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enilria
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WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 12:56 am

HOLY FS^&$%US%HSHSH$#Y$UYSE%$$YE$

It's not even a purchase. It's just a lease!!!!

Dallas-based Southwest already controlled 16 of Love Field's 20 gates when it agreed earlier this year to pay $120 million to sublease United's two gates at the city-owned airport. Virgin America has the other two. Southwest did not disclose the payment to city officials, and it only became public when a Southwest lawyer revealed the price in court on Monday.

http://finance.yahoo.com/news/southw...120-million-payment-000624697.html
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 1:15 am

Quoting enilria (Thread starter):
HOLY FS^&$%US%HSHSH$#Y$UYSE%$$YE$

...and now we know why UA left DAL   I wonder how long the lease is for?

Kind of insane bu as pointed out $120 million was LESS than WN paid LGA and DCA for access.
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airliner371
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 1:15 am

Already being discussed at FAA Steps Into DAL Debate - Part 2 (by KarelXWB Sep 15 2015 in Civil Aviation).
 
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enilria
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 1:40 am

Quoting airliner371 (Reply 2):

Already being discussed at FAA Steps Into DAL Debate - Part 2 (by KarelXWB Sep 15 2015 in Civil Aviation).

Even so, this is a headline worthy of its own thread. That's a monstrous discovery.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 1:41 am

Quoting United1 (Reply 1):
Kind of insane bu as pointed out $120 million was LESS than WN paid LGA and DCA for access.

This is just a lease. I don't think that's ever been exceeded for a lease. Also, DCA and LGA restrictions are not artificial like those in DAL and this is a carrier paying $120m to block competitors. How did DOT/DOJ approve this deal? They have zero credibility.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 2:26 am

Quoting enilria (Reply 4):
How did DOT/DOJ approve this deal? They have zero credibility.

They both already said that DFW and DAL are one market. Should the building of a Wal-mart be blocked if their isn't enough room on the block for Target to build a store too?
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 2:43 am

Quoting usflyguy (Reply 5):
They both already said that DFW and DAL are one market. Should the building of a Wal-mart be blocked if their isn't enough room on the block for Target to build a store too?

This would be an interesting analogy if there were only two strip malls in the metroplex.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 2:46 am

Quoting jetlanta (Reply 6):
Quoting usflyguy (Reply 5):
They both already said that DFW and DAL are one market. Should the building of a Wal-mart be blocked if their isn't enough room on the block for Target to build a store too?

This would be an interesting analogy if there were only two strip malls in the metroplex

Basically WN massively overpaid to block competition. It's a total perversion of the free market AND WN was heavily involved in creating the whole restriction in the first place. I find the whole situation despicable.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 2:58 am

Quoting enilria (Reply 7):
Basically WN massively overpaid to block competition.
Quoting enilria (Reply 4):
this is a carrier paying $120m to block competitors

You're acting like this is their main intent. I assure you, while this may be a positive for them, they aren't doing this simply to block a competitor, they are doing this so they can expand in their hometown which is highly restricted.

This is like you saying the AirTran acquisition was to eliminate a competitor. While true, you omit everything else Southwest gets out of it just so you can spread your pro-consumer agenda and make Southwest look like the bad guy. All you do is mislead people on this site and it's getting really annoying. Hell, the only reason you started this thread to begin with was to continue that agenda.

Quoting enilria (Reply 7):
I find the whole situation despicable.

So lets abolish the Wright Amendment and compromise and open up Love Field to everyone.

[Edited 2015-09-30 20:23:24]
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 2:59 am

Quoting enilria (Reply 7):
Basically WN massively overpaid to block competition. It's a total perversion of the free market AND WN was heavily involved in creating the whole restriction in the first place

A free market is a market economy system in which the prices for goods and services are set freely by consent between vendors and consumers, in which the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority.

....one could say that WN and UA were free to make any deal that they chose in a free market.

Reading through the other thread:

The lease seems to run until 2026 (might be extendable)
DL only offered a bit over 8 million (no shocker who UA picked)
DAL is WNs highest margin station...
Works out to be $416K a month per gate...anyone know what the average lease rate is in DAL/DFW or at LGA/DCA?
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 3:11 am

The problem is that airlines should not be able to trade gates as though they actually belong to them. Gates at DAL belong to the City of Dallas, and the city should have stepped in when the time came and redistributed the gates to ensure the preservation of competition at the airport. That could have been done by setting the distribution of gates equal to the relative number of flights of carriers already serving the airport at the time the Wright Amendment ended. New entrants could then be accommodated on a periodic basis as space freed up. How VX ended up with the AA gates that DL was using while UA was able to "sell" property that did not belong to them is just ridiculous in my book and did nothing but squeeze out a viable competitor.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 4:31 am

Quoting enilria (Reply 4):
this is a carrier paying $120m to block competitors

They are paying $120 Million to a primary competitor in which any competitor could have also bid and UA could have refused. Sounds like free market to me.

Quoting enilria (Reply 4):
How did DOT/DOJ approve this deal?

