The 4I’s for SWA in 2004Issues • Delta Airlines reduction of flights from Dallas Fort Worth (DFW) producing

opening for Southwest Airlines (SWA) entry at DFW• Wright Amendment prevents SWA and other commuter/discount airlines from

making long-haul flights on larger aircraftInterests • Larger airlines, especially American

• SWA employees, board, and shareholders• Smaller commuter/discount airlines who are direct competitors with SWA and

who could benefit from repeal of Wright Amendment• Airport hub cities who could benefit from additional air traffic

Institutions • Congress, federal and local (Texas) governments, Commerce, Science and Transportation Committee

• Air transportation lobbyistsInformation • Relative gate costs between DFW and LUV

• Relative revenue differences between direct / indirect flights out of LUV/DFW• Historical lobbying expenses for

Interest Group SpreadsheetDetermining whether to lobby to repeal the Wright Amendment

Supporters Substitutes Group Magnitude

Per Capita Magnitude

Size Geographic Coverage

Political Resources

Cost of Organizing

Expected Influence

Commuter airlines

Not making long flights

Medium Small Medium Small Small Large Small

Travelers Buses, cars, expensive airlines

Large Medium Large Large Small Large Small

Smaller airports (LUV)

None? Medium Medium Medium Medium Medium Large Small

Opponents Substitutes Group Magnitude

Per Capita Magnitude

Size Geographic Coverage

Political Resources

Cost of Organizing

Expected Influence

Large airlines

None? Large Large/med Large Large Large Small Large

Large airports/DFW

None? Large Large/med Large Large Large Small Large

Smaller airports

None? Medium Medium Medium Medium Medium Large Small

Benefits and Costs• CONCENTRATED: Southwest airlines (fly unrestricted to all states)

• DISPERSED: Passengers • (a) Benefited by Southwest‘s cheaper prices or competitive prices• (b) Existing passengers using LUV field as connection (inconvenienced

by two tickets and check in) • (c) Passengers preferring to travel to LUV Field instead of DFW

• CONCENTRATED:• DFW –loss with passengers shifting and other airlines who may follow • American Airlines – lose opportunity and low price competition

Costs

Benefits

SCENARIO I: IF Southwest does not Campaign• DISPERSED BENEFITS & CONCENTRATED COSTS --- dominate

SCENARIO II: Southwest Campaigns• CONCENTRATED BENEFITS & CONCENTRATED COSTS---- dominate

Using Wilson-Lowi MatrixBenefits of Repeal of Wright Amendment (Compared to Status Quo)

Cost

s of

Wrig

ht A

men

dmen

tCo

mpa

red

to S

tatu

s Q

uo

Concentrated DispersedCo

ncen

trat

edD

ispe

rsed

Interest Group Politics

Entrepreneurial Politics

Client PoliticsMajoritarian

Politics

SCENARIO II: Southwest Campaigns:

CONCENTRATED BENEFITS & CONCENTRATED COSTSHigh costs and the benefits to both the opponents Interest Group politics dominates Southwest and AA & DFW combination have incentives Both sides are likely to spend money LIKELY OUTCOME: Determined by amounts spend on & effectiveness of campaign by each side.

SCENARIO I: IF Southwest does not Campaign:

DISPERSED BENEFITS & CONCENTRATED COSTS Entrepreneurial politics dominates

DFW airport and AA have stronger incentive.

An entrepreneur may be required to mobilize ala MC Mehta in the CNG case LIKELY OUTCOME: Status Quo

Discussion Questions1. Should Southwest Airlines seek to overturn the Wright Amendment?

– Yes, to the extent the American Airlines response is not overly strong– Benefits from allowing direct flights from LUV could amount up to $3MM p.a. to the

extent SWA can charge non-stop / direct flight premiums

2. What is the effect of Wright Amendment restrictions on Southwest Airlines' prices?– Loss on revenue for longhaul passengers– Increased mileage / landing / operational costs for stopover / indirect flights

3. If Gary Kelly decided to try to overturn the Wright Amendment, which Senator on the Commerce, Science and Transportation Committee should he choose as the main sponsor?– Richard Shelby (R)and Tom Daschle (D) who SWA have existing relationships with.

Appendix

Note: 62 Flights acquired based on LUV gate limitation. Option 3 assumes only 62 daily flights acquired, but likely more can be acquired as no physical gate limitation

status quo option 1 option 2 option 3indirect from LUV more indirect from LUV direct from LUV direct from DFW

Additional ONLY Additional ONLY Additional ONLYEstimated FY passengers (Wright / indirect) 1,908,920 962,220 - Av ticket Price in $ (Wright / indirect) 88 88 88 Est. 2004 Rev in $MM (Wright / indirect) 168.0 84.7 -

Estimated FY passengers (non-Wright / direct) 139,480 70,307 1,032,527 1,032,527 Av ticket Price in $ (non-Wright / direct) 123 123 123 123 Est. 2004 Rev in $MM (non-Wright/direct) 17.2 8.6 127.0 127.0

Est. 2004 Rev in $MM (Additional Total) n/a 93.3 127.0 127.0

Est. 2004 Rev in $MM (Total with status quo) 185.1 278.5 312.1 312.1

Gate cost per passenger in $ 1.64 1.64 1.64 3.97Est. 2004 Gate cost in $MM 3.4 1.7 1.7 4.1 Est. 2004 Opex in $MM 167.3 84.3 114.7 114.7

Est. 2004 Cost in $MM (Additional Total) n/a 86.0 116.4 118.8

Est. 2004 Gross Profit in $MM (Additional Total) n/a 192.5 195.7 193.3

Southwest base daily flights 123Delta routes / daily flights available for acquisition 229 229 229Delta routes / daily flights acquired 62 62 62Capacity increase 50% 50% 50%