Southwest Airlines Co (NYSE:LUV) Airlines In $120 Million Payment Controversy

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The battle between Southwest Airlines Co (NYSE:LUV) and Delta Air Lines, Inc. (NYSE:DAL) seems to be revealing more than was intended. It has emerged that Southwest paid $120 million to United Continental Holdings Inc (NYSE:UAL) to acquire gate rights at Dallas Love Field. But the deal was not revealed to city officials. Furthermore, questions are asked about paying $120 million for only two gates.

Southwest Airlines Co (NYSE:LUV) has grown uncomfortable with Delta and wants it pushed out of the Love Field airport. Reason? Southwest claims that Delta is interfering with its busy operations at the airport and should leave. At Love Field, Delta operates five daily flights and it makes use of a gate controlled by Southwest, because it doesn’t have a gate of its own at the airport. On the other hand, Southwest operates 180 daily flights at Love Field and controls most of the gates there.

Underground deal?

The interesting twist in the Southwest-Delta feud is that details that seem to have been closely guarded are starting to emerge, and they are raising more questions than answers. To control the majority of the gates at Love Field, Southwest paid out money to a rival airline but didn’t involve the city officials.

Southwest Airlines Co (NYSE:LUV) paid $120 million to United Airlines in exchange for two gates that United controlled. According to Delta, the issue of selling or buying gates is illegal given that the gates are owned by the city not the airlines. In fighting for its stay at Love Field, Delta maintains that its operations at the airport foster competition against the larger rivals.

Justifying the deal

Southwest Airlines Co (NYSE:LUV) could be hard-pressed to explain why its gate transaction with United was not disclosed to the city officials. However, on the legality of buying gate rights, Southwest has already said that it broke no law. According to the airline, leasing gate rights isn’t something new, considering that American Airlines Group Inc (NASDAQ:AAL) had to divest itself of certain gate rights to get approval to merge with US Airways.

On the issue of paying $120 million for only two gates, Southwest is defensive, saying that the deal is actually cheaper that what it pays to operate elsewhere.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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