Government is best which governs the least. We are talking about 2 gates out of ~180 gates within 17 miles. Its hard for me to become outraged by the lack of competition in this market also considering it is one of the most competitive markets in the world right now in terms of price pressure.

I don't see this as a DOJ issue. I could see the city of Dallas being interested though. Theoretically WN could offer better service/product with more gates at DAL. Can't the city build more gates? If this is the value of these gates maybe they should  

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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 4:32 am

Blocking competitors? WN had the money to pay UA off to give them the gates. They acquired them and are now close to 180 daily departures which is what they wanted. I do not see this as blocking competitors. I say it's anticompetitive to forbid WN from using the gates and from DAL not being allowed to build more terminal space. If you want free and fair competition, the government should not be as involved and let both DAL and DFW grow simultaneously.


(If it sounded sassy or condescending I did not mean it with that tone; it's my humble opinion).

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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 4:41 am

Quoting United1 (Reply 1):
Kind of insane bu as pointed out $120 million was LESS than WN paid LGA and DCA for access.

I like what the Dallas Morning News has done in its coverage, converting the full amount into a 'slot fee'. If you assume that WN can 20 combined takeoffs and landings per gate, that equates to $120 million for 40 slots or $3 million per slot. WN paid $2.5 million for DCA slots.

Dallas Morning News aviation blog

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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 5:41 am

Leasing the gates from UA is the only way WN could expand in their key hometown market. They are basically restricted from from adding flights at DFW (they'd have to give up flights at DAL to do so). Whereas DL can add all the flights at DFW it would like. DL just can't stand the idea of not matching competition on any route from ATL. The only fair thing would be to lift all the artificial limitations on WN and DAL ~
I work for Southwest, but the views expressed are my own and do not necessarily represent those of Southwest.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 10:24 am

Quoting airliner371 (Reply 8):
Quoting enilria (Reply 7):
I find the whole situation despicable.

So lets abolish the Wright Amendment and compromise and open up Love Field to everyone.

Yes please

Quoting United1 (Reply 9):
A free market is a market economy system in which the prices for goods and services are set freely by consent between vendors and consumers, in which the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority.

A monopolist will always get greater value from buying the last remaining assets available to provide competition than a new competitor will AND that is NOT a free market.

Quoting United1 (Reply 9):
Works out to be $416K a month per gate...anyone know what the average lease rate is in DAL/DFW or at LGA/DCA?

$10k per month is common for a gate at large USA airports.

Quoting tortugamon (Reply 11):
Government is best which governs the least. We are talking about 2 gates out of ~180 gates within 17 miles.

So, if you think it's just one market you are effectively saying that every gate at DFW is also worth $60m each. The fact that is clearly not the case is why it is not one market.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 11:48 am

Quoting enilria (Reply 15):
The fact that is clearly not the case is why it is not one market.

It would be one market if DAL could be expanded as the market demands. However, DAL is artificially constrained which will naturally push prices higher. DFW has no constraints.

Rough numbers on my part:

20 roundtrips per day X 120 passengers per roundtrip X $250 average fare roundtrip X 365 days X 10 years = $2.2 Billion dollars.

All of the sudden, $120 million doesn't seem like so much if you can bring in $2.2 Billion in revenue.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 12:02 pm

Quoting FlyPNS1 (Reply 16):

LGA is constrained while JFK still has a bit of room here and there. By your logic those are serving 2 markets too.

And it's meaningless to compare straight up top line revenue projection (without accounting for costs and risks) while the $120m goes straight to the bottom line. Apples to oranges.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 12:19 pm

Quoting enilria (Reply 4):
Also, DCA and LGA restrictions are not artificial like those in DAL and this is a carrier paying $120m to block competitors.

I disagree, this is a carrier RECEIVING $120m to block a carrier, UA is a true genius.

Quoting enilria (Reply 7):
Basically WN massively overpaid to block competition.

If they were / intend to gate squat we agree, but from all the plans they have been publishing, they intend to use the limited facilities created at DAL to the fullest, so don't see the blocking. A question, if WN operates more flights from the two gates than the competitor - example VX - operate from their gates, who is blocking competition?

Quoting airliner371 (Reply 8):
You're acting like this is their main intent. I assure you, while this may be a positive for them, they aren't doing this simply to block a competitor, they are doing this so they can expand in their hometown which is highly restricted.

  
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 12:28 pm

Quoting a380787 (Reply 17):
And it's meaningless to compare straight up top line revenue projection (without accounting for costs and risks) while the $120m goes straight to the bottom line. Apples to oranges.

It's not meaningless at all. Take my $2.2 billion number and assume a 10% profit margin (not unrealistic for WN over a ten year time horizon at a strong WN market like DAL) and you get a $220 million profit. This more than pays for the gates. Yes, I'm oversimplifying the math a bit, but the bottomline is that this lease could still prove to be quite profitable to WN.

Quoting a380787 (Reply 17):
LGA is constrained while JFK still has a bit of room here and there. By your logic those are serving 2 markets too.

