Question Re Aa's Hub Business Model

[FWAAA]

There is another way to look at the Legend story. AA just helped to prove the unworkability of their business model quicker than it would have anyway. Instead of the patient suffering a long, lingering death, it had a merciful, short demise.

Very well stated. AA simply sped up the inevitable. B)

 

[eolesen]

So why is it wrong to respond to the arguments that WN has no reason not to relocate to DFW since the airport has offerred "rent-abated" gates by stating the restrictions of the rent-abated gates?

Maybe because your assumptions on the restrictions are wrong?

If the restriction were to apply only to cities not receiving service from DFW today, you'd wind up with a fairly short list of North American destinations which would qualify....

Here are the actual terms from DFW's press release in January which announced the program:

To be eligible for the package, a carrier must agree to lease a minimum of 10 gates in the first year of operation and commit to this level of service through 2009.

The carrier would also be required to meet certain departure levels, based on the number of gates leased, with at least 70% of new seats dedicated to markets listed in DFW's Top 50 destinations and currently not served by the airline from DFW.

In return for the agreement to lease 10-22 gates in Terminal E, DFW guarantees free terminal rent to the carrier for one year, and the Airport will purchase all required ground service equipment and provide it free of charge for the first year.

The Airport will also make any necessary facility improvements to Terminal E, with a minimum investment of $4M and up to $6M if all 22 gates are leased.

Finally, the Airport will bolster cooperative marketing funds under its Carrier Support Program for new service previously unserved by the carrier from DFW, with up to $1M a year in eligible funds.

In total, a carrier would be eligible for up to $12.2M in assistance for a 10-gate operation, while a 22-gate operation would be eligible for an estimated $22.2M.

Unless use of the bolded word "the" above was an error in the press release, as long as the airport were within the top 50 destinations from DFW, any departures for WN would qualify towards the 70% "new destination" requirement for rent abatement.

 

[jimntx]

well I go back to the simple fact that that is just ridiculous to expect WN to take on many an unneccessary cost to relocate. Why doesn't AMR relocate its ops to DAL? Why doesn't TZ relocate to ORD? Why doesn't UA relocate to BWI?

Well, I can't speak for the other airlines, but AA's gate lease at DAL specifically states that the area can be used only for office space. There aren't even jet bridges attached. And, there is the little issue of available "working" gates at DAL. SWA has 14 of 16. At DFW, almost ALL of Terminal D is available, and some of Terminals B & D. AA has exclusive use of only A & C.

And, don't give me the "Master Plan" argument of 32 gates at DAL. They don't exist today. And, given Dallas's success with Master Plans, don't count on them being there any time soon. Look at the Master Plan for the Trinity River development. Lots of paper, lots of talk, but when it comes to someone or some organization, public or private, actually putting up some money and getting started on the work, it ain't happenin'. There's still just a very small stream that sometimes floods to a mile wide and a foot deep within the levees.

In Dallas they do things like grant tax abatements to Hunt Oil to build a new office building downtown while downtown Dallas has the highest office vacancy rate of any metropolitan area in the U.S. (in excess of 20% of available office space is vacant). They should be granting tax abatements to companies willing to move into existing office space instead of constructing more buildings in the suburbs which benefits Dallas only in the "whole metropolitan area economic strength" sense.

 

[FWAAA]

Not only has WN declined the rent-abatement offer, so have UA, CO, NW, US, HP, FL, F9 and every other airline (including, of course, DL, whose abandonment of DFW necessitated the handout offer). Must not be the financial bonanza that DFW makes it out to be. If it were something really special, then someone surely would have taken them up on their generous offer by now, right??

 

[Ch. 12]

Well, I can't speak for the other airlines, but AA's gate lease at DAL specifically states that the area can be used only for office space. There aren't even jet bridges attached. And, there is the little issue of available "working" gates at DAL. SWA has 14 of 16. At DFW, almost ALL of Terminal D is available, and some of Terminals B & D. AA has exclusive use of only A & C.

And, don't give me the "Master Plan" argument of 32 gates at DAL. They don't exist today. And, given Dallas's success with Master Plans, don't count on them being there any time soon. Look at the Master Plan for the Trinity River development. Lots of paper, lots of talk, but when it comes to someone or some organization, public or private, actually putting up some money and getting started on the work, it ain't happenin'. There's still just a very small stream that sometimes floods to a mile wide and a foot deep within the levees.

