Dallas Love Field: The Wright and Shelby Amendments
Released: 2005-11-09T00:00:00

Economic Issues

The current dispute, as discussed above, has its origins in the 1960s. The new chapter of thislong running discussion is primarily the result of events that have occurred since the Fall of 2004.First, Delta Airlines decided in October 2004 to pull most of its service out of Dallas- Ft. WorthInternational Airport (DFW). Next, DFW asked Southwest Airlines to consider operating longdistance flights out of DFW. Southwest rejected the DFW offer and instead announced in November2004 that it intended to seek legislative relief from the Wright/Shelby Amendments. Thisannouncement ended what was regarded as a long standing truce on this issue between Southwestand DFW. Since November, DFW, joined by other parties such as American Airlines (American),have lobbied extensively in favor of retaining the existing Wright/Shelby restrictions on airlineoperations at Love Field. Southwest, and others, have, at the same time, presented their ownarguments as to why these restrictions should be removed.

This section of the report will discuss the major claims and counterclaims made by each sidein this discussion. The subjects chosen for examination are those most frequently discussed in publicforums on this subject. (48) Additional background information will also be detailed toprovide a context for these discussions.

Until very recently there has been a minimal level of public interest in this issue outside ofthe Dallas-Ft. Worth area. A few articles about the Wright/Shelby Amendments have appeared inthe national press since last November, but they have been few and far between. The aviation tradepress has taken a slightly greater interest, but here too the treatment of the issue dwells primarily onthe local aspects of the issue.

The Dallas-Ft. Worth Aviation Market

The Dallas-Ft. Worth region is served by one large hub airport, DFW, and one medium hubairport, Love Field. (49) Respectively they rank 4th and 55th nationally in terms of total passenger enplanements. In FY2003,DFW enplaned 24.6 million passengers while enplanements at Love Field stood at around 2.8million. Commercial aircraft operations totaled 751,546 versus 126,313 respectively during thesame period. (50)

Both airports are important components of the regional economy. Each airport can claim tobe the home of one of the nation's 10 largest airlines, with American based at DFW and Southwestbased at Love Field. American is the nation's largest airline having an almost 18% share of the U.S.market in February 2005. (51) Southwest, which controls about 7.5% of the U.S. market, is thenation's most profitable airline, being one of a very small number of airlines that has remainedprofitable throughout the post-September 11th period. Southwest had revenues of $6.5 billion in2004 and a net profit of $313 million. For the same period American had revenues of $18.6 billionand a net loss of $761 million. (52)

American is clearly the dominant air carrier at DFW. In 2003, just over 71% of allpassengers at DFW boarded American and American regional air carrier flights (17,990,193enplanements). (53) Delta, and Delta regional carriers, accounted for about a 17% share of DFW traffic (4,314,445enplanements). The next largest major air carrier share was United Airline's 2%. At Love Field,Southwest had a market share of almost 97% in 2004 (2,945,588 enplanements). (54) Continental Expressaccounted for most of the remaining 3% of passengers. There are no other significant air carriercompetitors at the airport at this time.

Airline Competition in the Dallas-Ft. Worth Market

As can be seen from the above, most of the airline traffic in the regional market is controlledby a small number of air carriers. There are some major differences affecting how these air carriersoperate in the current marketplace, however.

Southwest is the most successful air carrier in the era since deregulation of the industry in1978. It has been corporately based in Dallas for its entire existence. It has also been profitable formost of its existence, which is a rather unique situation in the U.S. airline industry. It has done thisby offering low, or lower, fares, while at the same time maintaining relatively low operating costs.Southwest is the prototypical low cost carrier (LCC) and its operating structure has been imitatedat least to some degree by many new air carriers formed since deregulation (imitating Southwest hasnot guaranteed success, however). For much of the 1980s, Southwest was primarily viewed as aniche carrier with an uncontested regional market based out of Love Field. During the later 1980sand especially in the 1990s, Southwest has expanded dramatically with a route system that becamenational in scope. Southwest does not operate hub-and-spoke service, hence Love Field is notreferred to as a hub. Rather, Southwest operates primarily as a point-to-point air carrier. Becausethe Wright/Shelby Amendments limit direct service from Love Field to 7 states, it has not beenpossible for Southwest to compete directly with DFW-based air carriers in many major nationalairline markets. This does not mean that Southwest travelers originating in Dallas have been unableto reach other Southwest cities such as Baltimore. A passenger can reach these destinations, butcannot be through ticketed and must change planes at some other destination such as New Orleans.

