Dallas/Fort Worth International Airport—The Wright Amendment

February 23, 2005

The Creation of the Underlying Agreements

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The Creation of the Underlying Agreements

April 15, 1968—City of Dallas and City of Fort Worth entered into contract and agreement to establish joint airport board to construct new regional airport.

November 2, 1968—Cities adopted Bond Ordinance agreeing to certain covenants including in Section 9.5(A) which provides that the owner cities…“shall take such steps as may be necessary, appropriate and legally permissible… to provide for orderly, efficient and effective phase out at Love Field, Red Bird, GSIA and Meacham Field of any and all Certificated Air Carrier Services and to transfer such activity to the Regional Airport....”

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The Creation of the Underlying Agreements Every airline but one moved to DFW.

Every Airline, except Southwest Airlines, fulfilled their obligations and commitments to the public and moved their operations to DFW International Airport consistent with the Bond Covenants

In contrast, Southwest Airlines sued and won the limited right to fly “intrastate” service out of Love Field because, at the time, it was not a “Certificated Carrier”

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The Creation of the Underlying Agreements Every airline but one moved to DFW.

From 1973 to 1978, Southwest Airlines only operated “intrastate” flights out of Love Field

In 1979, Southwest Airlines sought to fly “interstate” traffic out of Love Field over the objections of the City of Dallas, the City of Fort Worth, DFW International Airport and other related constituent groups

The Creation of the Legislative Compromise

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FEBRUARY 2005

The Creation of the Legislative Compromise

In an effort to settle this dispute, a comprehensive, thoughtful and fair compromise was ultimately agreed to by all parties, including Southwest Airlines

The compromise provided for new and expanded interstate air service from Love Field to the four states contiguous to Texas

This legislative compromise is now better known as the “Wright Amendment” or the “Love Field Amendment”

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The Creation of the Legislative CompromiseSouthwest Airlines lobbied for the Wright Amendment.“Enclosed is a copy of language which Southwest Airlines supports as a compromise on the Love Field interstate service controversy. This language also has been approved by the DFW Airport authority, the cities of Dallas and Fort Worth, and related constituent groups. Majority Leader Jim Wright has been advised of this compromise.

We are pleased that the parties to this long-standing controversy have been able to reach this compromise, which we believe to be the only viable one. We urge your support therefor.

If you or any member of your staff has any questions, please do not hesitate to call Paul Arneson, Forbes Maner, or J.D. Williams of this firm.”

Letter drafted and delivered to House and Senate conferees by J.D. Williams, Williams & Jensen P.C. Attorneys at Law on December 11, 1979.

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The Creation of the Legislative Compromise

Conference Report provides—”Section 29 [Wright Amendment] as approved by the conferees embodies a compromise which permits limited commercial passenger service in interstate transportation at Love Field. Perhaps the most important point about section 29 is that it provides a fair and equitable settlement for a dispute that has raged in the Dallas/Fort Worth area for many years. It has been agreed to by the representatives of Southwest Airlines, the City of Dallas, the City of Fort Worth, DFW Airport authority, and related constituent groups.”

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The Creation of the Legislative CompromiseSouthwest has become a monopolist at Love Field. This compromise has permitted

Southwest Airlines to flourish to the point that Southwest Airlines has become the largest

domestic carrier in the United States in terms of passengers carried

Southwest Airlines still commands a monopoly market share of more than 97 percent at Love Field

No other commercial airport in the United States is more dominated by a single carrier

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The Creation of the Legislative CompromiseShelby Amendment

In 1997, the Shelby Amendment expanded the Wright Amendment

The Shelby Amendment permitted carriers operating at Dallas Love Field to serve points in the states of Kansas, Mississippi and Alabama.

As of today, Southwest Airlines provides no service to any points in these three states from Dallas Love Field

The Confessions of Southwest Airlines

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The Confessions of Southwest Airlines Southwest has admitted that Wright Amendment was to be the final resolution to this divisive issue. “Southwest officials who want to

expand their airline from its major Dallas and Houston bases, said they accept the compromise as ‘final resolution’ in their seven-year fight over the use of Dallas’ Love Field.”“’We’re personally pleased that the idea that this will finally bring peace to the Dallas-Fort Worth area’ said Kelleher….”Fort Worth Star-Telegram, December 13, 1979 (emphasis added).

