Each time two airlines merge, there are Great Debates on competition in the marketplace among airlines and those debates usually start in Congress and among pundits for the airline industry.  It’s a valid concern but there is something that gets ignored in the debate.

Airlines are presumed to be competing openly in perfectly competitive markets throughout their business structure.  They are assumed to be gaining some advantage through ownership of fortress hubs but we know that such fortress hubs are not always as “fortress-like” as we might believe.

With so much emphasis on airline competition, I do wonder when we focus on another part of the competition equation in the airline industry.  That would be airports.

We do very little foster competition at most airports even when there is a demonstrated desire by an airline to enter a marketplace and lower fares.  In fact, many airports simply do not cooperate nor do they ask for cooperation on the part of existing airlines to bring in new airlines except when that airport is a ghost town (think Pittsburgh).

American Airlines has more than 80% of the traffic in and out of DFW airport these days and will be approaching 90% after its merger with US Airways.  This airport won’t get scrutinized by regulators because there is nominally some gate space available for airlines to use.

Consider this:  American Airlines effectively controls 4/5ths of DFW airport today.  It has full control of 3 very large terminals (A, B and C) and effective control of Terminal D.  The only terminal it doesn’t control is Terminal E, the least optimal terminal for an airline to operate into and out of.  And by far the terminal most in need of a refresh (it’s getting that now and that is long overdue.)

But what if an airline would like to start substantial operations at DFW?  Is there space today?  Not really.  It would be possible to find two or three gates at best and that doesn’t not exactly invite airlines to enter the market.  If airlines want to share space, they can but it’s up to them to figure out how to do it.

Will DFW build a new terminal for new entrants?  No, not without a very substantial commitment from an airline to help pay for those facilities.  Yet, without new space and flexibility, DFW can’t begin to hope to add new airlines except on a small, ad-hoc basis.

That new terminal space is exactly what would attract more competition into this airport.  People wonder why Southwest doesn’t give in and use DFW but this is one very big reason why:  DFW actually can’t provide adequate gate space for a substantial operation run by Southwest .  Consider that for a few minutes. . .

Competition isn’t just controlled by airlines, it’s controlled by those operating the airports.  Those airport boards feel very beholding to large incumbents and often do not accommodate anyone else due to unspoken (and sometimes not so  unspoken) threats by those owning the fortress hub.

Take a look at how United (Continental) Airlines treated Houston after it allowed Southwest to build a 6 gate international terminal at Houston Hobby.  It was unseemly and unwarranted.

If you want more competition, you have to make it possible for new entrants to gain a foothold in a market and you have to make it possible for them to grow a little too.  I realize (and so does everyone else) that there are a few airports where that has to be governed a bit differently such as NYC’s La Guardia and JFK and Newark Airports.  In fact, those are about the only places where it has to be done a bit differently.  Everywhere else things could be done more attractively and more efficiently than is the case today.

Filed under: Airline Service by ajax