Over time, Southwest has faced very limited competition at Love Field. At the present timethe only other airline providing service from the airport is Express Jet, which is a ContinentalAirline's affiliate. All of this service is between Love Field and Houston Bush International. Becauseof the regional air carrier exemption to the Wright/Shelby Amendments, any service beyond the 7state restriction must be performed by an aircraft with 56 seats or less. The now defunct LegendAirlines unsuccessfully tried to provide service to multiple national destinations in the late 1990s.No airline provides such service at present.

American Airlines is one of the nation's oldest air carriers. It is one of the air carriers knownin industry parlance as a legacy carrier. It operates international service from DFW and otherlocations, and operates multiple hubs - Chicago, Miami, and to a lesser extent New York. FromDFW, American can take a passenger almost anywhere in the world on a single ticket. It providesservice to most major U.S. cities either on American aircraft or on affiliated American regional aircarriers. American was not originally headquartered at DFW, having moved there from New Yorkafter the airport was completed in the mid-1970s. Like most other legacy air carriers, American haslost money consistently since September 11th. At some points in the 1990s and 1980s, however, itwas one of the most financially successful of U.S. air carriers.

Delta has a history similar in many respects to that of American. Its corporate base isAtlanta. Its now reduced foray into DFW met with limited success initially, but, especially sinceSeptember 11th, it has consistently lost money at the airport, according to industry analysts. Otherair carriers at DFW serve the airport primarily as a feeder to their own hub-and-spoke systems, e.g.United service to Chicago or Denver, Continental service to Houston. DFW has sought to encourageservice to the airport by other LCC air carriers such as Airtran and Jet Blue. Airtran has a growingpresence at the airport, but is not yet viewed as a replacement air carrier for Delta's lost service.

Impacts of Delta's Decision to De-hub at DFW

Delta Airlines maintained a hub at DFW airport for some years, but as can be seen from themarket share figures discussed above, it was dramatically smaller than its American counterpart. InOctober 2004, Delta announced that it was restructuring system-wide in order to stave off abankruptcy filing. Delta announced its intention to cut up to 7,000 jobs, reduce wages, close its DFWhub, and make major operating changes throughout the remainder of its system. Its DFW hub, nowclosed, ended operation earlier this year. Delta continues to provide service at the airport, thoughat a much more modest level: 21 departures per day versus the 258 departures per day in October2004. In its new configuration, Delta now uses 4 gates at the airport versus the 28 it previouslyoccupied.

Since deregulation began in 1978 there have been several instances in which more than oneairline tried to operate a hub at the same airport. In most instances these multiple airline hubs, forexample, Miami and St. Louis, have either become single airline hubs (Miami) or stopped beinghubs altogether (St. Louis). A very few multiple airline hubs still exist, e.g. Chicago O'Hare andAtlanta Hartsfield Jackson. Many airline industry observers believed from the establishment of itshub at DFW that Delta would be unable to compete with American on its home turf. They expected,correctly, that Delta would eventually scale down or abandon its hub at DFW.

Delta's withdrawal comes at what the airport views as an inopportune time. DFW is currentlyconstructing/completing several major capital projects, including a new international terminal ($1.09billion) and a new internal people mover system ($885 million). In total, its ongoing capitalimprovement program will cost $2.7 billion and raise airport debt levels to $3.8 billion. Delta'spresence had been an important part of DFW's decision to initiate its capital improvement programand Delta's landing fees and other related revenues were expected to make a major contribution topaying off the bond issues floated to pay for the improvements. DFW now expects that thewithdrawal of Delta will decrease its revenue stream by $50 million annually and that it will needto find new revenues to compensate for this loss in order to avoid problems paying off its debts.

