Wright Shows Limits Shouldn’t Last Forever
by Mitchell Schnurman
October 06, 2014
Source: Dallas Morning News
The Wright amendment was a government fix that worked, until it didn’t. And then we couldn’t make it go away.
The pattern is all too familiar at the intersection of government and business. Think farm subsidies and long-distance phone service. More recent threats: Uber and taxis or Airbnb and hotels.
When politicians tilt the playing field, no matter how good their intentions, industry leaders often benefit at the expense of consumers. And the plans’ architects become powerful defenders of the status quo.
The Wright amendment, enacted 34 years ago, is the latest argument that limits shouldn’t last forever. Wright restricted nonstop flights at Love Field to protect the fledgling Dallas/Fort Worth International Airport.
The law helped make D/FW a global leader. But Wright also limited the local reach of Southwest Airlines just as its low-fare revolution was taking root. And customers at D/FW paid hefty fares, estimated to be a third higher than the U.S. average.
Despite the negatives, it took years to undo Wright. And because the second compromise has a 20-gate cap and ban on international service, the frustrations aren’t over.
The life cycle of this deregulation-era regulation is worth reviewing, and not just because most Wright rules end next week. The law stands as a reminder that even good government fixes have an expiration date, despite the predictable protests.
“A deal is a deal,” former American Airlines CEO Gerard Arpey told a Senate hearing nine years ago, when lawmakers were considering changes to Wright.
That was the No. 1 talking point in the Wright campaign, repeated regularly by politicians and leaders from American, D/FW Airport and Fort Worth. The argument sounded reasonable when Arpey said American had invested billions at D/FW with the understanding the compromise would remain in place.
The question was: for how long? Wright didn’t have a sunset provision, and advocates refused to revisit the issue.
War ended, tax didn’t
Government programs often start in one era and continue long after meeting their original goal. Pamela Villarreal, an economist, pointed to a phone tax enacted in 1898 to help pay for the Spanish-American War. Initially, it was a tax on the wealthy because phones were a luxury. But the tax wasn’t dropped until 2006, when phones were ubiquitous.
“These programs may start for good reasons, but in the long run, they often hurt the people who can least afford it,” said Villarreal, a senior fellow at the National Center for Policy Analysis in Dallas.
Most agricultural subsidies were aimed at helping family farms during the Great Depression. Today, they usually benefit large agribusinesses, she said. A wool subsidy, adopted over half a century ago, was supposed to strengthen military uniforms; soldiers now wear synthetic blends, yet the subsidy continues.
So how do you finally get rid of entrenched regulations and policies?
“It’s not by the good will of politicians,” said Chris Edwards, an economist at the Cato Institute in Washington. “It’s because aggressive entrepreneurs come along and force the issue.”
FedEx upended cargo delivery and MCI changed long distance, he said, by taking on regulators as well as their industry leaders. Today, Uber and Lyft are challenging the regulated taxi business. Airbnb is making an impact on the regulated hotel industry.
As the upstarts gain more support from consumers, politicians are less eager to defend rules that lock out the new entries.
The repeal of Wright had both elements — a hard-charging entrepreneur in Southwest and local consumers hungry for more competition.
Some Wright fans suggested that Southwest benefited from the law, because the airline didn’t have to compete with American, Delta and other legacy carriers at D/FW.
“That protection,” Rep. Kay Granger, R-Fort Worth, testified in 2005, “allowed Southwest to grow and prosper.”
Southwest will never buy that story. Co-founder Herb Kelleher agreed to restrictions only to stop years of court fights and get on with building a company. He accepted the terms “the same way the Germans accepted the end of the First World War — which means with a gun at their head,” he told the Senate hearing.
Limited at Love, Southwest expanded elsewhere. It became the top carrier in Las Vegas and at Chicago Midway, and Love was in danger of falling out of its top 10 hubs. Now Southwest plans to increase seats at Love by a third. The region would have had those benefits sooner if the law had been repealed earlier, said Bob Montgomery, vice president of airport affairs.
With its low costs and pioneering business model, Southwest didn’t need a shield from any rival.
“Competition helps companies stay strong and on guard,” Montgomery said. “Competition forces them to keep providing value to customers.”
Politicians and regulators just have to get out of the way.