans who live far from the Metroplex, the looming battle may not seem to have much impact. But it will. If you live in any of the cities where American provides connecting flights to DFW, the repeal of the Wright Amendment would mean reduced service at your airport. American says it will be forced to shift some flights to Love to compete for its Dallas passengers, leaving fewer flights at DFW to choose from. The biggest positive impact, of course, will be in the Metroplex itself. Southwest brandishes a study showing that if it is allowed to fly to fifteen major markets from Love Field—among them Baltimore, Chicago, Las Vegas, Orlando, and St. Louis—the competition and resulting lower fares could generate almost 3.7 million new passengers, roughly a fourth of whom would have North Texas as their final destination. The annual economic benefit to North Texas could be $1.7 billion. Add in the benefits to the fifteen markets of additional passengers, plus the savings from Southwest’s lower fares, and the “Total Wright Amendment Penalty” (as Southwest puts it) to the United States is $4.2 billion.

But American has an economic argument of its own. DFW is arguably the region’s greatest asset. The airport recently undertook a $2.5 billion capital improvements program and issued $1.46 million in revenue bonds. It is the third-busiest airport in the world, boarding 53 million passengers last year (dwarfing Love’s 2.3 million, as calculated by Southwest). It has stimulated development throughout the midcities region—hotels, malls, corporate headquarters, highways, entire new cities that seem to sprout up overnight. To expose DFW to competition from Love Field puts the North Texas economy at risk. Cities with more than one airport tend to have fewer daily departures and fewer available seats per million people than single-airport cities like Atlanta. As American likes to say, “Airline competition is good. Airport competition is bad.”

To which Southwest replies, “Tiny Love is no threat to mighty DFW.” The rival airlines, both aviation behemoths, have mastered the art of poor-mouthing. “American has $3 billion in unrestricted cash,” Kelleher told me. American’s response: “Southwest has a market capitalization [stock value] of $10 billion, more than all the other airlines combined. Ours is $2.2 billion.” And what of Southwest’s amazing record of showing a profit for 32 consecutive years, including every quarter since September 11, 2001? Kelleher: “We’re only making money because of fuel hedges. This year 85 percent of our fuel is being purchased at $26 a barrel. That hedging is running down. Next year, 65 percent of our fuel will cost $32 a barrel.” (Beats $70, Herb.)

Behind Southwest’s drive to repeal the Wright Amendment are indications that the monopoly at Love is no longer worth what it once was. “Passenger traffic at Love Field has declined significantly since September 11, 2001, as the automobile returned as a serious competitor to the airplane in short-haul markets—the only kind of markets Southwest can serve under the Wright Amendment,” says the airline’s repeal Web site, setlovefree.com. Kindly old American offers Southwest an easy solution: a handy airport where it can fly anywhere it wants to. It’s called DFW, and the Wright Amendment doesn’t apply there. Kelleher scoffs at the suggestion. “American inviting Southwest to DFW is like the spider asking the fly to drop in for a little bite,” he said during an interview. “We turn our planes around in twenty-five minutes. The average taxi time at DFW is twenty-nine minutes. There’s too much downtime.”

If Southwest has no intention of moving to DFW—it turned down the airport’s offer of substantial inducements to pick up Delta’s gates—the same cannot be said of American’s designs on Love Field. An American spokesman told me that the airline will go to court if necessary to challenge the Love Field Master Plan, which limits the number of gates to 32. Perhaps so, but it’s hard to see how American could gear up quickly to challenge Southwest, which has a lock on 21 of the 26 gates that are currently available (though only 14 are in use). Love Field is, to use Kelleher’s word, “tiny” compared with DFW. Infrastructure—access roads and parking, to say nothing of taxiways, baggage areas, security measures, and room for American’s long-haul jumbo jets—is wholly inadequate to support a major expansion of Love Field. And who is going to pay for it? Dallas taxpayers? Not a chance. Southwest? Ditto. American?

One thing American—or Southwest, for that matter—could do is fly regional jets from Love Field to destinations like Las Vegas. The Wright Amendment allows such flights, so long as the planes have no more than 56 seats. But Southwest won’t do it. To keep its costs down, Southwest uses the same kind of airplane, Boeing 737’s, on every route. Furthermore, Kelleher says, the operating costs for regional jets are too high—14 cents per seat mile for a regional jet versus 7 cents a seat mile for Southwest’s 737’s.

So it appears that Southwest is headed for a second political showdown over the Wright Amendment. Kelleher, who is no stranger to political infighting, will pitch his appeal to lawmakers from markets Southwest wants to serve, touting the benefits of lower fares. Most of the North Texas congressional delegation is supportive, with two exceptions: Democrat Eddie Bernice Johnson, whose Dallas congressional district includes neighborhoods near Love Field, and Republican Joe Barton, of Ennis, whose district includes the midcities area, where thousands of American Airlines employees live. Barton is the new Jim Wright, an implacable opponent of anything that could be deemed harmful to DFW and American. Few things are more difficult in politics than passing a law over the objections of a powerful legislator who is protecting his district.

If the fight over the Wright Amendment were simply a case of which side had the better argument, though, Southwest would win. Protectionism has no place in the age of airline deregulation. While repeal could lead to reduced service at DFW, it’s hard to justify having one rule at one airport that keeps one airline from competing. Let the market rule.

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