DFW's Incentive Plan to Attract New Air Carrier Service

In January 2005, DFW announced that it would provide significant financial incentives foran air carrier willing to initiate new service at the airport and take over at least 10 of the gates madeavailable by Delta's departure. These incentives included a year's free rent on airport facilities andup to $22 million in other aid. To date there have been no takers. DFW contends that Southwest'smove to eliminate the Wright/Shelby Amendments is a major reason for this situation. DFWcontends that no carrier is currently willing to take a gamble until there is some certainty about thefuture of the Wright/Shelby Amendments.

DFW's argument could explain some of the reluctance of new carriers to locate at the airport,but does not take into consideration other factors that might be more important in the market at themoment. The current financial state of the airline industry makes it almost impossible for all but afew LCCs to significantly expand service to new airports. At the moment, no legacy airline is knownto be contemplating the creation of a new hub. LCCs, as mentioned earlier, do not normally createhubs. The DFW argument also fails to fully acknowledge American's competitive position at theairport. American has always been a fierce competitor and is likely to remain one, its financialproblems notwithstanding. There are not many airlines who are willing to compete head-to-headwith American's well established hub at the airport, especially when they have other options.

Airport Competition in the Dallas - Ft. Worth Market

There are a number of major cities that have more than one major airport successfullyoperating in relative proximity to each other. Examples include Chicago, New York, Los Angeles,San Francisco/Oakland/San Jose, Washington/Baltimore, and Houston. Southwest contends that thisnational experience could easily be replicated in the Dallas Ft.Worth region and that any negativeeffects on DFW of increasing flights out of Love Field would be of relatively short duration asregional growth continued to create new opportunities for both airports.

DFW goes to some length in its briefing materials to argue that the Houston model inparticular would be a bad model for the Dallas-Ft. Worth region. DFW argues that it alreadyprovides more service out of DFW alone than Houston does out of two airports. It also argues thatits fares are as low, and in some cases are lower, than those prevalent in the Houston region. Again,DFW repeats the argument that it would be inefficient for the region's resources to be split betweentwo airports.

Competing Economic Impact Studies

DFW Initiated Work. As part of its presentationon why the Wright/Shelby amendments need to be retained, DFW hired economists at the Universityof North Texas to perform an economic analysis of what the Delta hub closure means to the airportand the local economy. (55) The specific findings of this analysis are that the Delta pulloutwill result in a $782 million per year decrease in regional economic activity, the loss of more than7,000 jobs, a decrease in wages and salaries of $344 million per year, an annual loss of tax and otherrevenues collected by state and local governments of $58 million, and, in 2005, a $35 million lossto the airport as a result of diminished landing fees, concession fees, etc. The authors conclude theirassessment by stating that:

...the airport will be severely pressed to fill the 24 gatesleft vacant by Delta. Given Southwest Airlines' decision not to move flights to DFW, and thereluctance of other discount carriers to serve DFW with Southwest making noises about expandingservice from Love Field, it may be many years before DFW's gates and terminals are fullyutilized. (56)

The type of economic analysis utilized by the authors, input-output analysis, is a standard toolemployed to show the benefit or loss that might accrue to a community as a result of some sort ofaction. For example, new stadium and other large public works project proposals are frequentlyaccompanied by economic analyses of this type. It is not uncommon for opponents of stadiums, etc.to hire their own economists to provide an alternative view using the same basic methodology,which, as will be seen in the next section, is the situation here.

As is sometimes the case, the assumptions that go into the input-output process are oftenquestioned. For example, some of the observations in the report, while sounding quite dramatic,are much less so when put in the perspective of the greater regional economy. The Dallas-Ft. Worthregion had total wage and salary disbursements in 2003 of $116.4 billion. (57) This represents a year overyear increase of $524 million, or roughly a 0.5% increase over the previous year's level. The $344million in wages and salaries associated with Delta's pullback equates to less then 3/10ths of onepercent of total local salaries and wages. Less than eight months' growth in the regional economyat current growth rates would, therefore, overshadow the regional effects of Delta's departure(individuals and businesses, however, may continue to suffer from the pullout for a much longerperiod).

