For more than a year, Southwest Airlines (NYSE:LUV) and Delta Air Lines (NYSE:DAL) have been locked in a legal battle regarding Delta's right to operate flights at Love Field in Dallas. Delta won the first round in January, when a district court judge issued a preliminary injunction forcing Southwest to make room for Delta at one of its gates while the case proceeds through the courts.
Southwest Airlines quickly appealed that decision. Earlier this week, the Fifth Circuit Court of Appeals agreed to hear oral arguments for the appeal in late September. This sets up the next round of a fight that could take many years to fully resolve.
Delta and Southwest stake out their positions
Federal law limits Dallas Love Field to 20 gates. That severely restricts the number of flights that airlines can reliably operate there.
For the past several decades, Southwest Airlines has been the only airline with a significant presence at Love Field. Most airlines serve Dallas at the larger Dallas-Fort Worth International Airport, 12 miles away. Today, Southwest Airlines has "preferential use" leases (or subleases) for 18 of Love Field's 20 gates. Virgin America has a preferential use lease for the other two gates.
These preferential use leases give the holder first dibs on those gates, so to speak. The airport can allow other airlines to use the gate -- but only when the main tenant doesn't need them.
Southwest Airlines argues that this clearly gives Delta no right to use one of its gates. Southwest is already operating 10 daily flights from each of its gates at Love Field, which is generally considered the most usage a gate can handle. According to Southwest, as long as it continues fully utilizing all 18 of its gates at Love Field, Delta Air Lines is simply out of luck.
That said, under the agreement governing Love Field's operation, the city of Dallas agreed to require airlines to accommodate new entrants by sharing their preferential use gates. Delta argues that this bars Southwest Airlines from shutting out other airlines like itself.
The real problem here is that by capping the number of gates at Love Field at 20, Congress has made it impossible for Delta and Southwest to simultaneously enjoy their rights.
Delta has a right to serve Love Field as a new entrant, but needs gate access to do so. Southwest has a right to use its gates without interference from Delta. (It is only required to let other airlines use its gates if they can do so without impacting Southwest's operations.) Since there are no extra gates, at least one of the two airlines' rights must be violated.
In granting the preliminary injunction earlier this year, District Court Judge Ed Kinkeade tried to sidestep this issue by claiming that Delta's five flights a day didn't "unduly interfere" with Southwest's operations at Love Field. (Nevertheless, he called on Congress to fix the problem by allowing Love Field to add more gates.)
Yet it's hard to argue that Delta's flights are not causing problems. The extremely tight flight schedule makes it more likely that when a plane arrives, its gate is not available. Severe weather -- icy conditions in the winter or thunderstorms during the summer -- makes this problem worse, because there is no cushion when flights are delayed.
Unfortunately, there is no satisfactory solution to this legal mess other than new federal legislation that allows Love Field to grow. That's not likely to happen anytime soon. As a result, the only thing likely to change in the near future for this case is the size of the lawyers' bills.
Adam Levine-Weinberg is long January 2017 $40 calls on Delta Air Lines. The Motley Fool recommends Virgin America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.