American Airlines Group Inc. Is Finally Getting Competition in Dallas

For years, American Airlines Group Inc. (NASDAQ: AAL  ) has maintained a dominant position in the Dallas-Fort Worth air travel market. In 2005, Delta Air Lines (NYSE: DAL  ) abandoned its competing hub at the airport, dropping its schedule from 250 daily departures to just 21. 

The only real competition since then has been from Southwest Airlines (NYSE: LUV  ) , which operates one of its larger focus cities at Love Field in Dallas. However, Southwest has been hamstrung for decades by the Wright Amendment, a piece of legislation that limited flights from Love Field to airports in Texas and a few neighboring states.

Southwest Airlines has not been allowed to offer long-haul flights from Dallas... until now.

That's about to change. The Wright Amendment is going away in October, and as a result, Southwest is embarking on a major expansion in Dallas this fall. Southwest will add flights to a variety of large cities, bringing a much needed boost to competition in many key markets.

American's dominance
American Airlines operates its largest hub at Dallas-Fort Worth International Airport, offering more than 750 daily departures. The company boasts that this hub operation accounts for more than 85% of all passenger traffic at the airport. 

Most of the other U.S. carriers that serve Dallas-Fort Worth International Airport merely fly to their own hubs or focus cities. The only airline offering nonstop service to more than a handful of destinations is ultra-low-cost carrier Spirit Airlines (NASDAQ: SAVE  ) . Spirit isn't a significant threat to American at this time, although it could be much more dangerous 10 years from now.

American Airlines dominates the Dallas-Fort Worth market. Source: American Airlines.

While Spirit serves 20 destinations from Dallas on its current schedule, it flies most of those routes just once a day (and less, in some cases). Even where Spirit has two daily flights, it is offering a fraction of American's capacity. The result is that Spirit is stimulating the market (encouraging more people to travel) more than it is taking market share from American.

Finally, some real competition
Southwest Airlines' looming expansion at Love Field changes the calculus for American. Unlike Spirit, Southwest flies most routes several times a day (or more, in some cases!).

On Monday, Southwest announced 15 new routes it will serve from Dallas beginning this fall. The list includes all eight of the carrier's 10 largest focus cities that were not already served nonstop from Dallas. It also includes key business markets like New York's LaGuardia Airport and Washington's Reagan National Airport, and major leisure markets, such as Fort Lauderdale, Tampa, and Orange County (the home of Disneyland). 

Fortunately for American, gate constraints at Love Field will still limit Southwest to around 150-160 daily departures, and its initial schedule for the fall will have only 140 daily departures. That's far short of American's 750 departures, although many of American's flights are on small regional jets, whereas Southwest only flies mainline aircraft.

Moreover, even with 140 daily flights, Southwest can provide a respectable level of service to many of the largest metro areas in the country. Indeed, in most of Southwest's new markets, American has a monopoly or near-monopoly. The addition of a few flights on Southwest could do a lot to keep American "honest" in terms of pricing.

Breaking down the new routes
Southwest's new routes in Dallas can be usefully grouped into three categories: routes where American already faces significant competition, routes where Spirit provides the only current competition, and routes where American has a monopoly.

There are five routes in the first group. Denver, Chicago, Atlanta, Los Angeles, and New York's LaGuardia Airport all have two or three other airlines competing with American today. Spirit flies once or twice daily on all of those routes, and each route is also contested by another legacy carrier. Lastly, the Denver and Los Angeles routes have additional service on Frontier Airlines and Virgin America, respectively.

Seven routes fall into the second group. Spirit flies nonstop to Baltimore-Washington, Las Vegas, Fort Lauderdale, Tampa, Orlando, Phoenix, and San Diego, but it represents American's only direct competition on those routes.

Adding Southwest service will significantly tilt the competitive balance. First, Spirit's infrequent service means it's not really competing for market share with American. Second, choosing between American and Spirit is like walking into a mall and having to choose between Lord & Taylor and a dollar store. The two companies are targeting very different sets of potential customers.

Spirit Airlines does not serve the same clientele as American or Southwest. Source: Spirit Airlines.

Lastly, there are three routes where American has a true monopoly today. First, Southwest will be using some of its newly won gate space at Reagan Airport to offer nonstop service to Dallas Love Field. The proximity of the two airports to Washington, D.C., and downtown Dallas, respectively, could make Southwest an appealing alternative on this route.

Second, for families going to Disneyland, Southwest will add competition on the route to John Wayne Airport in Orange County. While travelers have the alternative of flying to Los Angeles, John Wayne Airport is much more convenient to Disneyland. Third, Southwest will offer the first competing service on the Dallas-Nashville route. 

Foolish bottom line
Southwest's expansion at Love Field this fall will significantly increase the level of competition for American's mega hub at Dallas-Fort Worth International Airport. Southwest's growth at Love Field is limited by gate availability. However, even with this constraint, Southwest will be able to provide 500-1,000 air seats a day to most of the cities on its expansion list.