DFW commissioned a second study by aviation consulting firm SH&E that focuses on howaviation activity in the region might change as a result of repeal of the Wright/Shelby amendments. The study does not express its findings in dollar terms, but rather tries to demonstrate that repealwould redistribute air service in a manner that would be bad for DFW and for the regional economy. This second study works from the premise that Southwest would greatly expand its activity at LoveField to major destinations outside of the seven states to which service is currently restricted undertwo growth scenarios. (58) The study, assuming a worst case outcome from the perspective of DFW, presents several majorfindings, among these are: that air traffic at Love Field could triple, (59) that international trafficat DFW would be reduced, that the number of domestic destinations served from DFW would alsobe reduced, and that DFW would lose up to 35% of its annual passengers. Against this backdropSH&E comes to the conclusion that the best option for the region would be the retention of theWright/Shelby amendments because it would concentrate future aviation growth at DFW whereinfrastructure is readily available. Otherwise SH&E predicts DFW would be underutilized withsignificant financial implications for the region, which at the same time might need to pay forexpensive new public infrastructure at Love Field.

There are many assumptions in the SH&E study that can be questioned, which is the normalsituation for a study of this type. One assumption open to question is the prediction that Americanand other DFW-based airlines can only compete with Southwest successfully by moving and/orcreating new service at Love Field. Although certainly possible, this would seem to be in conflictwith the experience in other multi-airport metropolitan areas where airlines successfully competeusing different airports.

Southwest Airlines Initiated Work. Southwesthas contracted for its own study of the effects of repealing the Wright/Shelby amendments. Thestudy by the Campbell-Hill Aviation Group takes a very different approach from the DFW initiatedstudies. (60)

Campbell-Hill contends that the Wright/Shelby amendments impose an economic penalty on NorthTexas of $2.4 billion and on the nation as a whole of $4.2 billion. This penalty, in the view of thestudy's authors, is the result of limited competition at DFW that results in above market fares tomany destinations. The figures in the study are derived from a detailed regression analysis thatassumes that Southwest would be able to compete in 15 city-pair markets from which it is currentlyexcluded. A Southwest able to compete in the regional market, it is assumed, will offer lower faresin these city-pairs then those currently available at DFW from American or other airlines. The studyalso assumes that lower fares will attract considerable new airline traffic to North Texas and thateach visitor will have a positive economic for the region as a whole.

There are of course several issues that a study of this type cannot and is not designed toanswer. For example, the study does not discuss the issue of offsetting investments in new infrastructure that might accrue to facilitate this increased traffic, especially at Love Field.

American Airlines Initiated Work. AmericanAirlines' has also commissioned a study supporting the DFW position. (61) The study, done by EclatConsulting, suggests that the Southwest supported Campbell-Hill study is flawed and considerablyoverstates the regional benefits of increased Southwest service at Love Field. Eliminating theWright/Shelby restrictions would, also in this view, cause significant changes in American's DFWhub system and lead to reduced/eliminated service to numerous small cities and some internationaldestinations. As with the other studies mentioned above, the authors of this report made a numberof assumptions as a basis for analysis. Primary among them in this case is that American wouldmove a significant amount of service from DFW to Love Field.

All of the above mentioned studies provide insights into the relative merits and demerits ofrepealing the Wright/Shelby amendments. None, however, give a complete picture and each is builton assumptions that can and will be called into question.

Potential Impacts of Repeal on DFW

DFW is legitimately concerned that it will have a tough time paying off its bondedindebtedness if it loses airline service as a result of a Wright/Shelby restriction repeal. It is, asdiscussed earlier, a principal argument made by the airport for retention of the restrictions. Whetherthese effects would be short-term or long-term in nature, however, is debatable. Also debatable iswhether DFW's potential financial plight vis-a-vis Love Field should be a matter of congressionalconcern.

