Deregulation supporters envisioned an industry with many more players and lower barriers to the entry of new airlines. That hasn’t happened.

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The biggest airline rivalry in the nation is being played at Seattle-Tacoma International Airport, where Delta Air Lines is expanding international service and running domestic routes that compete directly with Alaska Airlines.

This might be seen as the perfect outcome of airline-industry deregulation. The brainchild of economist Alfred Kahn, it was led through Congress by Sen. Ted Kennedy, passed by large margins and signed into law in 1978 by President Carter.

The main goal was to stop treating airlines like public utilities with government setting routes and fares. The promise was more competition, resulting in cheaper prices. Air travel would be available to more Americans. About the only opponents were the airlines and their unions, which benefited from the status quo and essentially a guaranteed income stream.

Competition at Sea-Tac helped the airport reach a record 37.5 million passengers last year. The first quarter posted a 13 percent increase in passengers compared with the same period the previous year. Fares are among the cheapest among large airports in the United States.

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Delta executives are turning Sea-Tac into a hub for its cross-Pacific flights. International traffic here is already rising as a result of Delta’s expansion. A major international air gateway would fill one of the metropolitan area’s few deficiencies in competing with top cities for business, talent and capital.

But the situation brings considerable risks, too.

This town might not be big enough for two hubs. Delta has added dozens of domestic flights to Seattle, which is necessary to feed its international routes. But it has also created new domestic routes from Seattle that compete directly with Alaska.

With $40 billion in revenue last year, Delta could sustain losses on competitive flights for a long time if the result was forcing out Alaska. Parent Alaska Air Group’s revenue was $5.4 billion.

In the worst case, Seattle would lose a major corporate headquarters and a strong civic steward. Delta is headquartered in Atlanta.

How the Atlanta-based airline compares to the Seattle-based company
DELTA ALASKA
784 Boeing and Airbus jets, with an additional 204 on order. Fleet size 138 Boeing 737s, with an additional 78 on order.
3,000+ employees in Washington state and 80,000+ worldwide. Employees About 6,600 employees in Washington state and 13,300 nationwide.
Market cap of $41.1 billion. Pre-tax income last year, excluding special items, was $4.5 billion. Financials Market cap of $8.5 billion. Net profit last year, excluding special items, was $571 million.
85 average daily departures to 31 destinations. Departures out of Sea-Tac 269 average daily departures to 76 destinations.
15.6 percent of Sea-Tac passengers for 2014. Its passenger count grew 37.7 percent from a year earlier. Share of Sea-Tac passenger traffic 51.5 percent of Sea-Tac passengers for 2014. Its passenger count grew 7.5 percent from a year earlier.
Source: Delta Air Lines, Alaska Air Group, the Port of Seattle.

 

The competition also puts the Port of Seattle, which operates the airport, in a delicate position.

Delta brings new flights and revenues, as well as possibly the holy grail of a substantial international hub. With San Francisco and Los Angeles congested, this is not a pipe dream.

But Delta’s growth adds to the need for expansion. Over the next five years, the Port plans to invest $1.9 billion to expand and renovate the north satellite terminal, build a new international-arrivals facility and high-speed baggage system, as well as reconstructing the center runway. And this is only the start if passenger growth continues.

Yet Alaska executives have bridled at having their passengers disproportionately pay for improvements that would help rival Delta. Despite all the advertising that might lead one to believe Delta is dominant at Sea-Tac, Alaska accounts for about half the flights here.

Investors in both airlines have cause for concern, that this battle in Seattle spends too much money, particularly if Alaska is eventually driven under.

Which brings us back to deregulation. One of the unintended consequences was that after a spurt of new airlines started, most gave way to economic downturns or mergers.

The airline industry is one of America’s most concentrated. Southwest, United, Delta and American Airlines control almost 70 percent of domestic market share. Gone are such venerable companies as Pan Am, Eastern, National, Western, Continental, TWA, Northwest and USAirways.

Among the consequences are smaller cities losing service, “fortress hubs” controlled by one carrier with very high ticket prices and former hubs, notably Delta’s Cincinnati, that invested heavily for the airlines only to see service drastically cut as the industry consolidated.

Deregulation supporters envisioned an industry with many more players and lower barriers to the entry of new airlines. That hasn’t happened.

Still, Alaska isn’t to be underestimated. The peculiar route structure in its namesake state made it less attractive to potential acquirers. It struggled after 9/11 but was one of the few major airlines to avoid bankruptcy reorganization. The turnaround cost 2,100 jobs. In 2005, it outsourced 472 baggage handler jobs after failing to reach a new contract

Alaska enjoys superior management, with a particular expertise in growing while keeping costs low. An all-Boeing fleet has increased efficiency. Its balance sheet is strong and the leadership and board are committed to keeping it independent.

If fuel costs remain low and Seattle keeps growing its diverse economy, there might be room for two big players. Wall Street doesn’t prize win-wins. But one would be welcome in this contest.