In Dallas they do things like grant tax abatements to Hunt Oil to build a new office building downtown while downtown Dallas has the highest office vacancy rate of any metropolitan area in the U.S. (in excess of 20% of available office space is vacant). They should be granting tax abatements to companies willing to move into existing office space instead of constructing more buildings in the suburbs which benefits Dallas only in the "whole metropolitan area economic strength" sense.

How in the world did AE serve DAL until a couple of years ago with decent frequencies if AMR has no gates. You are correct that AA had office space that they tried to convert to gates at the time of Legend but they also had operational gates. The only reason they currently don't have gates is b/c they don't serve DAL anymore...same reason that WN has no "working" gates at DFW. Just as AA had working gates when they served DAL, they could have them again if they served DAL.

There...I did it w/o referring to the Love Field Master Plan...and rather simply, too.

 

[Ch. 12]

Maybe because your assumptions on the restrictions are wrong?

If the restriction were to apply only to cities not receiving service from DFW today, you'd wind up with a fairly short list of North American destinations which would qualify....

Here are the actual terms from DFW's press release in January which announced the program:
Unless use of the bolded word "the" above was an error in the press release, as long as the airport were within the top 50 destinations from DFW, any departures for WN would qualify towards the 70% "new destination" requirement for rent abatement.

First of all I do want to thank you for pointing to the documentation on the incentives...I have been looking for a while and new I had seen them but obviously couldn't remember them verbatum. Here is DFW's January press release for all to see...DFW Release

And thanks for the correction on the new destinations. My guess on the "the" being bolded in the press release is that you did it b/c the release has no such bolding. Another mystery solved but worth a try.

And you'll have to excuse my response to jimntx but it was in context with what I believed the agreement to be (and you were the first to show the real press release). I have to agree with FWAA that the deal may not be all that it is advertised b/c it is, afterall, only highlighted on the DFW media site...don't think that is all there is to it. Since no other carriers have bitten either (exception of AS), I am actually comforted b/c the mgmt at other carriers is getting wiser these days and not choosing to fly up against a titan in the markets. I would be very curious to know AMR's market share in the top 50 DFW markets. Kind of hard to completely start new operations at an airport AND compete successfully against a goliath. And don't try to throw that back to the DAL and WN argument b/c EVERYBODY...INLCUDING WN would be starting the new long haul service. WN would not have the advantage that AA has in DFW with pre-existing service.

 

[jimntx]

How in the world did AE serve DAL until a couple of years ago with decent frequencies if AMR has no gates. You are correct that AA had office space that they tried to convert to gates at the time of Legend but they also had operational gates. The only reason they currently don't have gates is b/c they don't serve DAL anymore...same reason that WN has no "working" gates at DFW. Just as AA had working gates when they served DAL, they could have them again if they served DAL.

There...I did it w/o referring to the Love Field Master Plan...and rather simply, too.

AMR has subleased space from CO when they were flying from there. The 3 "gates" that AA has at DAL have been restricted to "office space" only for some years now.

Kind of hard to completely start new operations at an airport AND compete successfully against a goliath. And don't try to throw that back to the DAL and WN argument b/c EVERYBODY...INLCUDING WN would be starting the new long haul service. WN would not have the advantage that AA has in DFW with pre-existing service.

Ah yes, the poor little SWA argument. Their "weakened" condition must be why other airlines are rushing to compete with SWA at HOU, BWI, ISP, and MDW.

 

[Ch. 12]

AMR has subleased space from CO when they were flying from there. The 3 "gates" that AA has at DAL have been restricted to "office space" only for some years now.

Yet somehow Legend and CO were offering flights at the same time? How can all of these carriers have offered MORE service than is currently at DAL if there never have been gates outside of CO's?

Ah yes, the poor little SWA argument. Their "weakened" condition must be why other airlines are rushing to compete with SWA at HOU, BWI, ISP, and MDW.