That will be a significant change for the 10 routes where American either has an outright monopoly today, or only competes with Spirit. Moreover, Southwest may have the capacity to add another 10-20 flights next year if things go well. 

Since Delta closed its Dallas-Fort Worth hub almost 10 years ago, American has benefited from a lack of serious competition at its largest hub. Now that Southwest is finally allowed to offer a full array of flights from Dallas Love Field, Dallas-area fliers are likely to see better prices on flights to major destinations. Meanwhile, American may have to cope with a lower profit margin in Dallas.

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Read/Post Comments (13) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 06, 2014, at 2:51 PM, MaverickFlyer wrote:

    Really? Such a one sided article that is not really fact, as it is innuendo on what is thought to may happen...discerning flyers choose the airline of their choice, and none of my business will ever be given to SW, nor does anyone I know fly SW - they are more of the Spirit model than the AA model - cattle car airline, service going downhill, ratings going downhill, etc - Article interesting, but you spend way too much time saying what SW will do, or plans on doing - when with proper research and investigation - should have printed or even implied what AA will respond with. SW now has the highest labor costs in the industry, upcoming contract issues and such - and AA is not taking the repeal of the Wright Amendment lying down. Your article would have been much more beneficial and factual, if it were balanced. Wasted reading...

  • Report this Comment On February 06, 2014, at 6:26 PM, podofool wrote:

    This article makes it sound as if Southwest was hampered by the Wright Amendment, when the opposite is true. Southwest flourished, with no competition at Love Field. They only flew one kind of plane, the Boeing 737, and had no agreements with any other airline for baggage transfer, ticket acceptance, etc.. I used to work at United Airlines from the late 1980's until 2005, and I know that the major carriers: Continental, Delta, and United, definitely, had gates that remained unused at Love Field, but were ready to be re-opened if the restrictions were abolished. In the last few years, Southwest has really begun to change what made them so unique, and I think that soon they will be just like every other airline. Then they will be on a level playing field, and it will be interesting to see how they fare. They have always been the low-cost, one type of plane, fun airline where the ticket agents hoola-hoop in the lobby. It reminds me of the saying "Be careful what you wish for, you may get it". They seem to want to be like the "big" carriers, but look at what happened to those guys...

  • Report this Comment On February 06, 2014, at 6:52 PM, abramsmm01 wrote:

    Perhaps American takes better care of their Dallas hub customers than they do for those of us on the east coast? My experiences over the past few years flying from New England (including BOS-SFO before that route was relinquished to JetBlue) were filled with delays, cancellations, indifferent service, and a cramped aging fleet. I would gladly choose Southwest when given the chance,

    Spirit, on the other hand, is an airline I will never fly. I'd sooner drive the 24 hours from RI to FL.

    Now getting back to Dallas, the lack of congestion would make Love Field an easy choice.

  • Report this Comment On February 06, 2014, at 7:25 PM, ferdiefor wrote:

    Ten years from now? Anyone who chooses to own any airline stock that long may be doomed to the mistakes of the past. Airlines will be great investments until they are no longer great investments. Any attempt to break the back of the big four (presumably years away) would be a sign of airlines losing their discipline, over-reaching and finally destroying their profits.

    I for one will be long gone.

  • Report this Comment On February 06, 2014, at 8:41 PM, TMFGemHunter wrote:

    @MaverickFlyer: I don't know what you mean by "discerning fliers". Do you pay for your own ticket? Obviously, most people would prefer to fly first/business class on a legacy carrier over Southwest if cost isn't an issue.

    But if you're just talking about flying coach, I think most people would opt for Southwest. I certainly would. I'm not a fan of their open seating policy, but all in all I've found that Southwest provides better customer service for ordinary folks than most carriers, including American. No change fees is also a huge bonus!

    Adam

  • Report this Comment On February 06, 2014, at 9:20 PM, fxcruiser wrote:

    "MaverickFlyer" is probably getting his/her paycheck from the airline that had no qualms about bribing a sleazy,drooling politician to kill off competition! We had a weather event recently (Ice) in Dallas. Got a ticket on SWA....no problem.

    Ticket on "AA"....good luck! The company is riddled with "You-nion" pukes and the worst management you will ever see in any business!

    YOWZA SWA!!

  • Report this Comment On February 07, 2014, at 11:01 PM, MaverickFlyer wrote:

    To Adam, thank you for your comments - and yes, pay for most of my tickets and by discerning flyers, just meaning 'choice' as will always fly a legacy carrier over SW, Spirit, or any other low cost carrier, and will never give any of my business to SW - just a choice, as we all have choices. And when flying first, business or coach - do prefer the 'extra' legroom options, or extended room in coach.

