When Southwest Airlines first launched they flew only routes inside of Texas. That way they didn’t need to ask the federal government’s permission for where they could fly (permission that was almost never granted) or how much they could charge.
They launched service based out of Dallas’ Love Field. The airport was supposed to be shut down to commercial service — incumbent airlines had all agreed to move to the new Dallas Fort-Worth — and this plan tied up Southwest’s launch in court. Ultimately Southwest prevailed, the court’s finding that the new airline hadn’t been a party to the agreement not to use Love Field so wasn’t bound by it.
With airline deregulation Southwest would no longer be limited to intra-Texas service. That meant Southwest could compete against American, Braniff and others serving the country from DFW airport from their closer-to-downtown Dallas base.
Southwest Airlines in Austin
The Speaker of the House at the time, Jim Wright, was also the congressman from
Braniff and American Airlines Fort Worth (American moved its headquarters to Texas in 1979) and he stepped in with limitations on where Southwest would be able to fly from the convenient Dallas airport in the form of the Wright Amendment. Southwest itself was involved in negotiating these restrictions, which initially limited flying aircraft with more than 56 seats to Arkansas, Louisiana, New Mexico and Oklahoma. (Airlines couldn’t sell connecting tickets from Love Field beyond these states, either.)
Legend Airlines proposed flying nationwide from Love Field using mainline jets in a 56 seat all business class configuration, since the Wright Amendment restrictions only applied to aircraft with more than 56 seats. They were blocked in court with the argument that the 56 seat limitation applied to the designed capacity of an aircraft, not the actual number of seats on board. In 1997 though the Wright Amendment was liberalized to allow flights to Alabama, Kansas, and Mississippi and to permit flights beyond permissible states using aircraft with 56 or fewer actual seats. Missouri was added in 2005.
With Legend starting all business class flights from Love Field in 2000, American Airlines launched their own 56 seat all business flights from the airport – the airline’s first Love service since 1974 – using Fokker 100 jets. Legend, though, spent $20 – 30 million getting launched due to all of the legal challenges and lost $25 million in its first year with direct competition from American. It ceased operations in December 2000 and American ceased their all business class service from the airport, too.
In mid-2006 American Airlines, Southwest Airlines, DFW Airport and the cities of Dallas and Fort Worth came to a five-party compromise to cartelize the Dallas market and jointly seek repeal of the Wright Amendment. This was passed into law, with connecting flights beyond the existing allowable states permitted right away and limitations on non-stop service lifted in October 2014.
- This gave Southwest a near-monopoly at Love Field, with 16 of 20 gates
- And it limited competition American Airlines faced at DFW, reducing the number of gates at Love Field by 37.5% and limiting future competition by new entrants into the market.
American and United (née Continental) each had two gates. American leased its gates to Delta.
As one of the federal government’s requirements for approving the US Airways-American merger, American’s gates went to Alaska Airlines (née Virgin America) so Delta leased United’s gates. (Neither United nor American actually wanted to operate from Love Field.) United then leased its gates to Southwest, giving them control of 18 of 20 gates at the airport. This prompted litigation by Delta, who would no longer have space to operate at the airport. That litigation is ongoing.
The lack of competition at the airport was created by the federal government taking 12 gates off the table and then requiring American to give up gates that Delta was using, starting a game of musical chairs.
There’s more demand for flying out of Love Field than the airport’s gates currently support, which makes gates especially valuable and supports Southwest’s profitability. The government essentially acted to provide corporate welfare to American and to Southwest at the expense of consumers, and then to Virgin America (acquired by Alaska).
The airport should be re-expanded but that doesn’t appear to be on the horizon. Nonetheless the limitation on Love Field gates is potentially headed to the Supreme Court because the government ordered 12 gates shut down but the government didn’t own all the gates.
Love Terminal Partners leased 26.8 acres of Love Field giving it access to the airport’s runways. They build a six gate terminal, which was used by Legend, near Lemmon Avenue. The City of Dallas evicted Love Terminal Partners and demolished the terminal. A court awarded $133.5 million to Love Terminal Partners for the taking of their property.
The U.S. Court of Appeals for the Federal Circuit overturned the award. They found that Love Terminal Partners wasn’t making money on the gates. They would only become profitable with the repeal of the Wright Amendment, the very law that led to the taking, and future changes in law shouldn’t be taken into account when valuing a property. Since the gates weren’t profitable under existing law, there was no profit lost, and no compensation due — property owners aren’t entitled to compensation for worthless property. This line of reasoning could be extended to let the government take any money-losing business without payment.
NYU law professor Richard Epstein points out that the Lemmon Avenue terminal had value which is precisely why American and Southwest wanted it destroyed. Those gates would become very valuable once flights were permitted from those gates to places like New York, Los Angeles, San Francisco, Chicago, Denver, and other other lucrative markets.
At the time Love Terminal Partners was in negotiations with Pinnacle Airlines (now a subsidiary of Delta) to sell the facility. Part of the land where the terminal once was is slated to become a Lincoln dealership.
Law professor Ilya Somin thinks the Supreme Court should grant cert in the Love Terminal Partners v. United States case. He argues that Federal Appeals Court decision is contrary to Supreme Court precedent, and that while the Supreme Court doesn’t necessarily hear cases simply to correct errors from the courts below the “Federal Circuit has jurisdiction over appeals of all takings cases filed against the United States” so erroneous precedent here has significant consequences.
Somin points to the cert petition and lower court decisions and to a video of a panel discussion on the case “featuring legal scholars George Priest (Yale) and Peter Byrne (Georgetown), prominent attorney Elizabeth Papez (Gibson Dunn), and an introduction by George Will.”
Southwest Airlines started out as an underdog fighting government cronyism meant to keep it from flying. Now it’s the beneficiary of government cronyism meant to keep others from flying. The Supreme Court isn’t going to undo that, though Congress should. However the court could fix an important precedent that allowed Love Field gates to be taken from their owner without payment.