Dollar Figure is Put on Repeal of Wright

The report did not address the effect on Dallas/Fort Worth Airport and Love Field but focused instead on air carriers American and Southwest.

Southwest Airlines would gain millions in profits from repeal of the Wright Amendment, an independent financial analyst has calculated, while rival American Airlines would take a hit.

But the added competition should not be catastrophic for American, the analyst said in a recent report.

The Wright Amendment, which limits long-haul flights from Love Field in Dallas, has been under an attack led by Southwest.

Roger King, an analyst with CreditSights in New York, said that if the amendment were repealed tomorrow, Southwest would probably gain about 2 million passengers annually and $278 million in revenue.

American would probably lose 1 million passengers and about $250 million in revenue because of the increased competition from Southwest, the report said.

American would be forced to reduce some fares on its most important and profitable routes to compete with low-fare Southwest, King said.

But King said American should still enjoy a revenue premium -- higher overall revenues per passenger -- on key routes out of Dallas/Fort Worth Airport. He based his projections on what has happened in Houston, where Southwest competes with Continental Airlines from separate airports.

Repeal of the Wright Amendment "would not be a disaster" for American, but "it would exacerbate the inexorable downward pressure on systemwide yields," the report said.

The report, prepared in April, is circulating in financial circles. While many analysts have speculated about the effects of repealing the Wright Amendment, King's study is the first to quantify the financial effect on American and Southwest.

Tim Wagner, a spokesman for American, said Wednesday that King's conclusions were "all speculation at this point."

He also said King's report did not examine what might happen if Southwest began long-haul service from D/FW instead of Love Field, a move that could be made even with the amendment intact.

Kevin Cox, D/FW's chief operating officer, said the study is flawed because it assumes that American would keep its flights at D/FW, rather than moving many to Love Field.

"If his assumption is American will not move to Love Field, I give it zero credence," Cox said. "We believe American will move a significant number of flights to Love Field, and they will move a significant number of passengers."

The Wright Amendment debate was refueled last week when two North Texas lawmakers introduced a bill in Congress to repeal the federal law, which was enacted in 1979.

The amendment restricts flights from Love Field to states adjacent to Texas. It was later changed to add Kansas, Mississippi and Alabama.

American is now the dominant carrier for long-distance flights from the region. Southwest, meanwhile, is the dominant carrier at Love Field. Southwest has refused to operate at D/FW, saying the busy airport is too congested to fit its business model, which depends on fast turnaround times for aircraft.

American has said the financial hit from removing the amendment would be substantial and has threatened to shift a large number of flights from D/FW to Love Field if the restrictions are lifted.

D/FW officials have long argued against lifting the amendment, which was written to protect D/FW when it was a young airport. A recent study commissioned by the airport predicted that lifting the rule would cost the airport 21 million passengers annually and set it back 20 years.

King's report did not address the effect on the airports but focused instead on the airlines.

Southwest would "take some business from American, but it won't be anything to write home about," King said in an interview.

CreditSights has offices in New York and London. The company doesn't sell stocks or bonds. It provides financial analysis directly to investors, one of several such companies to emerge in the wake of Enron and other corporate scandals.

Ed Stewart, Southwest's spokesman, said it appeared to be a valid study and agreed that the Houston comparison was a good one. He added that Southwest officials believe that lower fares would result in American gaining passengers, not losing them.

King does not claim his five-page report is an exhaustive look at the changes that would result from repeal of the amendment. He based his study on publicly available Transportation Department passenger and revenue data.

He looked to Houston, where Southwest flies out of Hobby Airport and Continental dominates George Bush Intercontinental Airport, to project what would happen in the Dallas-Fort Worth market.

Continental and Southwest have co-existed profitably for years in Houston, King said. Continental still enjoys higher revenue per passenger on its flights than Southwest.

King said the Wright Amendment, by restricting competition, results in higher fares for flights out of D/FW. Transportation Department figures show American's revenues in 16 of the top 23 markets it serves out of D/FW average 24.62 cents per passenger per mile. On the rest of its routes, where it faces more competition, American averages 11.61 cents.

King estimates that American's revenue premium would drop 16 percent, or 4 cents, to about 20 cents per passenger per mile, without the amendment in place.

A loss of 1 million passengers by American would represent less than 2 percent of the 55 million passengers that use D/FW. That is a far smaller decline than projected in the recent report commissioned by the airport.

That study predicted that the airport could lose up to 204 daily flights and 21 million passengers because American would shift flights out of D/FW to Love Field.

King says he can't foresee that happening.

"It wouldn't be smart," he said. "They'd have to charge the same fares as Southwest. They would be committing suicide."

But Cox of D/FW said that assumption ignores the competitive history of the U.S. airline business. Major carriers traditionally respond to new competition by aggressively adding flights and slashing fares.

D/FW Airport officials say that if American shifts flights to Love Field, it would seriously impair the airport's finances and damage the North Texas economy.

The airport's study also predicted that competition from Southwest would result in a sharp decline in average airfares paid by D/FW travelers, and that fares would decline even without repeal if more discount airlines come to D/FW.