    And to YOWZA SWA! - am glad that you are a SW fan, as we all have our choices, and no - don't get my paycheck from any airline, but I do love to fly! We will see how SW rates and finds the turf when they are on a level playing field! - and for your choices, good for you for getting a ticket on SW!

    For flying around the world for work and pleasure, and for military duty plus the massive options that are afforded in the continental US - will always do a legacy carrier, just a choice!

    Thanks for the comments !

  • Report this Comment On February 08, 2014, at 9:18 AM, Frumby wrote:

    I'm amused at the "level the playing field" comments. In other words, now that everyone has failed, gone bankrupt and defaulted on much of their debt, they finally equal Southwest. OK, I'll give you that comment if that's the qualifier. Southwest made $805 million last year and did not charge for bags. Wall Street estimates that Southwest is leaving 1.2-1.5 Billion dollars on the table in bag fees every year. You want to talk about leveling a playing field? If Southwest lowered their fares and offset their costs with bag fees then you will really see a level playing field.

    For me, I'm an A-list member. I board first, drinks and internet are included and no "cattle call." By the way, that is a lemmings description these days. Southwest fixed that issue years ago so the "cattle call" doesn't exist anymore. You need to find a better excuse and stop using a cute buzzword. If I want to spread out, I buy a "wanna get away" ticket as well as my A-list ticket. I now own two seats so no one will sit by me and I'm still hundreds cheaper if I had purchased tickets on a Legacy carrier. Enjoy your flights on the legacy carriers but I'll stick with Southwest.

  • Report this Comment On February 08, 2014, at 10:44 AM, lappercad wrote:

    Finally, the free market republicans are allowing competition in Dallas. welfare republicans are all talk, but they are owned by corporate America, and allowing Jim Wright for 20 years to be paid by American to kill the other airlines ability to thrive in Dallas is testament the their hate for all things the free market is. The distant for the constitution is total, except for the 2nd, which is their only reason they have any courage at all

  • Report this Comment On February 08, 2014, at 1:03 PM, TMFGemHunter wrote:

    @Frumby: I've always been skeptical of the numbers Wall St. throws out for Southwest bag fees. I get the sense that they are just calculating how many bags people bring today. But people would pack more efficiently (e.g. one carry-on and one 50 lb. checked bag vs. checking two medium-size bags) if the fees changed. Additionally, there are plenty of people who fly Southwest specifically because of the free baggage allowance and would fly a different airline without it.

    I think Southwest probably would be more profitable with bag fees, but not to the tune of $1 billion or more. It's nice from a customer-loyalty point of view that SWA doesn't charge for bags.

    Adam

  • Report this Comment On February 08, 2014, at 7:42 PM, MaverickFlyer wrote:

    @TMBGemHunter - I agree, as have been very skeptical at what Wall Street does throw for numbers on bag fees - noting that there is pretty serious discussions in the SW circles on charging bag fees in the future - so am sure the industry will continue to see changes evolving on airline charges, fees, tickets, etc. Agreed as well, on plenty of people flying due to the current no bag fees, but what will they choose in a different situation? To be seen... Sure, SW would be more profitable with bag fees, definitely not to tune of $1 billion, but indeed money for the coffers.

    Yes, SW has made changes in boarding processes and such, and may be improvements indeed but to general public they still are referred to and have reputation of a 'cattle car' airline - just depends on who one speaks to.

    Interesting that this article was only commenting on SW supposedly going to provide competition to the legacy carriers over at DFW - go back to my original point as will be interesting to see what the response is from such carriers, including American, Delta, United, Frontier, Alaska and others to which cities that will have flight competition from SW. Game on.

    We all have opinions and thoughts about airlines that we enjoy, as well as any other subject matter I'm sure - so good debate is good and can be entertaining and enlightening as well.

    Thanks for the comments and feedback.

  • Report this Comment On February 09, 2014, at 1:47 PM, sharkflyt wrote:

    Spirit Airlines is the one to watch. SWA has way too much debt and even though they are bigger than Spirit, they can't come close to the profits in which Spirit is making. American should be very worried about the uprising of this smaller carrier. The article states 10 years from now and I say just under 2 more years before Spirit gets even more backers and the aircraft orders change to double or even triple. However, Spirit needs to give the flight attendants reason to keep flying. Spirit flight attendants are under paid and have been without a contract for over 7 years and counting. This could be problematic for the airline if they don't come up with a contract sooner rather than later.

  • Report this Comment On February 09, 2014, at 1:49 PM, sharkflyt wrote:

    My advice to all airlines is , if you keep your employees happy you get filled seats on your planes! The service industry has sunk to all new lows and needs to be fixed in this category before an airline can soar in profits. Nobody wants to fly an airline who has management that is not paying attention to detail. They probably hire from internal and that seems to be the biggest problem. They need people who can see things in a fresh new light!

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