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Quick Take: Breaking down the plans for American’s Two Gates at Love Field

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Quick Take: Breaking down the plans for American’s Two Gates at Love Field

Quick Take: Breaking down the plans for American’s Two Gates at Love Field
March 11
08:22 2014

MIAMI — Southwest Airlines officially threw its hat into the ring on Monday for the two gates being divested at Dallas Love Field by American Airlines as a condition of Department of Justice approval for American’s merger with US Airways.

The carrier announced plans to add twelve new destinations to its existing route portfolio in the Big D, including Delta hubs Detroit, Minneapolis St. Paul,and Seattle, American Airlines hubs Philadelphia and Charlotte, and United Airlines hubs Newark and San Francisco. With three carriers now having expressed a desire to win the two gates being divested at Love Field, Airchive decided to take a look at the competing proposals and their relative merits.

Competing Proposal Visualizations


 

Routes and Frequencies

Click for a larger view

Click for a larger view

Route Maps

Delta

Delta's Planned Love Field Expansion

Delta’s Planned Love Field Expansion

Southwest

Additional Southwest flights proposed with the two new gates

Additional Southwest flights proposed with the two new gates

Virgin America

Virgin America's Proposed Love Field Expansion

Virgin America’s Proposed Love Field Expansion

Who adds the most competitive capacity?


 

On the Southwest Airlines side, this calculation is subject to a bit of uncertainty, because they haven’t offered any specific schedule or frequency details for the new destinations. However, what we do know is that it plans to run 20 flights per day total of the gates in total. Again, how that breaks down is not clear.

In calculating capacity, aircraft type also matters, and Southwest has two types of aircraft; Boeing 737-300/700s seating 143 passengers, or Boeing 737-800s seating 175 passengers. Given the growth caps at Love Field, it’s not unreasonable to assume that most of the flights will be offered on 737-800s. However, for the sake of this analysis, both the *worst* case (18 daily 737-700s) and *best* case (22 daily 737-800s) scenarios are presented. Under this scenario, Southwest offers the most seats in all but the *worst* case where it offers 54 fewer seats than Virgin America’s 2628 daily outbound seats. Delta is the clear loser here at 1876 outbound seats per day.

Who offers the most compelling portfolio for business travelers


 

This one is shared between Delta and Southwest, though Delta has the advantage. Delta will be offering the higher frequency in several key business travel markets, as well as access to a much larger overall network (including international flights). It’s offering will likely be more competitive to Atlanta (where Southwest is retrenching), Detroit and Minneapolis (weak Southwest cities), and New York La Guardia (given Delta’s hub) and equally competitive to Los Angeles. Delta also offers a superior product to business travelers with the presence of First Class and Economy Comfort seating.

Specifically for Dallas-based frequent flyers of a particular type, the breadth of destinations offered with the new services will provide a compelling value proposition for current American Airlines frequent flyers in the city of Dallas and eastern half of the Metroplex. While Virgin America covers the major business travel markets like NYC, Los Angeles, San Francisco, Washington DC, and Chicago, it lacks the overall network connectivity and frequency offered by Delta or the breadth of destinations offered by Southwest.

Who will lower fares the most for consumers?


 

Virgin America is the answer here. Delta is a legacy carrier, which comes with the associated costs and fares. Meanwhile, Southwest is nominally a low cost carrier, but its Dallas Love Field operation is certainly not low cost. In fact, on a seat mile basis, its fares to current Dallas Love destinations are amongst the highest in the nation, and if Southwest won the additional two gates, it would have a near monopoly at Love Field, offering it significant pricing power.

Who will win?


The way the process technically works is that the City of Dallas (who owns Love Field), gets to choose who to give the gates to, and then that deal has to be approved by the DOJ. The DOJ has already said that Delta will not be offered the gates, stating in a regulatory filing:

The United States concluded that divesting assets to Delta would fail to address the harm arising from the merger and would be inconsistent with the goals that the remedy seeks to achieve.

If the City of Dallas had free reign, the likely winner would be Southwest, who is extremely involved in the local community and politically well connected. Moreover, giving the additional gates to Southwest would likely be the best financial strategy for the airport, since the additional destinations would improve connectivity over Love Field and provide the greatest boost in total traffic (and thus concessions and retail revenue). But with the DOJ involved, there are additional factors to consider.

The DOJ’s primary motivations are political – it won a Pyrrhic victory in squeezing a few (relatively) meaningless concessions from the new American, so it has to make as much of a positive political splash as possible with the divestitures that it has control over.

The first box to tick is that the carriers that benefit from divestitures have to be low cost carriers, because (rightly or wrongly), LCCs are perceived as providing the most consumer value. Both Southwest and Virgin America technically meet the criteria, though neither airline is a true LCC in any form beyond nomenclature. It also has a stated preference for new entrant carriers and against market concentration (it has to given that a) it is an antitrust organization and b) it spoke out against market concentration in arguing against the formation of the new American). This would indicate that Virgin America is the clear winner, especially given that Virgin America is often perceived as the “best” or most customer-friendly airline in the US.

However, Southwest Airlines also plays very well politically given that it is often seen as an “underdog” and is associated with sharply lower fares via the Southwest Effect. Add in the preferences of the City of Dallas, and all of a sudden, you have a fair fight.

Overall, our assessment is that Virgin America has a 60% chance of winning the gates, Southwest a 35% chance, with a 5% chance that the airlines receive one gate apiece. That last scenario is unappealing because neither carrier would be able to offer a truly competitive schedule with just one gate.

 

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About Author

Vinay Bhaskara

Vinay Bhaskara

Senior Business Analyst, Big Airline Enthusiast, Avid Airport Connoisseur, Frequent Flyer, Globetrotter. I Miss Northwest Airlines Every Day. vinay@airwaysmag.com @TheABVinay

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