Another Airline Wants In at Dallas' Downtown Airport

An airline turf war is brewing in Dallas. For the last four decades, Southwest Airlines (NYSE: LUV  ) has had a virtual monopoly on service to Dallas Love Field. However, the lifting of restrictions on long-haul flights this fall is making Love Field much more attractive for other carriers.

There's a catch. By law, Love Field is only allowed to have 20 gates -- 16 of which are already controlled by Southwest. American Airlines (NASDAQ: AAL  ) controls two of the other four gates at Love Field, but it agreed to give them up to satisfy antitrust regulators as part of its merger with US Airways. This has created a scramble among other airlines that are now interested in adding flights at Love Field.

American Airlines is giving up two gates at Love Field in Dallas. Photo: American Airlines.

Southwest would be happy to get even more gates so it can continue building up long-haul service at Love Field. Delta Air Lines (NYSE: DAL  ) has also made a bid to add flights at Love Field in the last few months. Finally, Virgin America threw its hat in the ring last week -- and immediately became the favorite to win these gates.

Looking for new competition
The Department of Justice has not yet clarified the process for how American will divest its Love Field gates. However, all of the airlines recognize that the DOJ's goal is to bolster competition. Specifically, DOJ regulators are concerned that the U.S. air travel market is becoming an oligopoly.

In light of this concern, Virgin America is in a great position to succeed in gaining gates at Love Field, because it is a fraction of the size of Delta and Southwest. Delta has basically admitted that Virgin America is likely to be the DOJ's preferred bidder. Soon after Virgin America announced its interest in the Love Field gates, Delta released a statement arguing that Delta and Virgin America could both operate at Love Field.

Competing for a scarce resource
All three airlines that have expressed interest in American's gates at Love Field have a case for why they would provide the most competition. First, while Southwest dominates Love Field, it's still a relatively small fish in the Dallas-Fort Worth area. Southwest tends to operate 120-130 daily departures at Love Field. Meanwhile, at Dallas-Fort Worth International Airport, rival American Airlines offers more than 750 daily departures.

Southwest is already the dominant carrier at Love Field, but it wants to grow.

Southwest needs American's gates in order to grow at Love Field. While the carrier is adding 15 new nonstop destinations from Love Field this fall -- boosting competition with American Airlines -- it will need to cut some of its current flights in Dallas to make room for the new ones.

Southwest CEO Gary Kelly has stated that it would be hard to schedule any more than 10 departures a day per gate. That means Southwest can operate at most 160 daily departures from the 16 gates it currently controls. By contrast, Southwest offers more than 200 daily departures in Chicago (where it has 32 gates), Las Vegas (where it has 19 gates), and Baltimore (where it has 28 gates).

Delta Air Lines was also quick to express interest in American's gates, which it currently leases. Last November, it announced plans to add 18 flights to its schedule at Love Field, serving a variety of its hubs and international gateways. It even put these new flights up for sale -- without knowing if it would get the gate space necessary to support these flights.

Delta hopes to fly from Love Field to six of its hubs and international gateways.

Delta's main argument for getting the Love Field gates is its big global network. If it wins the gates, it would be able to offer one-stop connections from downtown Dallas to virtually anywhere in the U.S., as well as numerous international destinations.

However, Virgin America has the strongest argument of all for getting a shot to expand at Love Field. First, Virgin America is tiny compared to Southwest and Delta, with annual revenue of less than $1.5 billion. As a result, it cannot compete effectively against American's megahub at Dallas Fort-Worth International Airport.

Virgin America wants to fly from Dallas to five big U.S. cities. Photo: Virgin America.

Second, if Virgin America wins the gates, it will add competition on several key routes. Virgin America hopes to move its three daily roundtrips to Los Angeles and San Francisco from DFW to Love Field while adding a fourth flight to each city. It will also start four daily roundtrips to New York's LaGuardia Airport and Washington's Reagan Airport and two daily roundtrips to Chicago's O'Hare International Airport.

What next?
While the city of Dallas has nominal control of who gets the Love Field gates, the DOJ can block any move that would be bad for competition. In general, the DOJ wants low-cost carriers to get the assets American is divesting. Still, given Southwest's large presence at Love Field, Delta had a realistic shot at overcoming the DOJ's objections when it was a two-way contest.

However, Virgin America would provide the biggest boost to competition. If it wins the Love Field gates, it would add new low-cost-carrier competition to New York, Washington, D.C., and Chicago -- three of the top seven U.S. metro areas.

A Virgin America victory may therefore be pre-determined. Regulators could simply exclude Delta and Southwest from the bidding process on the grounds of Delta's overall size and Southwest's large current footprint at Love Field. This provides a clear path for Virgin America to build up a small focus city in Dallas -- its first outside of California.

Discover our top stock pick for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (0) | Recommend This Article (0)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2869951, ~/Articles/ArticleHandler.aspx, 9/4/2015 9:27:50 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Adam Levine-Weinberg

Adam Levine-Weinberg is a senior Industrials/Consumer Goods specialist with The Motley Fool. He is an avid stock-market watcher and a value investor at heart. He primarily covers airline, auto, retail, and tech stocks. Follow him on Twitter for the latest news and commentary on the airline industry!

Today's Market

updated 11 minutes ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 3:59 PM
AAL $40.60 Down -0.29 -0.71%
American Airlines… CAPS Rating: ***
DAL $45.40 Up +0.34 +0.75%
Delta Air Lines, I… CAPS Rating: ***
LUV $37.23 Down -0.20 -0.53%
Southwest Airlines CAPS Rating: ****