As we get closer to the appointed day in court to (hopefully) settle the Dallas Love Field soap opera, the fur has really started to fly as the various parties trade barbs in court filings. I won’t rehash the background in this post, but you can read my initial post on the Dallas/Delta/Southwest tiff from February for the beginning of the story. As the two days of hearings (currently scheduled for September 28 and 29) approach, the attacks have certainly intensified, as laid out in great detail on the Airline Biz Blog.
The latest round started when the city of Dallas filed a motion to compel discovery from the DOT and FAA on how they have handled similar requests for gate accommodation. The feds response? We don’t have to give anybody anything, because we have only issued “guidance” and not a final order than can be challenged in court. The “guidance” the city and the feds refer to were a series of letters that seemed to suggest that the city was obligated to continue accommodating Delta, and if they failed to do so, would be subject to an enforcement action. So in other words: “we issued guidance suggesting we’ll take enforcement action if you don’t do as we say, but you have no recourse against us until we actually do it, even though Southwest will sue you if you do”. Talk about a rock and a hard place for the city. (District Judge Ed Kinkaide ultimately granted the city’s motion, ordering the DOT and FAA to hand over the documents sought.)
Delta, meanwhile, essentially accused the city and United of conspiring with Southwest to deny Delta space at Love. First, Delta sought to compel discovery on the January sublease deal between Southwest and United, arguing that Southwest paid United a “king’s ransom” of above-market rent to obtain its gates – and of course, United went along because it would harm its nemesis Delta. (In the same ordering compelling the feds to produce documents, United was also told it had to produce documents related to the sublease.) Delta then raised the stakes a few days later, amending its counterclaim and asking the court to revoke Southwest’s sublease on the two United gates, making them “common use” gates for any airline to use instead. The primary reason? Collusion between Dallas City Hall and hometown airline Southwest, after Southwest threatened city officials if they didn’t tell Delta to go fly a kite.
“… Kelly angrily emailed [Dallas] City Manager A.C. Gonzalez that the City was ‘reward[ing] competitors that have contributed nothing to Dallas.’ Citing billions of dollars in value that Southwest seeks credit for bringing to Dallas and millions of dollars of tax revenues paid, he threatened, as Southwest so often has done, to pull out of Dallas if the City did not help Southwest suppress competition, telling the City that if it did not give in to Southwest’s attempts to block Delta, Southwest would punish the City and its tax-paying citizens by ‘moving on to focus our corporate investments in those markets that place a value on them and their corporate residents.’ His message was clear—stand down and allow us to block competition or we will make you pay, dearly.”
Southwest, as you would expect, vigorously defended itself in its responses to the various cross-motions and counterclaims, in particular disputing assertions that its near-complete control of Love Field has resulted in massive fare hikes out of DAL. Delta relied heavily on a 2013 paper by industry analyst William Swelbar, entitled “Evolving Trends of U.S. Domestic Airfares: The Impacts of Competition, Consolidation, and Low-Cost Carriers,” which purported to show that Southwest’s dominant positions at DAL, Chicago Midway, and Houston Hobby resulted in above average fare increases at all three airports. The general argument put forth by Delta is that Dallas Love Field and Dallas-Ft. Worth comprise two separate “markets”, and Southwest is illegally restraining their ability to compete in the DAL market. And of course, Southwest threw around the usual fluff about how much the airline contributes to the local air travel market and the Dallas-are economy, and how allowing Delta to intrude would be damaging to both.
Meanwhile, it seems the cat has the tongue of the other player in the Love Field dispute, Virgin America, which has been strangely silent in the tussle so far. Then again, VX has its own problems to deal with at DAL, notably lackluster operational performance and the apparent impending demise of its route to Austin. Its only other response so far? Yup, another fare sale.
The series of filings and cross-filings by the various parties makes for entertaining AvGeek and political theater. The “how do you define the Dallas market” argument – particularly Delta’s contention that DFW and DAL are separate and distinct, and that Southwest is illegally constraining its ability to compete in the DAL market – is especially interesting, and is probably worth a deeper dive in a future post. Ultimately, though, it’s really not relevant to the case at hand, because…
The Five Party Agreement Seems Clear – Delta is Entitled to Accommodation
I’ve briefly discussed my reasoning before, but my non-lawyer reading of the original 2006 Five Party Agreement seems pretty clear. The critical thing to remember is that Delta was not a signatory to the original Five Party Agreement, as it did not operate commercial service at Love Field in 2006. That makes Delta a “new entrant carrier” in agreement speak, and its rights are spelled out in Aritcle I, Paragraph 3(b) of the Agreement:
To the extent a new entrant carrier seeks to enter Love Field, the City of Dallas will seek voluntary accommodation from its existing carriers to accommodate the new entrant service. If the existing carriers are not able or are not willing to accommodate the new entrant service, then the City of Dallas agrees to require the sharing of preferential lease gates, pursuant to Dallas’ existing lease agreements.
