For four decades, Dallas-Fort Worth International Airport has dominated air travel to, from, and through the Dallas-Fort Worth metro area. Love Field, which was previously the region's major airport, has been left with limited flight options -- primarily on Southwest Airlines (NYSE:LUV) -- because of regulatory and legal hurdles that were set up to support DFW when it was a brand-new airport.
However, the Wright Amendment, which has prevented most long-haul service from Love Field for the past 35 years, will be repealed as of mid-October. This has suddenly turned Love Field into a strategic battleground. Because of its proximity to downtown Dallas (just 6 miles from the city center), several airlines want to expand there to more effectively compete with American Airlines' (NASDAQ:AAL) megahub at DFW.
Ending the Wright Amendment
When Dallas-Fort Worth International Airport was under construction, all of the major airlines agreed to move their Dallas-area operations there. Only one airline stayed at Love Field: a tiny upstart called Southwest Airlines. At that time, before deregulation, Southwest was limited to flights within Texas.
Soon after deregulation went into effect, the federal government passed legislation prohibiting interstate flights from Love Field, except to a few neighboring states or on jets with 56 or fewer seats. Southwest has done well in Dallas despite these restrictions, but other airlines have mostly avoided Love Field.
Southwest has long been interested in offering longer flights in Dallas, and it began aggressively lobbying to repeal the restrictions, known as the Wright Amendment, about 10 years ago. Under a compromise signed into law in 2006, restrictions on domestic flights from Love Field will end this October. However, the number of gates at the airport will be capped at 20, ensuring that most traffic will remain at DFW.
Luring business travelers
With the Wright Amendment gone, Love Field will become a strategically valuable airport. Being both smaller and much closer to downtown Dallas than DFW, it's a more convenient option for people traveling to or from Dallas. That is an important selling point with business travelers, who tend to pay higher fares.
This is particularly important, because American Airlines absolutely dominates DFW today, with more than 750 peak-day departures. The huge selection of flights American offers at DFW is a big attraction for business travelers. Any airline trying to compete for business traffic needs to differentiate itself in some way -- and operating at a smaller, more convenient airport is one way to do that.
As a result, while Southwest Airlines has already announced plans to expand at Love Field, Delta Air Lines (NYSE:DAL) and Virgin America have also started jockeying for the right to join Southwest. With American Airlines being forced to give up its two gates at Love Field, whichever airline wins the gates will have the ability to add about 20 flights.
Delta had hoped to fly from Love Field to its hubs and international gateways in Atlanta, Detroit, Minneapolis/St. Paul, New York, and Los Angeles. However, it looks like the Department of Justice will block Delta's bid for gates at Love Field.
Meanwhile, Virgin America has proposed to move its flights to San Francisco and Los Angeles from DFW to Love Field if it gets gate space there. It would also add flights from Dallas to New York's LaGuardia Airport, Washington's Reagan National Airport, and Chicago's O'Hare International Airport.
Delta and Virgin America both recognized that they could compete much more effectively at Love Field than at DFW. While American will always offer the most schedule options in the Dallas-Fort Worth area, the convenience of Love Field is an equalizing factor that would attract customers: including some high-value business travelers.
What it means for American
No matter what happens at Love Field, American Airlines will still be the "top dog" in the Dallas-Fort Worth region. That said, it will have to work a little harder to keep customers from defecting to new competition at Love Field.
For example, today American is the only airline flying from the Dallas-Fort Worth area to Reagan Airport -- the preferred airport for business travelers going to Washington, D.C. However, Southwest already plans to start flying from Love Field to Reagan Airport this fall.
If Virgin America wins gates at Love Field, that critical route will get a third competitor. Furthermore, Virgin America offers more premium amenities than Southwest, such as a first class section, assigned seats, and in-flight meals for purchase. Thus, even business travelers who wouldn't consider flying on Southwest might opt for a Virgin America flight from Love Field over an American flight at DFW.
Once an airline builds up a dominant position at a hub airport, it can be very hard for competitors to break into the market. They need some way to attract passengers without going toe-to-toe with the dominant airline on every route.
In Dallas, operating from the smaller, more-convenient Love Field may be the solution for airlines wanting to compete with American Airlines. As a result, with precious gate space becoming available and flight restrictions lifting this fall, Love Field has become a strategic battleground for Southwest, Delta, and Virgin America.
Adam Levine-Weinberg and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.