Southwest Sees Low-Fare Challenge to American in Dallas
Southwest Airlines Co. (LUV), the largest low-fare carrier, will increase competition at American Airlines Group Inc. (AAL)’s biggest hub by expanding nonstop service from a rival Dallas airport as U.S. flight limits there end.
Nonstop trips to LaGuardia in New York and Reagan National in Washington as well as eight other cities will begin Nov. 2, Chief Executive Officer Gary Kelly said at a news conference at Love Field airport today. Five others, including Chicago, will offer nonstop trips starting Oct. 13.
The flights will spur a challenge with cheaper tickets from Southwest at the airport closest to downtown Dallas, 25 miles (40 kilometers) from American’s Dallas-Fort Worth International Airport hub. A 1979 law banned nonstop flights on large jets out of Love beyond Texas and its four neighbors. The restrictions were later eased to permit trips to eight states.
“There will be a negative impact on American as a result of this,” Jeff Straebler, managing director for aerospace in the bonds and corporate finance group at John Hancock Financial Services. “Given American’s size, is it the end of the world? Certainly not. This is definitely a positive for Southwest.”
Southwest, based in Dallas, fell 2.5 percent to $20.43 in New York, joining declines by all eight other members of the Bloomberg U.S. Airlines Index today.
Southwest recently agreed to buy additional flying rights at both LaGuardia and Reagan that were sold by American to win approval from U.S. antitrust regulators for its December merger with US Airways Group Inc. Flights from those airports are limited by the government to control congestion.
“There is no way the fares won’t come down,” Kelly said today of competitors. “It’s competitive in North Texas. We’re going to have to earn our customers and earn their business.”
The airline won’t announce fares or flight frequencies until May, he said, and customers can’t book the routes until then.
“Thanks to our recent merger, American Airlines now has an expanded, robust global network,” including 800 daily flights from Dallas-Fort Worth airport, Matt Miller, a spokesman, said in an e-mail. He declined to comment on fares.
Southwest historically has offered introductory fares for as long as eight months on new routes that attract the most competition from larger rivals, said Rick Seaney, chief executive officer of FareCompare, a ticket research firm. Those fares are 20 percent to 45 percent of competitors’ rates, he said. American will match the lower prices on flights at similar times and try to keep passengers by offering more loyalty miles or first-class upgrades, he said.
“It will be interesting to see once they quit bloodying each other’s noses and decide on what the real price point is going to be,” Seaney said.
While the addition of the nonstop flights will be “a very big change,” Southwest probably won’t be the primary “price disciplinarian,” said Bob Mann, president of aviation consultant Robert W. Mann & Co. in Port Washington, New York. That role falls to Spirit Airlines Inc., a so-called ultra-low-cost carrier that sells a low base fare and charges separately for everything else, he said.
In 2004 Southwest began a two-year lobbying effort for the repeal of restrictions under the Wright Amendment, which it argued was anti-competitive, before securing a phase-out of the limits. The legislation, authored by former Texas Congressman Jim Wright, was intended to protect the then newly opened Dallas-Fort Worth airport from competition. The amendment expires Oct. 13.
Southwest carries more than 96 percent of passengers at Love Field, which is about 20 minutes from downtown Dallas and adjacent to the airline’s headquarters. It has flown from Love Field since 1971.
American, combined with US Airways and its American Eagle regional airline, carries about 85 percent of passengers at Dallas-Fort Worth, according to the U.S. Bureau of Transportation Statistics.
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