Southwest plays hardball with Virgin America

The airlines are battling for gates at Love Field in Dallas, where Southwest is king.

By MSN Money Partner May 8, 2014 2:59PM
© Matt Slocum/AP
Southwest Airlines' aircraft sit at the terminal, Love Field in DallasBy Justin Bachman, Businessweek

An airline fight in North Texas is pitting the pioneer of budget air travel, Southwest Airlines (LUV), against an amenity-laden upstart with big ambitions. 


Virgin America is trying to sublease two gates at Love Field -- where Southwest carried 96.6 percent of the passenger traffic last year -- and is finding that an entrenched competitor is unwilling to cede space.


Southwest has 16 of the Dallas airport's 20 gates and wants two that American Airlines (AAL) was required to divest as part of its merger with US Airways. 


American has already agreed to sublease the gates to Virgin America, which plans to add flights that would connect with the largest business travel destinations: Chicago, Los Angeles, New York, San Francisco, and Washington, D.C.


But airport officials have not yet signed off on the arrangement. The city, which owns Love Field, hired a consulting firm that concluded Southwest would provide more air service with the additional gates, given the airline's heavy use of its gates and planes most days. And the Department of Justice stepped in this week and sent Dallas officials a nudge letter to remind them that it considers American's gate lease with Virgin America valid, with no reason for Dallas to delay.


"This is about the fact that Southwest is interested in having a complete monopoly at Love Field," Virgin America's chief executive, David Cush, said in an interview. "I think they would pick on anyone who would come into Love Field."


Southwest believes its only practical growth option in its home town is at Love Field, where it recently spent $519 million on upgrades. And neither Dallas nor Southwest were party to the settlement agreement American reached with federal regulators, meaning that the city can do whatever it chooses to do with the gates, says Ron Ricks, Southwest’s chief legal and regulatory officer.


"This [gate dispute] has nothing to do with Virgin America or Delta or other airlines," Ricks said in a telephone interview on Wednesday, while the Dallas City Council mulled the issue behind closed doors. After that session, the city manager said he would decide the issue by Friday. If Southwest doesn't get the gates, "it just means that we'll be growing as an airline; we just won't be growing in Dallas," Ricks says. "The good news for us is that there are other great opportunities where we can grow."


Love Field sits just north of downtown Dallas with easy access to freeways and is far smaller to navigate than Dallas-Fort Worth International, the gigantic airport 19 miles west. That makes it appealing to many business travelers and to Virgin America. The airline plans to move all its Dallas flights to Love Field in October, when the airport will no longer operate under the Wright Amendment, a 1970s federal law that restricted flights to bordering states to protect the growth of the then-new DFW Airport.


One reason Southwest is picking a fight for these gates -- which American has subleased in the past without controversy -- is probably because of the enormous contrast between the travel experiences offered by bare-bones Southwest and the more lavish Virgin America. Flights by Delta (DAL) -- to Atlanta -- and United (UAL) -- to Houston -- out of Love Field use small, 50-seat regional jets, while Virgin America will fly larger Airbus planes to business destinations. Virgin America's on-time arrivals record is also much better than at Southwest, which finished near the industry bottom last year.


"Virgin can do very well there, but they're going to have to poach passengers from Southwest, and I think they can do that," says Mike Boyd, president of Boyd Group International, an aviation consulting firm. That competitive pinch, right at Southwest's corporate headquarters, "is why American is trying to engineer Virgin America in there."


To this fight, which has been waged largely in local media, Virgin America has now summoned its biggest publicity gun: Virgin Group founder Sir Richard Branson. He and Cush hosted an outdoor, tequila-shot-fueled rally Monday night at a Dallas bar, where Branson reportedly crowd-surfed to "Sweet Home Alabama." 


Virgin America has also produced a sultry parody video featuring a Branson "love letter" to the airport. "My virile, young planes are yearning for your runways," he says.


As to the product differences between Southwest and Virgin America, which has a first-class cabin, mood lighting, and fancy foods, Cush says his airline stimulates new traffic and lowers fares when it enters a market -- much the same strategy Southwest followed before it grew into a behemoth. "They obviously have an excellent product, for what it is," Cush says.


More from Businessweek


4Comments
May 8, 2014 5:47PM
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As much as the Dear Leader and his left-wing Democrat cronies, Hollywood and the elitist mainstream news media would like to think otherwise, the USA is still a capitalist economy. 


Let Virgin America and Southwest duke it out and let the best airline win.  Competition lowers fares and the public benefits from that.  That's what capitalism is all about.


May 8, 2014 4:52PM
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Don't the majority of us book at least three weeks or longer to fly? Most flights are under 6 hours and when we reserve, don't we look for the lowest price? Phoenix to San Antonio booked in January for February $260.00 roundtrip, Phoenix to Boston booked three months ago $272.00 roundtrip for June, Phoenix to Las Vegas booked two months ago for August $158.00 roundtrip and another Phoenix to Boston booked last week for September $235.00 roundtrip. Tried Jet Blue, United, US Air, Delta, American and Southwest. Weird that on every flight Southwest was best price. On a couple of flights all airlines did not have available flights. Southwest had a similar dilemma in Phoenix and about 5 years ago 'D' gates in terminal 4 at Sky Harbor were added for Southwest use only.
May 8, 2014 4:06PM
avatar
We call is as we see it folks and often as its happening...Warned you that at 1310 hrs manipulators started to take over the floor and do their thing and what was a triple digit lead on the Dow went negative in no time, now we are fighting just to stay on the green on the S&P, the Nasdaq is done, it has been a target for these scumbags all month....Like we always tell you, we could be up 100, 200, 300 points, its irrelevant, when manipulators take over on and off the floor everything reverses....These cheating crooks steal their money by dropping markets and that is exactly what they just did and always try to do....Oh well, it could always be worse...Lets see what bs they will come up with tomorrow.
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