While they serve the same city, LGA and JFK are fundamentally different markets for the airlines. LGA is almost all short-haul domestic traffic, while JFK is mostly long-haul transcons and international. Now, if you removed all constraints (get rid of the perimeter rules, physical runway constraints at LGA), then yes they would operate as one market.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 1:26 pm

Quoting airliner371 (Reply 8):
You're acting like this is their main intent. I assure you, while this may be a positive for them, they aren't doing this simply to block a competitor, they are doing this so they can expand in their hometown which is highly restricted.

  

Quoting par13del (Reply 18):
A question, if WN operates more flights from the two gates than the competitor - example VX - operate from their gates, who is blocking competition?

This is a great point. Especially considering we've just had an active thread about VX's ~32% LDFs between DAL and AUS for the second quarter, say we transfer what are inevitably hefty losses for VX and allocate those to what they're paying for their DAL gates in the first place. The number obviously won't reach something like $60M per gate, but it'll be significant and climbing by the day at this rate all in the name of "blocking competition" if that's the way you choose to view it.

Quoting FlyPNS1 (Reply 19):
It's not meaningless at all. Take my $2.2 billion number and assume a 10% profit margin (not unrealistic for WN over a ten year time horizon at a strong WN market like DAL) and you get a $220 million profit. This more than pays for the gates. Yes, I'm oversimplifying the math a bit, but the bottomline is that this lease could still prove to be quite profitable to WN.

Exactly. This is the logic that I believe WN used in court as well, although I may have misinterpreted that.

Quoting enilria (Reply 7):
Basically WN massively overpaid to block competition.

Again, some decent justification for that figure has been given a few times now... in the other thread where this is already being discussed...

[Edited 2015-10-01 06:40:22]
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 1:28 pm

Quoting FlyPNS1 (Reply 19):

While they serve the same city, LGA and JFK are fundamentally different markets for the airlines. LGA is almost all short-haul domestic traffic, while JFK is mostly long-haul transcons and international. Now, if you removed all constraints (get rid of the perimeter rules, physical runway constraints at LGA), then yes they would operate as one market.

"Market" is defined as the catchment area, not the nature of the routes. What you're describing are artificial constraints plus a convenience preference by a majority of travelers, which is different from the "market" (in this case, the tri-state area, with a skew towards the eastern half of it)

From PNS, flying to any one of LGA JFK or EWR can get you to Manhattan by a single quick cab ride. That by definition means they're largely sharing the same core "market". The whole "EWR is hub captive" is just a side effect of the poor road traffic congestion in the highways around the Tri-state area at certain rush hours (a time-value-of-money argument), which is a whole lot different from the hub captivity experienced by those at places like MSP or ATL, which has absolutely no realistic alternate airport to pick from.

Quoting FlyPNS1 (Reply 19):

It's not meaningless at all. Take my $2.2 billion number and assume a 10% profit margin (not unrealistic for WN over a ten year time horizon at a strong WN market like DAL) and you get a $220 million profit. This more than pays for the gates. Yes, I'm oversimplifying the math a bit, but the bottomline is that this lease could still prove to be quite profitable to WN.

10% is a huge assumption if you look at historically how thin the net margins of airlines are - not the lofty 15-20% gross op-inc margins we see today. The last 12-24 months are showing record profits for airlines in the US, and we shouldn't set our baseline expectation to that going forward. For starters, oil price is volatile, and the current price is nearly the bottom of what one should realistically forecast in the short to medium term (short of unpredictable major events like massive dumping by OPEC)

Even under your assumptions, 220 - 120m (the gate fee) = 100m pre-tax margin = maybe 60-70m post tax GAAP net margin ? That's 2.7-3.2% margin using rather rosy assumptions.

Now compare that to 120m which is nearly pure pre-tax profit for UA while dealing with zero of the risks associated with flying all those flights (risk of oil price spike, PRASM depression at next downturn, opportunity cost of aircraft and crew etc)
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 2:04 pm

Quoting a380787 (Reply 21):
10% is a huge assumption if you look at historically how thin the net margins of airlines are - not the lofty 15-20% gross op-inc margins we see today.

Supposedly DAL is WNs highest yielding station....around 16% is what was mentioned in court.
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 2:08 pm

Quoting United1 (Reply 22):
Supposedly DAL is WNs highest yielding station....around 16% is what was mentioned in court.

If WA2 get's adjusted to allow additional gates that number would go down, so I would expect a 10 year phase in of any gate increase to allow them to recoup.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 2:23 pm

Quoting United1 (Reply 22):
Supposedly DAL is WNs highest yielding station....around 16% is what was mentioned in court.

I don't have access to those court documents to tell what WN is exactly talking about - preWright or post-Wright. Those are hugely different in terms of profit margins, and whether those numbers are recent or long-term.

The next question is also whether the incremental flights would keep the same 16%, increase from there (because of attractiveness from increased connectivity), or begin diluting them as those flights start chasing the ones lower down the ladder.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 2:37 pm

Quoting jetlanta (Reply 6):
This would be an interesting analogy if there were only two strip malls in the metroplex.