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The Confessions of Southwest Airlines Southwest admitted that it was pleased with the compromise. “Southwest Airlines Chairman Herbert

Kelleher was pleased with the compromise even though it restricts his airlines future growth from Love Field. Kelleher said, ‘it is in our best interests to put this (the controversy) aside.’”Dallas Times Herald, December 12, 1979 (emphasis added).

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The Confessions of Southwest Airlines Southwest has actually attempted to use the Wright Amendment to keep its competitors out of Love Field. “The Love Field Legislation was intended to settle once

and for all the ‘dispute that has raged in the Dallas/Fort Worth area for many years. Now, TI [Texas International] seeks to reopen that fight and upset the delicate balance which has brought peace for the first time in over a decade. Congressional intent to the contrary is clear. Southwest does not object to TI using Love for intrastate flights (which apparently is all it wants to do) so long as the law is obeyed and TI’s certificate properly reflects what It may and may not do. There is simply no reason for the [Civil Aeronautics] Board to raise again the spectre of full scale commercial use of Love Field which has exacerbated this situation for so long, and which Congress has been to such pains to exorcise.”Motion of Southwest Airlines Co. for Leave to File an Otherwise Unauthorized Document in Civil Aeronautics Board’s Review of Texas International Airlines, Inc. proposed service at Love Field filed August 23, 1980, by Paul Y. Seligson, Attorney for Southwest Airlines Co. (emphasis added).

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The Confessions of Southwest Airlines

Southwest has even argued that Congress should rebuff any attempts to change the Wright Amendment. “Should Continental now address its

pleas to Congress, where they properly belong, the legislators would doubtless be tempted to reply in the words of Lewis Carroll: ‘I have said it three times, and that is enough. Be off, or I’ll kick you downstairs.’”Reply Comments of Southwest Airlines Co. in Love Field Amendment Proceeding (Docket 43307) filed by Herbert D. Kelleher and Paul Y. Seligson on August 30, 1985.

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The Confessions of Southwest Airlines Southwest pledged never to seek to overturn this legislative compromise:

“Operationally, it’s [the Wright Amendment] extremely difficult, but I pledged we wouldn’t seek to overturn it.”

Interview with Mr. Herb Kelleher concerning the Wright Amendment, Financial World, March 21, 1989.

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The Confessions of Southwest Airlines Southwest Airlines admitted that repeal of the Wright Amendment is unhealthy. “After Crandall’s speech, Southwest

President Herb Kelleher said he does not support outright repeal of the Wright amendment because a rivalry and competition with DFW would be unhealthy.”Dallas Times Herald, February 2, 1990 (emphasis added).

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The Confessions of Southwest Airlines Southwest Airlines concedes that repeal of the Wright Amendment will create two competing hub airports. “Based upon the foregoing considerations,

Southwest’s present policy with respect to the Wright Amendment is as follows:1. Southwest concedes that repeal of the Wright

Amendment has the potentiality of creating two, competing hub airports in the Metroplex through dividing long haul, feed passenger traffic between two airports.

2. Southwest is amenable to any modification of the Wright Amendment that benefits its Customers and is acceptable to all of the concerned a parties.”

Statement of Position of Southwest Airlines, in a fax dated, September 19, 1991 from Ed Stewart.

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The Confessions of Southwest Airlines Southwest Airlines has admitted that Love should not be opened up because it will negatively impact DFW. “ Q. Does Southwest now support a repeal of the Wright Amendment?