What a stretch!! I'm going to take a wild stab and say...a massive CO hub just might have something to with Houston...Other LCCs such as FL @ BWI along with a strong presence of majors. In fact...I don't see the BWI argument at all...ISP...well...it's ISP! Halfway down the island. Not necessarily a fight for that one. Not even WN adds service there. And MDW?! Where have you been in the age of TZ and FL? I tend to think that the formidable presence of AMR and UAL at Chicago may be the deterrant.

Nice try, though.

 

[jimntx]

My question to the AA crowd is this (and I ask this seriously, not simply to stir the pot):

If the Chairman of the DFW Airport believes that breaking the spokes off the hub is suicidal, why does Gerald Arpy continue to insist that this is the exact course of action he would take if the Wright Amendment is repealed? (Virtually all the Eagle Cities have written to support keeping the Wright Amendment in place fearing a loss of service!)

Actually, the hub and spoke is already broken if you mean slavish obedience to the model--i.e., a flight to a spoke city would return only to the hub. Where traffic justifies we already have some hub to focus city flying that bypasses the nearest hub. For instance MIA-IAH, AUS-LAX, AUS-ORD, SAT-LAX. And, the MIA-IAH flight is a thru-flight to DFW IIRC. It's DFW-IAH-MIA on the return. There is also IAH-ORD and IAH-JFK. Also, there is a mainline HOU-AUS flight that continues on somewhere else. I'm sure there are other examples, but since I lived in Houston for many years, those are the examples I'm most familiar with.

Yet somehow Legend and CO were offering flights at the same time? How can all of these carriers have offered MORE service than is currently at DAL if there never have been gates outside of CO's?
What a stretch!! I'm going to take a wild stab and say...a massive CO hub just might have something to with Houston...Other LCCs such as FL @ BWI along with a strong presence of majors. In fact...I don't see the BWI argument at all...ISP...well...it's ISP! Halfway down the island. Not necessarily a fight for that one. Not even WN adds service there. And MDW?! Where have you been in the age of TZ and FL? I tend to think that the formidable presence of AMR and UAL at Chicago may be the deterrant.

Nice try, though.

I resent your implication that I am lying. Now you yourself have said that just because DFW is only 12 miles from DAL that's no reason to limit flying at DAL. Well, IAH which is CO's hub is over 30 miles from HOU; so, your CO hub argument does not hold water. But, then you don't see any argument other than SWA should be allowed to do whatever it wants, whenever it wants as valid.

This, of course, being all an exercise in "your momma wears combat boots" vs "so's your old man." WA will be repealed or it won't. As it looks right now, won't is more probable.

 

[Ch. 12]

I resent your implication that I am lying. Now you yourself have said that just because DFW is only 12 miles from DAL that's no reason to limit flying at DAL. Well, IAH which is CO's hub is over 30 miles from HOU; so, your CO hub argument does not hold water. But, then you don't see any argument other than SWA should be allowed to do whatever it wants, whenever it wants as valid.

This, of course, being all an exercise in "your momma wears combat boots" vs "so's your old man." WA will be repealed or it won't. As it looks right now, won't is more probable.

Now, now...where did I ever infer that you were lying? I merely stated (and stand by) the fact that you stretched to come up with something and it didn't end up being a relevant comparison. For starters...I thought you just meant the Houston city code and incorporated both into my logic. Either way, I'd say that my CO hub argument does make sense b/c you blamed WN for carriers not entering the market...I blame the largest carrier in the city. Pretty practical arguement.

And however many times we go through this, it isn't enough...I am NOT from SWA and do not tout them. Perhaps you think you see something WN in my postings, but please read...I am probably the only objective horse in this race b/c I am not affiliated with any of the parties nor am I a WN-lover. I just think that it is ridiculous for protectionist legislation to aid one airline while harming the community and the industry. WHo cares about WN?! Bring in B6 or FL! Give AA some competition for crying out loud. It is the only fortress hub protected as strongly as it is by legislation.

And finally...you are right...I don't expect the WA to be repealled. Another failure of our gov't and the politics within.

 

[Oneflyer]

Despite AArpy's claims that lifting the WA would mean that small, far-away towns will lose service, the truth is that COMPETITION...not lifting the WA would cause AA to stack markets. Small towns would lose service even if AA is faced with any real competition out of DFW. The reason is that AA, just as they did with Vanguard, Midway, and Legend, will pull capacity from some markets and stack it up on markets served by competition...at least until the "burden" is slayed. So it isn't a WA issue, it is a competition issue.