The “preferential lease gates” included 15 for Southwest (later increased to 16), three for American (later reduced to two), and two for Continental Express/ExpressJet. American was required to divest its two gates as part of its settlement with the DOJ to move forward with its merger with US Airways, and United inherited the two gates from Continental as part of that merger. Delta’s history in the Love Field affair actually began with Northwest Airlines, which requested and was granted an accommodation to begin regional jet service to Memphis (it is unclear whether the accommodation was requested before or after the merger was finalized). Service began on July 6, 2009 under the Northwest banner, which became Delta branded service once the integration of both carriers was complete on January 31, 2010. The DAL-MEM route was eventually discontinued, with service shifting to ATL using 50-seat regional jets; although Atlanta was outside the Wright Amendment perimeter, a loophole allowed flights of any length on planes with fewer than 56 seats.
So what we have is an accommodation that was requested and granted. Fast forward to the eve of an unrestricted love field in October, 2014, and Southwest, United, and Virgin America now claimed that they could no longer accommodate Delta because they planned to fully utilize their gate space. The city and Delta called United’s bluff on its absurd plan to fly 12 flights a day to Houston’s Bush Intercontinental airport, and Delta was allowed to keep flying via a gate use agreement with United, this time using Boeing 717 aircraft. United later subleased its two gates to Southwest, which immediately announced it wanted to give Delta the boot and increase its own flying to 180 flights per day out if its now 18 gates.
And though I am no lawyer, here is where I think the rub lies. The agreement is very clear that when a “new entrant carrier” requests an accommodation, airlines holding preferential lease gates (Southwest, United, and Virgin America) may voluntary agree to an accommodation. But if they refuse, then the city is required to work out a sharing accommodation. Nowhere does the Five Party Agreement say that existing carriers can deliberately ramp up gate utilization in an attempt to “freeze out” new carriers or cancel an existing accommodation – only that the city must require holders of preferential lease gates to accommodate any new entrant carrier. Yet that’s exactly what Southwest and Virgin America are attempting to do. At the time that Delta/Northwest were granted an accommodation at Love Field, Southwest and then-gate holder United were nowhere near full gate utilization. It was only after the fact that Southwest, playing the part of snarling tiger, announced plans to increase flying to 153 flights per day from 16 gates (later 180 per day from 18 gates, including some strange choices like a 23rd daily flight to Houston Hobby), and Virgin announced its quixotic plan to achieve full utilization of its two gates by starting flights to Austin. The language seems crystal clear, though – any new service must keep existing accommodations in mind.
What’s even more astonishing, frankly, is that the city has stated in its filings that it sides with Southwest’s interpretation, i.e. basically that it has the right to increase service and freeze out other carriers wishing an accommodation. Again, I see nothing in the Five Party Agreement that permits such an interpretation or behavior on the part of incumbent carriers, or that allows the city to do anything except order the various factions to find a way to accommodate Delta. Delta, naturally, insists that the city’s behavior is a result of collusion and corruption, that it is kowtowing to Southwest because of its alleged threat to curtail service if it didn’t get its way. I’ll just say, corruption at the swamp that is 1500 Marilla wouldn’t be anything new, but given that the city approached the federal government and the courts for a resolution, I find it unlikely in this case.
As for the federal government, I also find their approach rather bemusing. The DOT and FAA say that the letters they have sent the city only constitute “guidance”, and therefore, the court has no jurisdiction to hear the dispute until a final “order” is issued. But in truth, the government’s position here also borders on the absurd. It claims that its two letters to the city only constitute guidance, it does not plan to issue an order, and therefore the city has no recourse, but also makes it pretty clear that if the city doesn’t do as it says, it will take immediate enforcement action – sounds like an order to me. And never mind that Southwest has made it equally clear that if Dallas does demand an accommodation for Delta, it will also take the city to court. This seems like a classic case of whipsaw that the courts are designed to sort out, though the feds do bring up an interesting point – if the court does decide that its letters constitute final orders, then the appropriate venue is the Federal Court of Appeals for the Federal Circuit, not U.S. District Court. As a non-lawyer and non-expert in federal law, I won’t address that issue here, but I have a suspicion this is going to eventually play a meaningful part in the dispute.
Ultimately, I suspect Judge Kinkaide will take the easy way out by instructing the DOT/FAA to issue a final order one way or another, and require the warring parties to continue playing nice in the interim. The DOT will tell Dallas that it must continue accommodating Delta, who will then immediately appeal to the Court of Appeals, though Delta will be allowed to operate in the interim. And they’ll ultimately lose, because the law seems very clear, though it will extend the soap opera for months. I’ll report back on judge’s decision once that comes out in a few weeks.
Photo at Top: Sumatran Tiger, by Brian McKay, via Flickr Creative Commons, license Attribution 4.0 International (CC BY 4.0)