A. Southwest has taken a neutral position on that issue. I’m sorry. A repeal of the Wright Amendment? No, we do not.

Q. And why is that?A. Well, we think that there is some merit to the position that there is no city in the United States that has two full-fledged hubs competing against one another successfully. There are cities that have a main airport and satellite airports which live well in a complementary relationship, harmonious relationship; and we to have to agree as a matter of logic and principle that if you allowed Love Field to come up as a full-fledged hub in opposition to DFW Airport that indeed air service to the metroplex would suffer to some extent because basically a hub-and-spoke system depends for its success upon attracting passengers from a multitude of spokes that will fill up an airplane going to another destination. If you divide that type of operation between two airports, you’re likely to lose service to some of the smaller cities."

Deposition of Mr. Herb Kelleher in Zamutt v. Skinner, U.S. District Court of California, October 8, 1990 (emphasis added).

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The Right/Wright SolutionIn virtually every case, where a new airport is built, the existing airport in the community is either closed completely or permanently limited by the local communities to noncommercial operations. Denver—Stapleton closed Seattle/Tacoma—King County Boeing Field limited to GA Minneapolis/St. Paul—St. Paul Downtown airport limited to GA Kansas City—Charles B. Wheeler Field limited to GA Detroit—Detroit City Airport limited to GA and limited freighter service Austin—Robert Mueller Field closed Cleveland—Lakefront Airport restricted to GA, limited charter, and

military Washington D.C. Dulles—Reagan Airport limited to defined perimeter Northwest Arkansas—Drake Field limited to GA Ft. Myers (Regional Southwest Airport)—Page Field limited to GA Killeen (Robert Gray Airport)—Killeen Municipal limited to GA Alexandria, LA—Esler Field limited to GA Toronto, Montreal, Tokyo, Milan, Paris—upon building of new airports in

these cities, heavy restrictions were placed on close-in city airports.

The Existing Opportunity

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The Existing OpportunityUp to $22 Million in Financial Incentives

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Financial Incentives (year 1 only)Gross Rent $2.5 $3.2 $5.5HVAC 0.7 0.8 1.4Utilities 0.4 0.6 1.0Fac. Mtce 1.8 2.3 3.7

Total Terminal Costs1 5.4 6.9 11.6

GSE (NPV over 5 yrs)3 1.4 1.9 3.2Capital Improvements 4.0 5.0 6.0Marketing (NPV over 2 yrs)2 1.4 1.4 1.4

Total $12.2 $15.2 $22.2

1 Terminal Cost estimates are subject to allocation of terminal space between tenants2 Assumes 10 new Top 50 markets in year one, and 5 new Top 50 markets in year two3 Capital cost amortized over 8 years at 0% interest, charged through 2009, with no charge in year 1Amounts above are in millions

Gates Operated

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The Existing OpportunitySouthwest Could Make the Right Choice Today

DFW International Airport publicly offered a year’s free rent and additional financial incentives to any air carrier, including Southwest Airlines, to lease these newly vacated gates as part of a precedent-setting financial incentive package valued in excess of $22 million

By accepting this attractive offer and adding long-haul service to and from DFW, Southwest Airlines could begin service to any state in the union almost immediately

Southwest Airlines has chosen to rebuff DFW’s offer of free rent

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FEBRUARY 2005

The Existing Opportunity Southwest has considered operating at DFW.

Admitted that DFW was not an operational constraint

Admitted they were concerned about exposing Love Field and Southwest Airlines to the growing Low Cost Carrier presence at DFW

Admitted that it could profitably providing service to North Texas travelers with long-haul interstate service at DFW International Airport, which is a mere eight miles from Love Field, while retaining its short-haul service at Love Field

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The Existing OpportunitySouthwest has admitted it can be profitable at DFW.

“Mr. Kelly agreed that Southwest could be profitable at DFW, but he said it would face much higher risks moving operations to the sprawling airport than expanding existing facilities at Love.”Dallas Morning News, 11/18/04

“The airline [Southwest] has told D/FW officials that it can make money there flying against dominant American Airlines but doesn’t want to run a split operations where some of its flights would be at Love Field and others at D/FW” Dallas Morning News, 11/19/04

“Southwest officials have said that although they could make money at D/FW, the airport’s congestion doesn’t fit its business model.”Fort Worth Star Telegram 12/2/04

Dallas/Fort Worth International Airport—Refueling the Economic Engine

February 23, 2005