Competition on flights from North Texas to Missouri, sparked by a change to the Wright Amendment, could cost American Airlines $115 million in annual revenue and give Southwest Airlines an $80 million revenue boost, an analyst said Monday.
For consumers, fares to St. Louis and Kansas City will likely fall by at least 25 percent once Fort Worth-based American and Dallas-based Southwest begin competing, said Roger King, a financial analyst with CreditSights, an independent research firm based in New York.
The new competition is likely to begin soon thanks to a transportation spending bill Congress approved this month that exempts Missouri from the Wright Amendment, allowing nonstop flights from Dallas Love Field to Missouri. Southwest executives have said they will begin service from Love once President Bush signs the bill. American is expected to match Southwest's fares and is considering moving some flights from Dallas/Fort Worth Airport to Love Field.
Most long-haul flights from Love are prohibited by the Wright Amendment, a 1979 federal law that restricts flights from that airport to Texas and bordering states, as well as Kansas, Alabama and Mississippi. Executives with Southwest have been lobbying Congress for a year to repeal the law and open Love to unrestricted service nationwide.
In a report issued Monday, King reviewed flights between Missouri and Houston, where the two airlines already compete, and calculated likely fare levels from North Texas. He concluded that ticket prices will drop by 25 percent, on average, to both St. Louis and Kansas City once Southwest enters the fray.
That translates into a $115 million annual hit for American, he said. For Southwest, the new flights will bring in about $80 million a year.
King's report is the first to attempt to quantify how much the Missouri exemption means for each airline. Executives with both companies have declined to calculate the financial impact.
Broadly, King said, the revenue loss to American isn't especially significant. "It's chump change," he said.
American executives may not see it that way. The airline has put a priority on squeezing as much revenue as possible out of its flights in recent years, and it has touted various cost-cutting efforts that have saved far less.
Still, airline spokesman Tim Smith downplayed the impending competition with Southwest.
"The fact is, we compete with Southwest in a huge number of markets," Smith said. "And we have competition from low-fare airlines in three-quarters of our domestic markets."
Long-haul competition with Southwest in North Texas will be new to American, which operates a massive hub at Dallas/Fort Worth Airport. Gerard Arpey, American's chief executive, said last year that repealing the amendment would cost the airline hundreds of millions annually.
And some analysts have put the value of the Wright protections at D/FW as high as $1 billion annually.
American is expected to begin some flights to Missouri from Love, where it has three gates, taking on Southwest directly. But it will also be forced to lower fares at nearby D/FW.
A Southwest spokeswoman said the report reinforced that airline's contention that repealing the Wright Amendment will be good for North Texas travelers.
"Any losses [at American] would be a benefit to consumers because of competition and dropping fares," spokeswoman Brandy King said. "That's what we've said all along."
Despite his conclusions, Roger King said the Missouri bill represented a victory for American, because a full repeal of the Wright Amendment would have been far more costly. In his report, he called the Missouri flights "a booby prize."
Although a Senate committee held hearings on the issue this month, King predicted that it isn't likely to catch on as a national issue. The most Southwest can hope for, he said, is to exempt individual states -- a process that will take years.
"Southwest hasn't been able to get enough support for a repeal," he said Monday. "Congress just isn't going to focus on it."
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