Just build/authorize more airports then, if the market can support them then why not? And of course the problem with the point you are trying to make, there are more strip malls because the market is greater for them. While the market for and ability to provide an airport is very different. The question is how many airports (gates, or runways, etc. ) can the Dallas/Ft.Worth area support and have they properly supported that market?

Quoting tortugamon (Reply 11):
Government is best which governs the least. We are talking about 2 gates out of ~180 gates within 17 miles. Its hard for me to become outraged by the lack of competition in this market also considering it is one of the most competitive markets in the world right now in terms of price pressure.

I don't see this as a DOJ issue. I could see the city of Dallas being interested though. Theoretically WN could offer better service/product with more gates at DAL. Can't the city build more gates? If this is the value of these gates maybe they should  

  

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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 2:40 pm

Quoting a380787 (Reply 21):
10% is a huge assumption if you look at historically how thin the net margins of airlines are - not the lofty 15-20% gross op-inc margins we see today.

Not for WN. A 10% net margin has been pretty close to WN's historic margins over the past few decades. And again, I would argue that DAL will (over the 10 year life of the lease) outperform WN's entire network owing to WN's inherent customer base and market penetration. Would two extra gates at BOS produce the same margins for WN? Certainly not, as WN doesn't have the market penetration there to command those types of margins.

If anything, I'm probably being pretty conservative with the 10% margin at a hub like DAL.

Quoting a380787 (Reply 21):
"Market" is defined as the catchment area, not the nature of the routes.

That's your definition, but not necessarily how business and customers actually behave which is what actually creates a market. Constraints (whether they be geographic, infrastructure or politically created) help define a market. I could live next door to LGA, but if I'm shopping for a non-stop flight to LAX, then LGA isn't in the "market" because LGA can't provide the product I want. Granted, that's an artificial restriction, but nevertheless it creates the market.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 2:45 pm

Quoting FlyPNS1 (Reply 26):

That's your definition, but not necessarily how business and customers actually behave which is what actually creates a market. Constraints (whether they be geographic, infrastructure or politically created) help define a market. I could live next door to LGA, but if I'm shopping for a non-stop flight to LAX, then LGA isn't in the "market" because LGA can't provide the product I want. Granted, that's an artificial restriction, but nevertheless it creates the market.

By your (stretched) line of argument, no 2 airports share the same market in the world.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 2:50 pm

The bottom line is that the limitation of 20 gates is the problem, not Southwest's use of DAL. Frankly, if Southwest wanted to fly out of DFW, nobody would force them out of Love. They don't fly out of DFW because they don't want to, not because they can't.

Before DFW, Love handled essentially all Metroplex traffic, especially after GSW (Fort Worth) closed. With American, Braniff, and Delta having major operations at Love, as well as Continental, Eastern, Frontier, and Texas International having somewhat smaller presence. And American flew DC10's and 747's, Delta DC10's, L10's, and 747's, and Braniff 747's out of Love Field without problems. You could easily rebuild the old Legend terminal which could quickly provide an additional 6 or so gates without increasing congestion. Plus, planes today are a lot quieter than back in the 1970's.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 3:06 pm

If Delta was doing anything other than just basically a shuttle back and forth to Atlanta I, as a cumsumer might have a slight bit of sympathy. This move opened up much greater possibilities for folks in places like Memphis, especially going west and improved competition while at it.

[Edited 2015-10-01 08:06:58]

I don't see how this blocked competition, especially for those flyers from new cities added to the WN Love network.


[Edited 2015-10-01 08:11:30]

If there ever was a case for a for profit airport like the one in Branson, one north around Plano would be it.


[Edited 2015-10-01 08:16:00]
 
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enilria
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 3:14 pm

Quoting FlyPNS1 (Reply 16):
Quoting enilria (Reply 15):
The fact that is clearly not the case is why it is not one market.

It would be one market if DAL could be expanded as the market demands.

Exactly

Quoting FlyPNS1 (Reply 16):
Rough numbers on my part:

20 roundtrips per day X 120 passengers per roundtrip X $250 average fare roundtrip X 365 days X 10 years = $2.2 Billion dollars.

All of the sudden, $120 million doesn't seem like so much if you can bring in $2.2 Billion in revenue.
Quoting winginit (Reply 20):
Quoting FlyPNS1 (Reply 19):
It's not meaningless at all. Take my $2.2 billion number and assume a 10% profit margin (not unrealistic for WN over a ten year time horizon at a strong WN market like DAL) and you get a $220 million profit. This more than pays for the gates. Yes, I'm oversimplifying the math a bit, but the bottomline is that this lease could still prove to be quite profitable to WN.

Exactly. This is the logic that I believe WN used in court as well, although I may have misinterpreted that.
Quoting enilria (Reply 7):
Basically WN massively overpaid to block competition.