Once again poorly using history to make a point. AA was able to stack markets against weak competition, considering WN's financial position this wouldn't work at DAL, nor would AA try it.

I wish I could find the numbers again but for some reason I really do think that it was to O&Ds not served by anyone out of DFW b/c the point is (supposedly) to lure new carriers to the airport such as B6 and WN. I've been wrong once or twice before so I could have this wrong but I really recall seeing that it had to be new service for DFW...not just the carrier (which would make sense if they are trying to become more attractive as they state that they are).

Wrong again.

Yet somehow Legend and CO were offering flights at the same time? How can all of these carriers have offered MORE service than is currently at DAL if there never have been gates outside of CO's?

Legend flew out of its own 4 gate terminal. They also only flew to like 3 or 4 cities, so it wasn't exactly extensive service.

 

[Ch. 12]

Once again poorly using history to make a point. AA was able to stack markets against weak competition, considering WN's financial position this wouldn't work at DAL, nor would AA try it.

I don't follow. Are you saying that AMR would not have to reduce service to small markets and therefore disputing what Arpey said? Then that would mean that AA was exaggerating the point to get their way? Please tell me it ain't so. Or find a way to make a double-standard such as no...AA would have to pull down small mkts only if they went to DAL. That doesn't fly...sorry.

Wrong again.

I admit when I may be wrong and I admit when I was wrong. You should try it. It'll earn you more respect.

Legend flew out of its own 4 gate terminal. They also only flew to like 3 or 4 cities, so it wasn't exactly extensive service.

Sorry...don't follow again. We are constantly told by AAers that there are no gates at DAL yet more and more keep magically appearing. Sounds like there are 4 more we just found swept under the rug.

You see...this is what bugs me about the AMR arguments...it never adds up. It is all "fuzzy math".

 

[AirLUVer]

You see...this is what bugs me about the AMR arguments...it never adds up. It is all "fuzzy math".

There are 6 gates in the old "Legend" terminal, but they are only capable of handling older smaller DC9's or RJ's. Anything larger and then you only have 3 gates available for use due to space constraints. There are 26 gates at the main terminal. Of which WN has leases on 21, 14 are in active use. The remaining 7 were used for office and training space. They are also currently blocked on the ramp by employee parking and WN catering storage. CO has two gates in active use. AA has long term leases on 3 gates, but there are no jetbridges up, and there are some major improvements necessary before they could be used by the public.

 

[jimntx]

I admit when I may be wrong and I admit when I was wrong. You should try it. It'll earn you more respect.
Sorry...don't follow again. We are constantly told by AAers that there are no gates at DAL yet more and more keep magically appearing. Sounds like there are 4 more we just found swept under the rug.

You see...this is what bugs me about the AMR arguments...it never adds up. It is all "fuzzy math".

Not at all. As Oneflyer posted, Legend had its own terminal and it was 6 gates. That "terminal" is over on the far side of the airport from the main terminal. The access is via Lemmon Avenue, not Mockingbird and Cedar Springs which is the entrance to the main terminal.

It would probably make a good location for a "private" jet service like Netjets, but one of the ideas of having a terminal with multiple airlines is the passenger convenience if they have to change airlines. It does happen in the real world, you know.

 

[corl737]

... but one of the ideas of having a terminal with multiple airlines is the passenger convenience if they have to change airlines.

Given the expansive codeshare that exists in "your world" huge, interline connecting facilities are necessary. That's not a requirement for Southwest Airlines at Love Field nor anywhere else in their system. Virtually all passengers are handled start-to-finish on SWA. The limited codeshare with ATA is handled through SWA-provided gates at PHX and LAS, and through ATA's own gates at MDW.

I seriously doubt that if AA brings a flock of flights to Love Field that they're be making any room for their codeshare partners to bring in passengers there so the existing facilites -- expanded to a maximum of 26 gates if the Dallas Mayor has her way* -- will probably be adequate.

(*Laura Miller wants the Lemmon Ave. Terminal dismantled thereby reducing the number of possible gates by 6 from the Master Plan's envisioned 32.)