"Change in Dallas airport rules would mean big changes for air-travel industry"

Tuesday, November 16, 2004

Change in Dallas airport rules would mean big changes for air-travel
industry
The Fort Worth (TX) Star-Telegram


It would be the biggest change in the North Texas air travel industry in
decades.

The elimination of federal rules barring long-distance flights from Dallas
Love Field -- the Wright Amendment -- would lead to cheaper fares and more
choices for consumers, potentially driving more passengers to Southwest
Airlines.

But a change might also drain passengers and money away from Dallas/Fort
Worth Airport -- at least in the short term. And it would no doubt have a
major effect on American Airlines, costing the carrier hundreds of millions
of dollars every year.

"It would be the atomic bomb," said Tom Parsons, chief executive of
Bestfares.com, an Arlington-based Internet travel firm. "It's hard to
overstate what a difference it would make."

Since Friday, industry observers have been buzzing over the state of the
Wright Amendment, which limits flights at Love Field to Texas and seven
nearby states.

The uproar was sparked when Gary Kelly, Southwest's chief executive, said
the 25-year-old law was outdated and bad for consumers, and that he would
welcome efforts to change or repeal it.

Southwest, which, since its inception, has flown from Love, refuses to
operate at D/FW because executives say the airport is too congested for
their low-cost business model.

Kelly's comments were a significant break from Southwest's long-standing
"neutrality" on the law. Some interpreted his statements as a signal that
Southwest is ready to fight for the law's repeal, although Kelly wouldn't
say whether that was the case.

It's unclear whether any real effort to unwind the law, which would take an
act of Congress, is imminent. But some analysts suggested Monday that
consumers' growing appetite for cheap fares will eventually spell the end
for the protections.

"It's not going to last forever," said Stuart Klaskin, an airline consultant
with Klaskin, Kushner & Co. in Coral Gables, Fla. "People are probably
thinking, if not now, when?"

Fort Worth-based American has the most to lose if the Wright Amendment
vanishes, according to analysts.

Daniel McKenzie, an airline analyst with Smith, Barney in New York,
estimates that the lack of low-fare competition brings American at least
$275 million in extra revenue from D/FW every year.

He calls that a conservative estimate, and other industry observers believe
that the number could be far higher. Klaskin said American may get a $400
million to $500 million premium at D/FW thanks to the Wright Amendment.

American wouldn't necessarily lose all of that because it's unlikely that
Southwest would offer low-fare flights to every American destination. But on
competing routes, American would be forced to match Southwest's fares.

American can't afford many more financial hits. Despite a successful
cost-cutting drive, the airline continues to struggle with heavy competition
elsewhere, and high fuel prices have also taken a toll.

The airline lost $374 million in the first three quarters of this year, and
a heavy loss is expected for the fourth quarter.

American executives declined to comment on the potential effect of a repeal.
In a statement last week, they said the amendment continues to be necessary,
and eliminating it would undermine D/FW Airport's success.

D/FW officials insist that eliminating the Wright Amendment would hurt the
airport by luring passengers to Love. They also warn that American and other
carriers would move some flights to Love to compete with Southwest.

Max Wells, chairman of the airport's board, said Friday that Kelly's remarks
could "have a chilling effect on another low-fare carrier entering the
market at D/FW."

The airport is particularly vulnerable now, officials said, because of Delta
Air Lines' decision to unwind its hub there and because the airport added
$2.7 billion in debt for a new terminal and airport train.

Others suggest that the impact won't be as bad as airport executives fear.
Because American would likely match Southwest's fares, the competition could
spur growth at both airports.

McKenzie said lower fares at D/FW could cause traffic to rise by 10 percent,
based on industry data.

Parsons also doubts that American would move many flights to Love.

"They might put some planes there, but too many would disrupt their system
and cause big operational headaches," he said. "I don't think D/FW would be
much of a loser at all in the long run."

Although Love Field would likely benefit from the removal of restrictions,
Kelly cautioned that it wouldn't grow all that much.

He said that Southwest offers 123 daily flights from Love. It offers 139
flights from Houston Hobby Airport, which is unrestricted.

"It's not like Love Field would grow into this gigantic airport operation,
at least not by Southwest standards," he said.

Southwest has cut its capacity at Love by about 17 percent since 2001 as it
expanded elsewhere. The airline recently slashed 10 more flights.

Parsons estimates that Southwest could add all the long-haul service it
needs just by restoring that capacity.

The airport's growth is also restricted. A master plan completed by the city
of Dallas recommends that Love cap its growth at 32 gates -- its present
size -- or about 334,000 flights per year. That still leaves room for
expansion by Southwest or other airlines, because about 16 gates are unused.
Southwest operates 14 gates.

D/FW has 137 gates. American and American Eagle operate 88, with about 720
daily flights.

"Love Field is a pretty small airport compared to D/FW," Kelly said. "I
don't know that D/FW needs protection any longer."

Southwest Airlines stock rose 10 cents Monday to close at $16.10 per share,
a 1 percent increase. Stock in American Airlines increased 32 cents, or 3
percent, to close at $9.73 per share.


 Do you have an opinion about this story?
Share it with other readers in our CAA Discussion Forums

http://www.californiaaviation.org/dcfp/dcboard.php


*****************************************