Again, some decent justification for that figure has been given a few times now... in the other thread where this is already being discussed...
Quoting a380787 (Reply 21):
10% is a huge assumption if you look at historically how thin the net margins of airlines are - not the lofty 15-20% gross op-inc margins we see today. The last 12-24 months are showing record profits for airlines in the US, and we shouldn't set our baseline expectation to that going forward. For starters, oil price is volatile, and the current price is nearly the bottom of what one should realistically forecast in the short to medium term (short of unpredictable major events like massive dumping by OPEC)

Here's the big problem with that analysis and why it is flawed. It assumes that WN can only fly planes from DAL and have no other place to fly planes from.

The real question is whether their next best idea is $120m worse than the numbers you estimated. I would wager it isn't. Your comments about WN making an average 10% profit margin buttress that point because those network numbers were achieved without a $120m investment for every two gates the airline leases in its network.

So, the $120m was really spent to protect the profits of the remaining flights which is monopolistic behavior. WN flying one DAL-MSP to hold a gate is akin to US flying 1 DCA-TLH. The goal is to operate a flight that will lose as little as possible, or even make a modest profit while a) not cannibalizing existing cash cow markets by adding capacity and reducing fares (therefore add markets outside your sphere of influence that will take traffic from other carriers) or b) allowing a competitor to add capacity in a cash cow market and reduce fares/profits.

Quoting par13del (Reply 18):
I disagree, this is a carrier RECEIVING $120m to block a carrier, UA is a true genius.

The CEO should get a bonus, but he got severance for other "shrewd" moves.  
Quoting par13del (Reply 18):
If they were / intend to gate squat we agree, but from all the plans they have been publishing, they intend to use the limited facilities created at DAL to the fullest, so don't see the blocking.

Again, see my DCA-TLH example above. It's the same strategy. Block gates by operating flights into other carriers strongholds that will produce marginal results, but keep capacity out of cash cow markets.
 
airliner371
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 3:42 pm

Quoting superjeff (Reply 28):
Frankly, if Southwest wanted to fly out of DFW, nobody would force them out of Love. They don't fly out of DFW because they don't want to, not because they can't.

This is 100% false. It is in the compromise that WN can not serve DFW without losing a gate at DAL for every gate at DFW.
 
ont 737
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 3:43 pm

Quoting enilria (Reply 30):
Again, see my DCA-TLH example above. It's the same strategy. Block gates by operating flights into other carriers strongholds that will produce marginal results, but keep capacity out of cash cow markets.

The huge assumption with your DAL-MSP example is that you are assuming the DAL-MSP is a marginal market for WN. Also, a state capital to DC route (US flying DCA-TLH) is not out of the realm of reasonable. Were you aware that Tallahassee is the state capital of the 4th most populous state in the USA? Gate blocking using long haul routes is an expensive proposition. If Southwest has additional gate space to burn, why not reinstate some of the inside perimeter flying they had cut (AUS, HOU, etc.) to free up space for the new WA flying? Are you suggesting that Southwest cut profitable flying to add marginal long haul flying just to mess with other airlines and block gates?  

A great example of gate blocking is in 2012 when US was flying ~25 daily (each way) flights on LGA-PHL with props and small RJs, or VX’s DAL-AUS flights.

The DAL gates are worth significantly more to WN than any other airline because they are WN's only option to grow in the market (they will have to give up DAL gates if they grow in DFW). Any other carrier can simply add flights in DFW.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 3:53 pm

Quoting enilria (Reply 30):
The real question is whether their next best idea is $120m worse than the numbers you estimated.

That's not how a business like WN operates, so your premise is false. $120 million is a drop in the bucket for WN over the next ten years. So, it's not as if this money is starving WN from pursuing other goals. WN can invest in DAL, plus grow elsewhere as it sees fit. If anything, right now, WN has more cash they really know what to do with.

I would argue that WN actually sees much higher margins at DAL (closer to 15-20%) which is why they are so keen on gates there.

Quoting enilria (Reply 30):
So, the $120m was really spent to protect the profits of the remaining flights which is monopolistic behavior.

How is that? Even if WN didn't have these two gates, it would have virtually no impact on the profitability of the rest of WN's DAL network.

Quoting enilria (Reply 30):
WN flying one DAL-MSP to hold a gate

So what you are saying is that WN is not capable of having a hub in DAL the same way they have hubs in DEN, BWI, MDW, etc? Any attempt to grow at DAL is monopolistic and not actually growing a hub in a growing and centrally located market where WN has an already large customer base?

I'd also note that WN didn't just add a bunch of new routes with the new gates. In some cases, they added frequencies to markets to make them more competitive.
 
mcg
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 4:11 pm

Quoting FlyPNS1 (Reply 26):
Not for WN. A 10% net margin has been pretty close to WN's historic margins over the past few decades. And again, I would argue that DAL will (over the 10 year life of the lease) outperform WN's entire network owing to WN's inherent customer base and market penetration. Would two extra gates at BOS produce the same margins for WN? Certainly not, as WN doesn't have the market penetration there to command those types of margins.