In the last two decades numerous airports have seen large reductions in air service. In someinstances the reductions were far greater then what appears to be the case at DFW. Several airports,for example, have lost a hub carrier. Atlanta and Miami both went through some rough times afterthe collapse of Eastern Airlines. Indianapolis is currently dealing with the loss of ATA as a majorpresence at the airport. Many other examples could be detailed. The experience in each case hasbeen similar. There have been no major bond failures at any of these airports. In most majormarkets, replacement air carriers, or growth by the incumbent air carrier, has over time, restored theairport to economic health. In light of the experience of other cities, DFW would not be expected toexperience serious long-term economic repercussions as a result of the dynamic nature of theDallas-Ft. Worth regional marketplace. In the short-term, however, DFW may go through some hardtimes.

The biggest threat to the financial health of DFW is the long-term financial health ofAmerican Airlines. American is not just the largest air carrier at the airport, its route system and itsfuture aspirations are largely the rationale for much of the infrastructure at the airport. As suggestedabove, the move of a significant number of American flights to Love Field would hurt DFWfinancially. An American business failure would have much more serious repercussions. It couldbe argued, therefore, that DFW's campaign to save the Wright/Shelby Amendments is as muchconcerned with protecting American's market position as it is with trying to retain its overallpreeminent position in the North Texas aviation market. And from the airport's perspective this isa common sense position.

Potential Impacts of Repeal on Love Field

A 2001 Master Plan adopted by Love Field limits service to 34 gates, and makes no plansfor runway or other airside expansion. Love Field is physically constrained by surroundingdevelopment that includes several residential neighborhoods. Noise issues are important to the localcommunity and noise concerns played an important role in the adoption of the Master Plan.

Southwest contends that its potential expansion of service at Love Field can be easily handledwithin the context of the Master Plan. Further, they contend that their fleet of relatively quiet Boeing737-700 aircraft ensures that increased noise will not be a factor in any ramp-up of service.Southwest has consistently stated that it welcomes new competitors at the airport, so long aseveryone has to abide by the same rules.

Unclear, however, is how a relaxation of the Wright/Shelby Amendments might play outamongst Southwest's competitors. American has suggested that termination of the existingrestrictions would force them to open a hub at Love Field as a competitive response. (62) American perceives,possibly correctly, that it could lose significant amounts of Dallas originating traffic if Southwestwere able to provide national service from the downtown airport without direct competition.American currently owns three gates at Love Field although it does not use them. At this point it isfar from clear whether American could in fact create a parallel, but smaller hub operation at LoveField. By their own admission, serving two airports in close proximity would be inefficient. Sucha move could certainly have at least short-term negative financial implications for DFW.

So far, no other major air carrier has publicly stated an intention to serve Love Field ifrestrictions are withdrawn. Many industry observers would question the idea that some carrier wouldwant to go head-to-head with Southwest on its home turf. More likely is that additional airlinesmight wish to add regional or even large jet service at the airport to serve their own hub-and-spokeor point-to-point route systems.

American contends in its statements that it views the Love Field Master Plan as moot in theevent of a Wright/Shelby repeal. This is not a view shared by either Southwest or the City of Dallas. It is likely that this issue would become very important locally in the event that the Amendmentswere repealed. As mentioned above, there is considerable sensitivity in the surroundingcommunities to increased noise and other activities at and around the airport. As a result, theremight be considerable local opposition to the increase in airport activity that might accompanyAmendment repeal.

Local Reaction to a Proposed Wright/Shelby Repeal

The large populations of American and Southwest employees in the region, by itself, almostguarantees that this subject will generate considerable local debate. It is not surprising, therefore,that regional opinions appear to be mixed. A perusal of the websites created by DFW and Southwestto promote their respective positions details local support for both protagonist's positions. (63) Local newspapers havealso weighed in on the subject, providing extensive coverage of the debate over Wright/Shelby. (64) Again, coverage wouldseem to indicate that broad consensus on the question of repeal is absent.

Local politicians are also weighing in on the subject. Notably, the Mayor of Dallas nowseems to be seeking an as of yet undefined compromise on the issue. (65)

In addition, Members of the region's congressional delegation are weighing in on the subject, withtwo Members supporting repeal and several others opposing the idea.

