Reforming the Wright Amendment

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PURPOSE

The purpose of this hearing is to examine the agreement reached on reforming the Wright Amendment and its economic, regional, and national impacts on the U.S. aviation system.

BACKGROUND

Congress enacted the Wright Amendment as part of the International Air Transportation Act of 1979. It was designed to protect the interests of both Dallas/Fort Worth International Airport (DFW) and Southwest Airlines (Southwest).

The Wright Amendment contains a general prohibition on interstate commercial aviation to or from Love Field in Dallas, Texas, with four exceptions. The Amendment:

1. Permits ten interstate charter flights each month to and from Love Field;

2. Allows flights by "commuter airlines operating aircraft with a passenger capacity of 56 passengers or less;"

3. Specifically grandfathers in the existing interstate service that Southwest was providing between Love Field and New Orleans, and;

4. Allows "turnaround service" from Love Field to one or more points within the states of Louisiana, Arkansas, Oklahoma, and New Mexico, provided that the carrier does not offer through or connecting service with any other air carrier outside the listed states.

Legislative history indicates that the provision was intended to provide "a fair and equitable settlement" and was agreed to by representatives of "Southwest Airlines, the City of Dallas, the City of Fort Worth, DFW Airport Authority, and related constituent groups."

The conferees also attempted to make clear that the Wright Amendment was to supersede any Federal Aviation Act provision that might have, or could in the future, be construed to permit interstate commercial service from Love Field.

In addition, the conferees indicated that the Love Field situation was unique and that the compromise offered by the Wright Amendment was not to be construed "as a harbinger of any similar proposals for any other airport or area."

From 1979 through late 2004 Southwest remained neutral on changing the Wright Amendment. Late in 2004, Southwest began publicly calling for the repeal of the Wright Amendment. Southwest contends it did not agree to the original Wright Amendment compromise.

Chronology

1967 - The Cities of Dallas and Fort Worth agreed to construct the Dallas-Fort Worth Regional Airport (DFW). A separate, but related agreement reached between the cities, known as the Regional Airport Concurrent Bond Ordinance, called for the phase-out of certain local airports, including Dallas Love Field, and the transfer of air service from the affected local airports to DFW.

1970 – The eight carriers then serving the Dallas-Fort Worth area signed an agreement to serve DFW. Southwest Airlines had not yet begun operations and did not sign the agreement.

1971 - Southwest began service as an exclusively intrastate airline and advised the DFW Airport Board that it did not intend to serve DFW.

1972 - Not being a party to the DFW deal, Southwest Airlines formally petitioned the DFW Board for an exemption from, or waiver to, the Concurrent Bond Ordinance, which would allow Southwest to continue operations at Love Field.

In response to Southwest’s request, the Cities of Dallas and Fort Worth and the DFW Airport Board filed suit in Federal District Court seeking to exclude Southwest from Love Field. Southwest counterclaimed, seeking a declaration to remain at Love Field and an injunction to protect that right. The Texas Aeronautics Commission intervened in the suit to assert its own regulatory power over exclusively intrastate air carriers.

The federal judge presiding over the case rejected the two Cities’ joint position to deny Southwest access to Love Field, therefore ruling in Southwest’s favor.

1974 – The Cities of Dallas, Fort Worth, and the DFW Airport Board appealed the decision and the U.S. Court of Appeals for the Fifth Circuit affirmed the district court ruling. The U.S. Supreme Court declined to hear an appeal.

1975 - While the Federal District Court ruling was on appeal, the City of Dallas adopted an ordinance to exclude all commercial airlines from Love Field. The ordinance made it a criminal offense for a certificated airline to land or takeoff at Love Field. Southwest challenged the ordinance in Federal District Court. The Federal District Court permanently prohibited enforcement of the ordinance against Southwest.

Concurrently, DFW, through a state court, sought to re-litigate the question of Southwest’s right to use Love Field. The Federal court then issued an order prohibiting interested parties from re-litigating the 1968 Concurrent Bond Ordinance, therefore allowing Southwest Airlines to continued use and access to Love Field.

1977 - DFW appealed this ruling to the Fifth Circuit Court of Appeals. The Fifth Circuit affirmed the ruling of the Federal District Court. The Supreme Court again declined to hear an appeal.

1978 - Congress passed the Airline Deregulation Act of 1978. Southwest viewed deregulation as an opportunity to become an interstate air carrier. Soon after, Southwest launched its first interstate service, between Houston, Texas and New Orleans, Louisiana.

1979 - Southwest Airlines filed an application with the now defunct Civil Aeronautics Board (CAB) for authority to fly between Dallas Love Field and New Orleans. In response, DFW and American Airlines filed objections with the CAB. The CAB initially invoked the 1968 Concurrent Bond Ordinance as a basis for denying Southwest the right to fly between Love Field and points outside the State of Texas. However, after continued hearings, the CAB granted Southwest permanent authority to fly in the Love Field to New Orleans market.

1979 - In that same year, Congressman Jim Wright, then-House Majority Leader, secured an amendment to the International Air Transportation Competition Act of 1979. The compromise, commonly known today as the “Wright Amendment,” limits the geographical region which Southwest Airlines is legally permitted to serve out of its home base at Dallas Love Field.

The original Wright Amendment provision contains a general prohibition on interstate commercial aviation to, or from, Love Field subject to exceptions that permit Southwest’s continued operations to points in Texas and a regional four contiguous state market – Louisiana, Arkansas, Oklahoma, and New Mexico.

