Link to story in Washington Post
Low-Fare, and Now No-Fair
By Steven Pearlstein
Friday, July 28, 2006; Page D01
It’s been one of the longest-running David and Goliath stories in American business.
Back in 1971, a scrappy, low-fare airline named Southwest started service from Dallas’s Love Field, challenging American Airlines on its home turf and turning its back on the big new Dallas-Fort Worth International Airport, the pet project of the region’s political and business establishment. Years of litigation ensued as American and DFW tried in vain to use the courts to deny Southwest access to Love Field. Then Jim Wright, a Texas congressman and the House majority leader at the time, attached a tiny little rider to an unrelated piece of legislation that limited flights from Love Field to destinations in Texas and four surrounding states.
Southwest soldiered on anyway, growing from its Dallas roots to revolutionize American commercial aviation with cheap airfares from other “secondary” airports.
But the Wright amendment always stuck in the craw of Southwest’s Herb Kelleher. So two years ago, the airline’s chairman launched an advertising and lobbying blitz to get it repealed – “Wright is wrong” was the catchy slogan. The public began to get behind it, and some members of Congress took notice – among them Sen. Kit Bond of Missouri, who pushed through a little rider of his own adding St. Louis to the list of approved Love Field destinations. Fares between the two cities plunged and traffic soared.
Sensing the ground was shifting, American and the mayors of Dallas and Fort Worth opened discussions with Southwest. Last month, they announced they had finally struck a deal.
The agreement is premised on Congress repealing the Wright amendment in 2014. Under the deal, Love Field would be reduced from 32 to 20 gates, with 16 going to Southwest, the others to American and Continental. In the meantime, Southwest could offer one-stop flights and fares from Love to anywhere it wanted. And to top it off, both American and Southwest agreed, in effect, that they wouldn’t add to the total number of gates in the Dallas region.
It was, certainly, a good deal for American, which managed to put off the biggest threat to its fortress hub at DFW since the Justice Department took it to court in 1999, accusing it of using predatory practices to crush competition there. (That case got thrown out, alas.)
It was also a sweet deal for Southwest, which could add significantly to its Dallas traffic while keeping JetBlue or some new upstart from challenging its domination at Love Field.
Perhaps the biggest winner of all, however, was DFW, which was already reeling from Delta Air Lines’ decision to close its Dallas hub and was desperate not to lose more traffic to Love.
The loser, of course, was the only party with no seat at the negotiating table – namely, consumers. They would have to wait another eight years for full repeal of the Wright amendment, and even then, there would not be the kind of robust competition that has produced airfares elsewhere that are half of what they are in and out of DFW.
Any consumer representative would have immediately recognized the deal for what it was – collusion between two dominant competitors to limit supply, carve up a market and keep out other competitors. In other words, a flagrant violation of antitrust laws. That’s why, when legislation was introduced this month by Texas Sen. Kay Bailey Hutchison to codify the deal, it contained a blanket antitrust exemption.
Normally a free-market Republican, Hutchison defends this deal as a local solution to a seemingly endless local dispute, preferable to anything Washington might come up with. And from a competition standpoint, it’s certainly better than the status quo.
How much better, however, is open to debate. An unnamed staff attorney at the Justice Department’s antitrust division wrote in a review of the legislation that it “narrowly benefits the area’s two dominant airlines at the expense of everyone who would benefit from real competition.”
Meanwhile, several airlines voiced opposition. “We are concerned when any number of carriers get together to decide how big an airport should be and who should operate at that airport,” said Ed Faberman, executive director of the Air Carrier Association of America.
All of this flak has set back Hutchison’s plans to fast-track the legislation through Congress. Rep. James Sensenbrenner, chairman of the House Judiciary Committee, demanded this week that the legislation be referred to his committee rather than brought up on voice vote as uncontroversial. And in the Senate, Vermont Democrat Patrick Leahy promised a parliamentary challenge to Hutchison’s plan to tack it onto an appropriations bill.
Back in Dallas, meanwhile, Southwest is struggling to square its starring role in “Wright Redux” with its image as an evangelist for “unfettered airline competition.” Company officials adamantly reject the idea that the agreement will make it harder for other low-cost carriers to enter the market.
“Any airline that wants to serve the [region] can go to DFW today and fly anywhere they want,” spokesman Ed Stewart explained to the Fort Worth Star-Telegram.
Funny. That’s almost word for word what American used to say in defending the Wright amendment against criticism from Southwest.