Very interesting point, what it demonstrates is that WN has monopoly power ("inherent market penetration") at DAL. If one of the goals of economic regulation is to protect the interests of consumers, then probably WN should be limited to the gates they already have at DAL. The challenge is how to encourage viable competition by the users of the other four gates.
 
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Polot
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 4:27 pm

Quoting superjeff (Reply 28):
The bottom line is that the limitation of 20 gates is the problem, not Southwest's use of DAL. Frankly, if Southwest wanted to fly out of DFW, nobody would force them out of Love. They don't fly out of DFW because they don't want to, not because they can't.

Things are a bit more complicated than that. If WN operates from DFW then it must give up its preferential rights to an equivalent number of gates in DAL (up to 8) that it is using in DFW. WN can use those DAL gates under a common use basis if nobody else is interested in them.

Quoting enilria (Reply 30):
So, the $120m was really spent to protect the profits of the remaining flights which is monopolistic behavior. WN flying one DAL-MSP to hold a gate is akin to US flying 1 DCA-TLH.

US didn't fly to TLH to block gates/slots and push out competitors. US started TLH for political reasons after the slot swap with DL (would look bad if they used additional slots just to bolster their current network and, being a state capital and small market, TLH made an excellent choice to gain public and government points) and then cut it when they were forced to give up DCA slots when they merged with AA.

Quoting mcg (Reply 34):
Very interesting point, what it demonstrates is that WN has monopoly power ("inherent market penetration") at DAL.

Of course they do. They also have that at BWI, MDW, and several other airports But so does AA at DFW, CLT, PHL, MIA; DL at SLC, MSP, DTW, ATL; UA at IAH, EWR and so on. It is difficult to spin that against them though as every airline is guilty of it, which is why you see DL being very careful with their arguments so that they don't come back and bite them in the ass later.

[Edited 2015-10-01 09:32:41]
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 4:57 pm

Quoting enilria (Reply 15):
So, if you think it's just one market you are effectively saying that every gate at DFW is also worth $60m each. The fact that is clearly not the case is why it is not one market.

Well I think DL kinda saw them as one market and that is why they bid $8M for the gates...but for WN who doesn't want to split their market between the two airports, the two gates are clearly worth more so they bid more.

The point is that the DOJ/DOT should not get involved on such a trivial matter about two gates in a tiny airport. This is a state/city level issue that they need to determine what is right for them there. Its not federal. I realized inter-state commerce falls under federal jurisdiction but 2 gates out of 190...hopefully we can make better use of our tax dollars and let Texas/Dallas figure out what is best for them.

tortugamon
 
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par13del
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 4:57 pm

Quoting mcg (Reply 34):
Very interesting point, what it demonstrates is that WN has monopoly power ("inherent market penetration") at DAL. If one of the goals of economic regulation is to protect the interests of consumers, then probably WN should be limited to the gates they already have at DAL. The challenge is how to encourage viable competition by the users of the other four gates.

What this overlooks is how WN got the current customer base they presently have by operating at DAL, the history is why when the gates were restricted to 20, WN was given preferential leases on 16.
The regulators did regulate competition away from DAL, and since only WN chose to attempt to build a network under the restrictions, we can assume - the mother of all evils - that the regulators thought that whether free or not, no one but WN wanted to operate at DAL.
One has to wonder how the city would fare if WN were to shift say 50% of its operations to DFW - eyes closed - I believe there is revenue sharing between the cities but is it comparable?
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 5:55 pm

Quoting Polot (Reply 35):
Of course they do. They also have that at BWI, MDW, and several other airports But so does AA at DFW, CLT, PHL, MIA; DL at SLC, MSP, DTW, ATL; UA at IAH, EWR and so on. It is difficult to spin that against them though as every airline is guilty of it, which is why you see DL being very careful with their arguments so that they don't come back and bite them in the ass later.

  

Spot on.

WNTex
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Sightseer
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 6:13 pm

Quoting wntex (Reply 38):
Quoting Polot (Reply 35):
Of course they do. They also have that at BWI, MDW, and several other airports But so does AA at DFW, CLT, PHL, MIA; DL at SLC, MSP, DTW, ATL; UA at IAH, EWR and so on. It is difficult to spin that against them though as every airline is guilty of it, which is why you see DL being very careful with their arguments so that they don't come back and bite them in the ass later.

  

Spot on.

WNTex

The difference, though, is that you don't see other carriers being forced out of those airports just so the dominant airline can further expand its presence.
 
airplaneboy
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 6:33 pm

Quoting Sightseer (Reply 39):

Quoting wntex (Reply 38):
Quoting Polot (Reply 35):
Of course they do. They also have that at BWI, MDW, and several other airports But so does AA at DFW, CLT, PHL, MIA; DL at SLC, MSP, DTW, ATL; UA at IAH, EWR and so on. It is difficult to spin that against them though as every airline is guilty of it, which is why you see DL being very careful with their arguments so that they don't come back and bite them in the ass later.

  

Spot on.

