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DFW Airport Battles for the International Saddle

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DFW Airport Battles for the International Saddle

DFW Airport Battles for the International Saddle
July 23
10:15 2015

MIAMI — On June 2, American Airlines officially operated its first international Boeing 787 Dreamliner flight, departing from its DFW hub for Beijing (PEK). Two days later, it deployed its new Dreamliners on two more international routes, flying to Shanghai (PVG) and Buenos Aires (EZE), again from DFW.

The airline wasted little time in putting its Boeing 787’s to use internationally, deploying them only about a month after testing the aircraft out with trips to and from Chicago O’Hare (ORD). Sean Donohue, CEO of DFW Airport, lauded the move, celebrating its impact on the area: “The [flights open] markets for business to tourism for the entire region,” he said in May. He estimates just the Beijing addition alone will drive $200 million in economic activity, reflecting the significance vibrant air service can offer.

Donohue’s comments exemplify DFW’s broader push to augment its international traffic after lagging behind other similarly-sized airports for decades. Dallas-Fort Worth International Airport ranks third in the nation in total passenger traffic, but falls tenth in examining just international activity. Over the past several years, DFW has deepened its relationship with its primary tenant, American Airlines, while simultaneously forging new relationships with foreign airlines, luring the likes of Qatar, Emirates, and Etihad to the airport. Additionally, the airport works to upgauge existing service, convincing Qantas to operate its flight to Sydney (SYD) with an Airbus A380 and to forego the Boeing 747.

DFW’s aggressive pursuit of international traffic at least partially stems from the freeing of Dallas Love Field (DAL), its competitor down the street. A federal law known as the Wright Amendment formerly limited non-stop commercial flights from Love Field mainly to contiguous states ever since the inception of DFW Airport, making DFW the far more attractive option for longer domestic journeys. However, October 13, 2014 marked the sunset of those restrictions, turning the competitive edge to Love Field, a more centrally located and more convenient airport to use.

Love Field houses only twenty gates, a number which DFW easily dwarfs with its five terminals and well over 100 gates. However, DFW realized that the freedom to fly domestically at Love threatened to capture some slice of its passengers. Unlike the airlines, which maintain incentives to limit capacity to maximize profit, individual airports strive to continually add capacity given the available space. Each additional passenger that steps through the terminals represents more revenue and generally more profit for an airport, from direct sources such as the Passenger Facility Charge (PFC) imposed on every flier, to more indirect streams, like potential concession usage and parking fees.

Although DFW and Love Field interact competitively on domestic routes, federal law continues to prohibit international flights from Love. DFW’s continually expanding international presence capitalizes on a market in which Love Field will never hold a leg. More than likely DFW figures that some domestic traffic trickling over to Love Field is inevitable, so it intends to add more traffic to the system by looking abroad. Its international craze almost certainly reflects a competitive response to the events across town as the two airports compete for local passengers in the same market.

Its most formidable competitor in this market lies a bit further south: Houston George Bush Intercontinental Airport (IAH). In terms of international business Houston, seeing approximately 2.5 million international visitors, widely outpaced DFW, running behind with only 1.7 million. The intensifying battle between DFW and IAH demonstrates the need for a two-pronged approach, one which fosters good relations with the airport’s dominant airline as well as foreign carriers. Travelers primarily choose airlines, not airports, so working cooperatively with airlines functions as a key ingredient to an airport’s success.

DFW, due to its location in the Southern region of the United States, traditionally derives much of its international traffic from Latin America. This played to the strengths of American Airlines, which focuses internationally on this area while United and Delta primarily prefer to look toward Asia and Europe. But holes remained for passengers wishing to travel to other parts of the world – unacceptable for an airport of this size. Without the ability to effect American’s business model, DFW opted to fill these gaps by convincing foreign airlines to offer service from their hubs to Dallas.

Donohue has set aside a sum of $50 million to dangle as incentives to coax new foreign carriers to the airport. These substantially reinforce DFW’s efforts to garner new service, and in four years it has dotted eighteen new destinations. This strategy works well, but still leaves some room for improvement, as foreign carriers’ interests lie only in flying to their hubs. To truly feed international travel, DFW needs American – specifically, its codeshares and joint ventures with these airlines.

DFW also relies on American spreading its wings into new parts of the world, which American has attempted more aggressively in China, even with these routes historically losing money. American proclaimed its commitment to these Chinese routes, with CEO Doug Parker considering them important “investments” in a “strategically important” part of the globe.

For its part, DFW has invested heavily in improving the passenger experience, a more relevant component to those making a trip of tremendous length. Back in 2005, DFW embarked on this mission by opening Terminal D, a state-of-the-art facility glittering with shiny hallways and easily accessible customs facilities mainly directed to supporting international flights. For passengers connecting to other parts of the United States, DFW is currently undertaking a renovation of existing terminals, which appear quite dated tracing back to the 1970’s. A more attractive airport leaves a stronger impression with customers, who might become return business if only for a brief connection.

DFW also encourages new service by minimizing its cost per enplaned passenger (CPE), an industry metric that measures the average costs to an airline imposed by each passenger for operating at an airport. DFW’s cost per enplanement routinely falls below that of other large airports; in 2013, DFW reported a $7.20 CPE, while many of its peers were over $10, some far more so. When spread over a large number of passengers, a low CPE can make many otherwise unprofitable routes viable.

DFW’s international blitz has landed it the designation of the fastest growing airport in terms of international traffic. With other competitive threats lurking nearby, in addition to the continual duel with its peer airports nationwide, DFW envisions burgeoning international capacity as the way to the saddle in Texas and the key to preserving prominence nationally.

 

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About Author

Alex McIntyre

Alex McIntyre

Texan. Airways Business Analyst. Emory University student, and lifelong AvGeek. Favorite airport and aircraft are: Dallas/Fort Worth International Airport and the Boeing 787. Passionate about all things commercial in the airline business, including route networks and hub operations. I love the window seat.

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