A hurdle faced by Southwest Airlines shows the drawbacks of protectionist legislation
The New York Times, "Economic Scene" , December 02, 2004
When I asked my editor whether I could be reimbursed for my travel to the American Economic Association meetings this year in Philadelphia, he agreed, with a caveat.
"Please try to get the cheapest air fare you can," he wrote in an e-mail message. "Southwest flies Dallas-Philly doesn't it?"
Well, no. It doesn't, even though both the company and its passengers wish it did.
Southwest is based at Love Field, not far from downtown Dallas. But it cannot fly from Dallas to Philadelphia -- or Chicago or Las Vegas or Los Angeles or Baltimore-Washington or a host of other popular destinations -- without violating federal law.
Like my editor, most people outside Dallas have no idea of this peculiar restriction. The so-called Wright Amendment, named for the longtime congressman from Fort Worth, Jim Wright, was intended to protect the newly built Dallas-Fort Worth International Airport. What it did was limit not the amount of traffic at Love Field (local rules take care of that) but where the airplanes could fly. It is a costly example of protectionist legislation.
In mid-November, Southwest called for the repeal of the law, reversing its longtime "passionately neutral" stance and igniting a heated local debate.
Air travelers flooded The Dallas Morning News with pro-repeal letters, while Dallas-Fort Worth airport officials and many local politicians lined up to support the Wright Amendment.
Under that 1979 law, full-size planes may fly from Love Field only to adjacent states, plus Alabama, Mississippi and Kansas, which were added in 1997. (Planes with fewer than 56 seats are exempt.) Anyone wanting to travel somewhere else has to drive another 20 miles to the Dallas-Fort Worth airport and pay the higher prices that American Airlines charges at what industry analysts call its "fortress hub." Both Dallas-Fort Worth and American Airlines support the Wright Amendment.
Although originally enacted to help the fledgling Dallas-Fort Worth airport, the law has outlived that purpose. Today, that airport is one of the world's largest, while Love's capacity is severely limited by its size and location.
"The premise of the Wright Amendment was an infant-industry argument," said Steven A. Morrison, a transportation economist at Northeastern University.
"That's 25 years ago," he said. "That's some infant."
In September, the Tennessee Congressional delegation proposed a bill that would allow flights to their state from Love Field as well. Southwest flies into Nashville, and the airport there would like to offer flights to Dallas.
It is easy to understand why travelers would like more chances to fly Southwest. Competition from the low-cost airline drives down fares.
Indeed, Professor Morrison and a Brookings Institution economist, Clifford Winston, have estimated that competition from Southwest accounted for $9.7 billion of the annual fare savings from the change in real fares since deregulation -- nearly 40 percent of the total. Their estimate was published in the 2000 book "Deregulation of Network Industries: What's Next?" (Brookings Institution).
Although the Tennessee lawmakers reopened the subject, their action was not what precipitated Southwest's new opposition to the law. Rather, Delta Air Lines is eliminating most of its flights from Dallas-Fort Worth, and Southwest sees a new opportunity.
"Delta's planned exit will leave a void that we could fill, except for the Wright Amendment," Gary C. Kelly, the chief executive of Southwest, wrote in a recent op-ed piece for The Dallas Morning News.
"Consumers would benefit twice because we could add flights to new markets from Love at significantly lower fares, and DFW fares would then come down, too," he said.
While self-serving, that claim is borne out by recent economic research.
In an October working paper, Professor Morrison, Dr. Winston and Vikram Maheshri, also of the Brookings Institution, looked at what happened to fares and flight frequency when an airline left a market.
Economists studying competition usually assume all companies are the same, leading to the simple conclusion that more competitors equals more competition. In this research, however, the economists examined the differences among specific airlines, calculating how they responded to the entrance or exit of other companies.
Using data from 1990 to 2000, they were able to calculate how much travelers would gain or lose if a given airline left the market. That calculation depends not just on which airline is in the market but on which airline might enter to fill a newly opened niche.
"Your value is in a sense determined by how replaceable you are," Dr. Winston said. "Or more to the point, who are you keeping out of markets?"
The differences are dramatic. Southwest adds nearly $20 billion a year to consumer welfare, while American subtracts $3.7 billion, the economists concluded. In theory, at least, travelers would be better off if American (or US Airways) disappeared altogether.
"I would be cautious about immediately jumping up and down and saying, 'Let's force some of these guys out of there,"' Dr. Winston said. But, he said, the result is "a signal saying, 'Look, you guys cut your costs and earn a place at the table or if you're going to go, good riddance."'
Certainly the message to Dallas lawmakers is clear: If you care about your constituents, the traveling public, repeal the Wright Amendment and give real competition a chance. Stop propping up American's fares and limiting Southwest's schedule.
Whether local politicians will listen remains to be seen. In the past, American's political influence has defeated attempts to repeal the Wright Amendment. But American, based in Fort Worth and a unit of AMR, is not what it used to be. Southwest, also a big local employer, has passed it as the largest airline transporting passengers within the United States. The low-cost airline's consistent profits contrast sharply with American's near bankruptcy after Sept. 11.
Still, Dr. Winston cautions, Dallas travelers should not hope for much lobbying from Southwest. The airline, he said, "did not grow up spending their whole time lobbying the government and seeing the government as their way to become competitive." He said he suspected that "Southwest is going to make their position known and let the chips fall where they may."
"There has got to be an elected official who jumps on this and says, 'I really want to push this forward,"' he added, "or it isn't going to happen."