WNTex

The difference, though, is that you don't see other carriers being forced out of those airports just so the dominant airline can further expand its presence.

Delta knew their lease was going to expire on a certain date, and Southwest graciously extended that date to accommodate Delta. Delta chose to continue selling tickets beyond that date. In essence Delta is trespassing on property they do not have rights to, and property that WN has paid handsomely for. Delta dominates ATL, if any airline leasing gates from Delta refused to return the gates to Delta at the end of the lease, they should be able to stay and sue Delta in court arguing that Delta dominates ATL so they should be able to keep (STEAL) Delta's gates they were once legally leasing, and at a rate much lower than Delta is asking for?
 
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enilria
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 6:37 pm

Quoting Reply 32):
The huge assumption with your DAL-MSP example is that you are assuming the DAL-MSP is a marginal market for WN. Also, a state capital to DC route (US flying DCA-TLH) is not out of the realm of reasonable. Were you aware that Tallahassee is the state capital of the 4th most populous state in the USA?
Quoting FlyPNS1 (Reply 33):
Quoting enilria (Reply 30):
WN flying one DAL-MSP to hold a gate

So what you are saying is that WN is not capable of having a hub in DAL the same way they have hubs in DEN, BWI, MDW, etc?

They have a horrible schedule with 1 RT in a market where their competitors have massive frequency. Very hard to fly one RT in a market where your competitor has a lot of frequency and get any kind of yield.

I'm aware and that changes nothing. It's fluff to occupy slots. Of course, they pick the best fluff they can, but that is still what it is...and I know that because if B6 or WN got the slot they would put it where they could make the most money...and that isn't TLH.
http://tass.ru/en/economy/825359

Quoting FlyPNS1 (Reply 33):
That's not how a business like WN operates, so your premise is false. $120 million is a drop in the bucket for WN over the next ten years.

So basically your position is that a business like WN "operates" by throwing huge amounts of money at things without concerning themselves with ROI? If so we should all short their stock. It is, in fact, the opposite. They looked very closely at the ROI and justified this expenditure by determining how much competition would lose them in all their other markets. That's the definition of a monopolist. I can't even believe I have to argue that a carrier with every gate vbu

Quoting FlyPNS1 (Reply 33):
If anything, right now, WN has more cash they really know what to do with.

I don't know what that means. It implies they are a bunch of buffoons desperate to spend their hoard of cash on any frivolous thing that comes along. Of course, they did the analysis and determined as I said above why this was worth the purchase. If they really had more cash than they knew what to do with they would just buy back their stock.

Quoting FlyPNS1 (Reply 33):
Quoting enilria (Reply 30):
So, the $120m was really spent to protect the profits of the remaining flights which is monopolistic behavior.

How is that? Even if WN didn't have these two gates, it would have virtually no impact on the profitability of the rest of WN's DAL network.

????? Huh

The only other carrier that even flies from DAL is VX if they get rid of DL. VX has service to 4 cities. You can connect to a handful more. That's it. Every other market is a 100% WN monopoly if DL is pushed out. The value to have 100% pricing control in tiny markets like Chicago, Orlando, Phoenix, and Atlanta is immense. And again if you are going to tell me it's one market then you are saying they should haven't paid $120m for the gates because there are plenty of gates at DFW for free...or nearly free.

Quoting Polot (Reply 35):
US didn't fly to TLH to block gates/slots and push out competitors. US started TLH for political reasons after the slot swap with DL

It's both and there are plenty more routes just like that AA/US flies from DCA. That's a common strategy when the airport is heavily constrained.

Quoting tortugamon (Reply 36):
The point is that the DOJ/DOT should not get involved on such a trivial matter about two gates in a tiny airport.

That *tiny* airport has more departing seats than TPA/STL/AUS/MSY/RDU. If those tiny airports are too small to care about I guess we don't even need a DOJ or a DOT as there are only 29 airports in the USA that are not too "tiny* to care about.
 
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 6:45 pm

Quoting Sightseer (Reply 39):
The difference, though, is that you don't see other carriers being forced out of those airports just so the dominant airline can further expand its presence.

Meh.

DL was not interested enough, at the time of the compromise, to throw their hat in the ring and anchor for themselves the protected right to operate at DAL - and that makes some sense. In the compromise, a new terminal was mandated (and Southwest paid for a substantial portion of the cost of the terminal).

Delta was also so devoted to the north Texas market that they closed their hub here.

They just want to play spoiler, and are trying to accomplish through the courts that which they have failed to achieve through planning and execution.

Face it - Southwest has just proven, once again, that they possess excellent business judgment and execution skills.
...three miles from BRONS, clear for the ILS one five approach...
 
tortugamon
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 6:46 pm

Quoting enilria (Reply 41):
That *tiny* airport has more departing seats than TPA/STL/AUS/MSY/RDU. If those tiny airports are too small to care about I guess we don't even need a DOJ or a DOT as there are only 29 airports in the USA that are not too "tiny* to care about.