1997 - Since 1979, the only change to the law was the Shelby Amendment, enacted in 1997 as part of the FY 1998 Transportation Appropriations Act (P.L. 105-66). This amendment allows service to three additional states – Alabama, Mississippi and Kansas – and unrestricted flights for aircraft of less than 56 seats.

2005 - On October 20, 2005, the Senate passed H.R. 3058, the Transportation, the Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, the Executive Office of the President, and Independent Agencies: FY2006 Appropriations Act. The legislation prohibits funds from being used to enforce the Wright Amendment with respect to flights between Love Field, Texas, and one or more points within the State of Missouri, thereby adding Missouri to the list of exempted states.

Market Changes

In the fall of 2004, Delta Airlines decided to pull most of its service out of DFW. DFW then requested that Southwest Airlines consider operating long distance flights out of DFW. Southwest rejected the DFW offer and instead announced in November 2004 that it intended to seek legislative relief from the Wright Amendment. This announcement ended what was regarded as a long standing truce on this issue between Southwest and DFW.

Since November 2004, DFW, joined by other parties, including American Airlines (American), have lobbied Congress to retain the existing provision. Several interested parties, including Southwest, American and DFW, have commissioned independent reports on the issue.

Dallas-Fort Worth Aviation Market

The Dallas-Fort Worth region is served by one large hub airport, DFW, and one medium hub airport, Love Field. Respectively, the airports rank 3^rd and 56^th nationally in total passenger enplanements.

Between April 2005 and March 2006, the most recent period for which data is available from the Bureau of Transportation Statistics (BTS), DFW enplaned 51.5 million passengers while enplanements at Love Field were about 5.99 million. Each airport can claim to be the home of one of the nation's 10 largest airlines, with American based at DFW and Southwest based at Love Field.

According to the BTS, American is the nation's largest airline having an almost 15 percent share of the U.S. market in the year running from April 2005 to March 2006. Southwest, which controls about 10.9 percent of the U.S. market, is the nation's most profitable airline and is one of a very small number of airlines that has remained profitable throughout the post-September 11th period.

According to the BTS, Southwest had operating revenue of $6.7 billion in the year running from April 2005 to March 2006 and a net profit of $613 million. For the same period, American had operating revenue of $1,347 million and a net loss of $889 million.

American is clearly the dominant air carrier at DFW. According to the BTS, between April 2005 and March 2006, approximately 85 percent of all passengers at DFW boarded American and American regional air carrier flights. Delta Airlines accounts for about 2.78 percent and the next largest air carrier share is United Airlines at about 2 percent.

Southwest is clearly the dominant air carrier at Love Field. According to the BTS, between April 2005 and March 2006, Southwest had a 95 percent market share at Love Field. Continental Express accounted for roughly 4.5 percent of the passengers. American, who leases three gates at the main terminal, accounted for 0.5 percent of the passengers. Most of the airline traffic in the regional market is controlled by these three air carriers.

Love Field Agreement

On June 15, 2006, the mayors of Dallas and Fort Worth and other officials held a press conference to announce that the cities, the DFW Airport Board, Southwest Airlines, and American Airlines had reached an agreement on a future configuration of Love Field (DAL) that would make repeal of the Wright Amendment acceptable. The Love Field agreement:

Love Field Capacity

· Repeals the Wright Amendment in 2015 by lifting all existing domestic flight restrictions at Love Field; until 2015, existing domestic flight restrictions will remain at Love Field (direct flights will be limited to: Missouri, Alabama, Mississippi, Kansas, Louisiana, New Mexico, Arkansas, and Oklahoma).

· Immediately reduces the number of gates at Love Field from 32 to 20, with Southwest receiving 16 of the remaining gates (it has 21 now), American Airlines two (it has three now), and Continental Airlines two (same as today). Six unused gates in a secondary terminal would be demolished.

· Immediately allows through-ticketing from Love Field. Southwest, American and Continental may also market connecting service from Love Field to cities outside the Wright Amendment’s geographic area. Previously, in what is known as the “Wright two-step”, a passenger who wanted to fly from Love Field to an airport outside the Amendment’s geographic area would have to purchase a second ticket from that city to a city within the Amendment’s geographic area.

· Limits all future commercial passenger service out of Love Field to domestic operations.

· Commits the City of Dallas to invest up to $200 million in airport improvements at Love Field, including development of new main terminal; and immediately raises landing fees to help pay for new terminal and other infrastructure improvements.

Penalties

· If Congress expands the Wright Amendment’s geographic area between now and 2015 and Southwest Airlines begins service to points outside the geographic area in response to such action, Southwest would lose eight gates at Love Field.

· If Southwest or American choose to operate from another airport within an 80-mile radius of Love Field (excluding DFW for American), each airline would surrender an equivalent number of gates at Love Field (which would be made available to other airlines).

Effective Date

· The agreement must be codified by Congress.

· The agreement is null and void if Congress fails to codify the agreement by December 31, 2006, unless the parties agree otherwise.

Chairman's Opening Statement

Chairmain John Mica (Rep - FL)

MEMBERS PANEL

The Honorable Ralph Hall (TX-30)

The Honorable Joe Barton (TX-6)

The Honorable Sam Johnson (TX-3)

The Honorable Kay Granger (TX-12)

The Honorable Jeb Hensarling (TX -5)

The Honorable Michael Burgess (TX-26)