Prospects for Congressional Action

In the 108th Congress, several members of the Tennessee congressional delegation introducedlegislation that would have allowed direct air service between Love Field and airports in Tennessee( H.R. 5187 ). The bill received no further congressional consideration. Comparablelegislation has now been introduced in the 109th Congress ( H.R. 2932 , RepresentativeMarsha Blackburn, June 16, 2005). The bill has been referred to the House Committee onTransportation and Infrastructure, Subcommittee on Aviation. At this point no further action on thelegislation has been taken.

Legislation that would repeal the Wright/Shelby Amendments has been introduced in the109th Congress ( H.R. 2646 , Representative Jeb Hensarling, May 26, 2005). Thislegislation has also been referred to the Subcommittee on Aviation. No further action on thelegislation has been taken.

As of this writing, three pieces of legislation have been introduced in the Senate that wouldimpact the Wright/Shelby Amendments. The first of these would have the practical effect ofeliminating the existing restrictions, but does so, not by repealing the Wright/Shelby Amendments,but by amending the existing provisions to include the 43 states not currently named in theAmendments as allowable service points (Puerto Rico is also added)( S. 1424 , SenatorJohn Ensign, July 19, 2005). A second bill, opposed to lifting the Wright/Shelby restrictions, wouldrequire the closure of Love Field three years after the date of enactment ( S. 1425 ,Senator James Inhofe, July 19, 2005) (66) . A final piece of legislation is a provision in the Senate-passedversion of the Transportation, Treasury, the Judiciary, Housing and Urban Development, and RelatedAgencies Appropriations Bill, 2006 ( H.R. 3058 as amended, October 20, 2005). Thisprovision would appear to permanently add Missouri to the existing list of states eligible for directservice to Love Field.

The Senate Committee on Commerce, Science and Transportation has scheduled a November10, 2005 Hearing on the Love Field dispute. It is unclear whether action, other then on theappropriations bill, will be take on any of these bills during the remainder of the 1st Session of the109th Congress. It is unknown whether the Senate appropriation's provision concerning Love Fieldwill survive, or be modified by, the Conference Committee considering the legislation.

In its November 2005 announcement, Southwest contended that H.R. 5187 inthe 108th Congress clearly showed a desire on the part of Congress to expand direct service to LoveField beyond the 7 states allowed service by the Wright/Shelby Amendments. Southwest believesthat the legislation introduced in the 109th Congress, excluding S. 1425 , bolsters thisposition. Southwest also contends that the departure of Delta from the regional market provided aneed for additional service in the market, especially low fare service, and that with relief from theWright/Shelby restrictions, Southwest is in the best position to provide it.

DFW, obviously, takes a very different view. From their perspective, Southwest should either offer long distance service from DFW, or live with the Wright/Shelby Amendmentrestrictions. Giving Southwest authority to fly beyond the seven states it can now serve would, intheir opinion, have a chilling effect on DFW's ability to attract new air carriers to replace Delta. Byextension, such a move could also diminish the economic vibrancy of the airport and the region(Love Field, in this view, is not seen as a regional asset, but rather as a Dallas City asset).

The DFW arguments are primarily couched in the politics, legalities, and history of theregional compact that created the airport that are discussed more fully earlier in this report. Therationales for retaining the Amendments are primarily of local interest and origin, e.g. protectinginvestments and markets at DFW. Many industry observers, including some outside the Dallas/Ft.Worth region, believe that Wright/Shelby repeal or modification is a local issue, and should bedecided in the context of local aviation needs.

Since its 1978 deregulation, the airline industry has become very competitive. Airlines moveservice in and out of airports as their marketing strategies change. This is mostly done irrespectiveof the financial and other needs of the airports they serve. There are still a few other airports withoperating restrictions; Reagan Washington National and New York La Guardia are the two mostcommonly mentioned. But the restrictions in each instance are far less constraining than they areat Love Field, and the reasons for these restrictions are completely unrelated to those at issue here. The rationale for removing Wright/Shelby restrictions, therefore, is the rationale for deregulation inthe first place: the unrestricted flow of air commerce. A question for policymakers, then, is shouldthe exceptions to deregulation that are the Wright/Shelby Amendments be retained in the context ofthe existing national aviation system or should local concerns be the primary determinant as to thedesirability of repeal and/or modification?