I said two-gates...

tortugamon
 
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enilria
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 6:53 pm

Quoting tortugamon (Reply 43):
I said two-gates...

tortugamon

You said "in a tiny airport". DAL is not a tiny airport. It's #30 in the USA by capacity.
 
DCA-ROCguy
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 7:02 pm

The entire problem is the idiotic "Re-Wright" that artificially limits DAL gate capacity. DAL should be allowed to build as many gates as it can justify financially, and accommodate all comers. The question is, how to get rid of the "Re-Wright" and end all artificial, anti-competitive restrictions on this airport, period. Not only should WN be able to fly as much as they want at DAL, so should other carriers. Without *anyone* paying $120 million for two gates.

Jim
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enilria
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 7:07 pm

Quoting DCA-ROCguy (Reply 45):
The entire problem is the idiotic "Re-Wright" that artificially limits DAL gate capacity.

Crafted by one of the carriers paying $120m.

Quoting DCA-ROCguy (Reply 45):
DAL should be allowed to build as many gates as it can justify financially, and accommodate all comers.

Of course

Quoting DCA-ROCguy (Reply 45):
The question is, how to get rid of the "Re-Wright" and end all artificial, anti-competitive restrictions on this airport, period. Not only should WN be able to fly as much as they want at DAL, so should other carriers. Without *anyone* paying $120 million for two gates.

I don't see any way other than a judge somehow striking it down or the public taking an interest in this which is unlikely. AA and WN have no reason to change their position.
 
alfa164
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 7:09 pm

Quoting enilria (Reply 7):
Basically WN massively overpaid to block competition. It's a total perversion of the free market AND WN was heavily involved in creating the whole restriction in the first place. I find the whole situation despicable.

   Basically, it was able to eliminate two competitors - DL and UA - in one slick deal. That gives them a virtual monopoly at Love, unless you consider VX'x faltering routes a true competitor.

Quoting United1 (Reply 9):
A free market is a market economy system in which the prices for goods and services are set freely by consent between vendors and consumers, in which the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority.
....one could say that WN and UA were free to make any deal that they chose in a free market.

Except DAL is not a "free market"; the lack of market freedoms, i.e, the artificial restricions on the number of gates available, has made it a virtual monopoly for WN. And it appears they want to keep it that way.

Quoting enilria (Reply 15):
So, if you think it's just one market you are effectively saying that every gate at DFW is also worth $60m each. The fact that is clearly not the case is why it is not one market.

     

Quoting FlyPNS1 (Reply 26):
That's your definition, but not necessarily how business and customers actually behave which is what actually creates a market. Constraints (whether they be geographic, infrastructure or politically created) help define a market. I could live next door to LGA, but if I'm shopping for a non-stop flight to LAX, then LGA isn't in the "market" because LGA can't provide the product I want. Granted, that's an artificial restriction, but nevertheless it creates the market.

         Ask the people in the Park Cities and Near North Dallas if they consider DFW and DAL to be "one market".

Quoting airliner371 (Reply 8):
So lets abolish the Wright Amendment and compromise and open up Love Field to everyone.

Absolutely! DAL could - and should - easily handle 30 or so gates.
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Sightseer
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 7:12 pm

Quoting airplaneboy (Reply 40):

That;s not my point. To my knowledge (which is neither infinite nor infallible), there is little precedent for an airline to be forced out of an airport, from which it has been operating for several years, because of a competitor being allowed to grab as many gates as it can.

Of course, this wouldn't be an issue if DAL had no gate cap ...

Quoting sccutler (Reply 42):
Delta was also so devoted to the north Texas market that they closed their hub here.

I don't see how that is relevant, since it's not like they completely left the market. And they have expanded their presence in the time since the NW merger.

Quoting sccutler (Reply 42):
Face it - Southwest has just proven, once again, that they possess excellent business judgment and execution skills.

What they possess is the opportunity to all but completely control an airport that is all but closed to new entrants. That is not entirely the fault of WN, but I don't see how that makes WN blameless.

Quoting DCA-ROCguy (Reply 45):
The entire problem is the idiotic "Re-Wright" that artificially limits DAL gate capacity.

   If DAL still had 32 gates, there would be plenty of room for DL and anyone else that wanted to fly there.

[Edited 2015-10-01 12:19:20]
 
tortugamon
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RE: WN Paid $120m To UA For Two Gates At DAL

Thu Oct 01, 2015 7:15 pm

Quoting enilria (Reply 41):
That *tiny* airport has more departing seats than TPA/STL/AUS/MSY/RDU.
Quoting enilria (Reply 44):
You said "in a tiny airport". DAL is not a tiny airport. It's #30 in the USA by capacity.

Only one of the airports you mentioned (TPA/STL/AUS/MSY/RDU) isn't at least double the size of DAL in terms of gates and all of the airports you mention are the primary airport in the city which DAL is not. I feel like I can name about 50 airports in the US and at least 7 airports in Canada that are bigger than DAL; it is tiny, it is only two gates, and it is a local matter.

tortugamon

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