Virgin America Fights a Texas Airfare War Without Enough Gates
Virgin America has little love right now for Love Field. Doing business at the small Dallas airport has posed a struggle for the airline since relocating there last fall. The airport has 20 gates, and Southwest controls 18. Virgin America hasn't figured out how to launch enough flights from its two gates.
“It’s an unrealistic expectation that airlines can get 10 flights a day on a gate,” Virgin America Chief Executive David Cush said in an interview this week. He's been bashing Love Field all summer, telling Bloomberg News that the Dallas airpot is worse than New York's reviled LaGuardia for on-time departures. The goal of 10 departures was ambitious for the young airline, which runs seven or eight flights from its gates in San Francisco and Los Angeles, the airports where it currently offers the most service.
In response to the Dallas crunch, Cush hinted strongly that Virgin America will scrap its four daily flights from Austin to Dallas to help remedy the problem. “Maybe Austin is not the best use of gates,” Cush said at the annual Boyd Group aviation forecast conference in Las Vegas this week. The airline would not confirm its plans.
American Airlines and Southwest also fly that route, which meant that pricing “also went to hell” after Virgin America embarked on Austin-Dallas trips in April, said Cush. Ending those flights would help Virgin America reduce the gate congestion. Virgin began the intra-Texas flights to help provide connecting traffic for its new routes from Dallas to New York and Reagan National Airport near Washington.
About 25 percent of the traffic on Dallas routes is fed by the Austin flights, said Cush, although the Love Field routes don’t require that traffic to work financially. Three of the five most affluent ZIP codes in Texas surround Love Field, and the CEO described strong demand for flights.
But interest from travelers has been fueled in part by bargains that sprouted once Love Field opened to flights nationwide in October 2014, with the expiration of a federal law that curtailed flights from the airport. Southwest built an expansive schedule from the Dallas airport, while American has aggressively matched the low fares that resulted from the abundance of new flights. Fares from Dallas to New York, for example, have dipped as low as $41 each way. Fares in other markets far from Texas have also been affected because of the ability to connect in Dallas.
Analysts—and Cush—expect the bargains to abate in early 2016 as pricing firms up. “As much as the Dallas market has disrupted the rest of the nation, between the two of them [American and Southwest] they’re going to sort things out,” Cush said.
He also sounded an alarm about industry consolidation, warning of “considerable price increases” in 2016 and 2017 as the four dominant airlines exploit their size and pricing power. Following a spate of mergers, American, United, Delta, and Southwest control about 85 percent of U.S. air traffic. “Oligopolists will behave as oligopolists will behave,” Cush told a conference audience largely composed of airport and airline executives.
One solution, he suggested, would be for U.S. regulators to allow smaller players like Virgin America and JetBlue Airways to access traffic in smaller markets. He suggested “interline agreements” in which airlines sell multi-segment tickets together, with one carrier flying traffic on part of an itinerary and transferring the passenger to another carrier for a later leg. Such a deal would have American or Delta, for example, flying passengers from a smaller city to a Virgin America or JetBlue destination such as Los Angeles or New York.
The only problem with that plan: Major airlines have zero incentive to do such business. “These guys understand the dominant position they have with these smaller communities,” Cush said. In Virgin America’s view, however, a surge in fares could potentially get that idea some traction with federal regulators.
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