Virgin America to Expand in Dallas if it Secures Love Field Gates

US low-fare carrier Virgin America has announced it will significantly expand its operations from Dallas from October 2014 if it is successful in securing two gates at the city’s Love Field Airport that are being divested by American Airlines as part of the U.S. Department of Justice (DOJ) settlement agreement resolving American Airline's merger with US Airways. Under its proposal it will move its existing links to Dallas/Fort Worth International from Los Angeles and San Francisco to the downtown airport and add multiple daily links with Chicago, New York, Washington DC.

The airline is proposing the launch of four times daily links between Dallas Love Field and New York LaGuardia and Washington Ronald Reagan National airports from October 2014 and twice daily flights to Chicago O’Hare from early 2015, while it plans to increase capacity on its existing Dallas flights to Los Angeles and San Francisco from three to four daily from 2015 if it makes the move to Love Field.

Virgin America's ability to offer these new flights to Dallas travellers is contingent on it obtaining two Love Field gates that are being divested by American Airlines. As part of the merger settlement, DOJ required the divestiture of gates at several domestic airports to facilitate entry and expansion by low-cost airlines, where consumer competition could be negatively impacted by the unprecedented consolidation this latest merger represents.

The US carrier says its new flights from Dallas would “provide vigorous competition” in a market where at present one carrier controls 80 per cent of the gates at Love Field (16 of 20 gates). It says the “centralised location” of Love Field “makes it a more convenient choice for Dallas-based and Dallas-destined business travellers”.

Earlier this year, Virgin America invested in divestiture assets being sold as part of the merger settlement, including 12 airport slots at LGA (six slot pairs) and eight slots at DCA (four slot pairs), both airports where legacy carriers have historically dominated operations and where consumers have previously suffered from lack of service competition and higher fares as a consequence. With the planned divestiture of Love Field gates, Virgin America says it would be able to offer Dallas customers “a competing network of flights to large business markets” from Love Field”.

"As the last major airline launched in the US, we've seen first-hand what happens when new entrant airlines have a chance to come into markets where a few big airlines dominate – service improves and fares drop. In response to the creation of now four 'mega-airlines,' the Justice Department has taken important steps to allow some new entrant competition at key airports in New York, Washington and Dallas," said David Cush, president and chief executive officer, Virgin America.

"The opening of access to these slot-constrained and gate-constrained airports is an infrequent occurrence at best, and we hope to have the opportunity to expand our network and continue doing what we do best: deliver the best product in the domestic skies, and inject sorely needed fare competition in business markets where it is currently lacking," he added.

The Love Field plans would significantly expand Virgin America's presence in Texas, which now consists of three daily non-stop flights from both Los Angeles and San Francisco to Dallas/Fort Worth as well as a link between San Francisco and Austin. In addition, the new routes would expand the airline's presence in both Washington D.C. and the New York area. If they go ahead, the carrier will be only the second low-cost airline to serve all three major New York-area airports.

"Dallas is a major economic centre, and as such, it deserves more business-friendly flight competition from the airport closest to the Central Business District," added Cush. "The opportunity to expand our low-fare, upscale service in Dallas, allows us to not only spur fare competition for local consumers, but also provide business travellers with more choice and consistent flight options, so they can stay connected, comfortable and productive on these longer-haul flights."

Virgin America has a history of breaking into constrained markets and helping to stimulate demand and lower fares. When it entered the San Francisco - Chicago O'Hare market in 2011 and the San Francisco - Dallas market in 2010, fares dropped in each market at the time by more than 30 per cent, according to a study of air fares. Likewise, after securing access t the slot-controlled Newark Liberty International Airport last year after years of trying and launching flights to Los Angeles and San Francisco, fares dropped by more than a third. Before the airline entered the Newark market these routes had some of the highest fares in the nation, and the San Francisco had previously been served under a monopoly.

Virgin America's proposed service from Dallas Love Field cannot begin until October 2014, after the expiration of the Wright Amendment, which has restricted flights at Love Field since 1979. Since coming into force, non-stop flights out of Love Field have been limited to only a handful of states. Local politicians said the restrictions were put in place to maintain a financially healthy DFW Airport. But in 2004, Southwest began a public campaign to change those restrictions and after several months of negotiations a compromise was agreed and approved by Congress in 2006.

Now, eight years later we are starting to see the first impact as alongside Virgin America’s plans, the largest tenant at Love Field, Southwest Airlines, has already announced plans to offer new non-stop service to 15 domestic destinations from Dallas Love Field. The carrier will initially add five new routes from October 2014, followed by ten additional destinations from early November 2014, increasing its network from Love Field to 31 non-stop destinations.

With effect from October 13, 2014, Southwest will add flights from Dallas Love Field to Baltimore Washington International, Chicago Midway, Denver, Las Vegas and Orlando. From November 2, 2014, flights will also be added to Atlanta, Ft Lauderdale Hollywood International, Los Angeles, Nashville, New York LaGuardia, Orange County, Phoenix, San Diego, Tampa and Washington Reagan National, the latter using its recently secured slots at the airport.

The proposed growth of the two carriers will place Southwest Airlines and Virgin America in direct competition on the routes from Love Field to Los Angeles, New York and Washington, and indirectly to Chicago where they will serve different airports.

In the analysis below we highlight the largest operators at Dallas Love Field over the past ten years, where capacity has risen by 9.1 per cent over the period. The dominant position of Southwest Airlines is clearly evident as is the impact the airline's own network strategy has on overall capacity at the airport.

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