Despite the ill-considered federal bailouts of the airlines and reams of special interest legislation on their behalf, the free market is not dead in the airline industry.
As low-fare airlines like Southwest, JetBlue, and AirTran have increased their share in the market-now carrying 25% of air passengers in the U.S., up from 10% in 1995-they have also forced the higher-cost, pre-deregulation network carriers like American and United to match fares on the routes they fly.
As the laws of the market dictate, all passengers benefit from competition.
But one of America’s major cities remains a glaring exception to this free-market bounty of reasonably priced air travel.
Dallas, Tex., remains captive to a sleazy 1979 federal law designed specifically to prevent airline competition in that city. The provision-the so-called “Wright Amendment”-takes its name from the disgraced former House Speaker and Fort Worth-area Rep. Jim Wright (D.), who resigned from Congress in a bribery scandal.
In the 1970s, the federal government closely regulated commercial interstate airline routes and fares. At the time, most travel was for business purposes, and corporations willingly paid the high fares the government set, in exchange for the convenience of flying.
But then a brassy new Texas airline, Southwest, realized that they could choose routes, have lower costs and charge lower fares by staying in-state to avoid federal regulations.
Texas’s then-major airlines-high-cost Braniff and Texas International-tried to block Southwest’s takeoff with years of frivolous lawsuits. But much to their chagrin, Southwest took off anyway in 1971 with gold planes and hot-pants-clad stewardesses.
Low fares and reliable service made them Texas’s dominant in-state airline. At the time, the Dallas-Fort Worth area was served by Love Field, a small airport within Dallas’s city limits. Air travel was booming, so the two growing cities built giant Dallas-Fort Worth Airport on the open prairie between the two cities. The major carriers moved to DFW upon its 1974 opening, but Southwest stayed at Love in order to help keep costs and fares low.
The prospects of competition from Southwest rattled Fort Worth’s city fathers, whose Tarrant County includes most of DFW. The threat of competition became even more imminent when Congress deregulated the airlines in 1978 and low-fare Southwest expanded across state lines. Fort Worth suddenly faced the prospects of major carriers returning to Love to cut costs and compete. They could have even forced down terminal rents at DFW.
So Speaker Wright came through the following year, proposing the infamous amendment that accommodated Fort Worth’s fear of the free market. The amendment barred aircraft with over 56 seats from flying from Love Field, except to airports within Texas and its immediately adjoining states. The clear target was Southwest, whose Boeing 737’s seat over 100 people.
To ensure that Southwest didn’t just touch down in Oklahoma City and go on to Chicago, the amendment also forced Love flights to disgorge passengers and baggage at their destination airports. Passengers are specifically required to claim and recheck their baggage, making any transfer prohibitively complicated.
Southwest’s Kelleher knew he could not defeat the Wright Amendment, and so he concentrated his company’s growth elsewhere. By the late 1990s, the carrier covered routes from coast to coast. Southwest was one of the only consistent moneymakers in the industry and one of America’s greatest free-market successes.
Except in Dallas, where the less efficient major airlines are shielded by the Wright Amendment from the free market’s downward pressure on fares. A 1996 Department of Transportation study estimated that the Wright Amendment costs Dallas-Fort Worth area passengers $200 million in inflated fares. Given low-fare carriers’ rapid growth since then, the cost is probably closer to $500 million today.
Contrast that with Chicago, where American and United operate hubs at the giant O’Hare Airport. Absent the Wright Amendment’s restrictions, Southwest and fellow low-fare carrier American Trans Air (ATA) thrive at nearby Midway Airport, flying nationwide.
American and United still serve a real need at O’Hare, since they have a more complex product, including international and commuter routes. But even with their failure to control costs, they have been forced by competition to keep fares lower.
Fare searches this week turned up startling differences on similar routes from Chicago and Dallas. American is currently charging a $218 walkup fare from O’Hare to Kansas City and $92 for advance tickets. You can thank Southwest’s competition for these reasonable fares-they are charging a walkup of $189 and $90 for tickets in advance.
In stark contrast, American’s walkup fare from Dallas to Kansas City, a route of similar length, is $804, and advance tickets cost $208. Multiply such fare variations by many markets, and you see American is pulling a high premium on Dallas routes-primarily because they can.
Fares from Dallas to places like Washington, Los Angeles, Chicago, St. Louis, Kansas City, Oakland, and San Diego could drop substantially if Southwest were allowed to compete fairly.
Congress is loath to repeal the laws of privilege it passes on behalf of narrow special interests. However, the potential economic benefits to cities nationwide from Dallas airline deregulation are enormous. Senators and representatives from the many states that could benefit should band together to repeal the Wright Amendment, and bring the free market to North Texas at last.