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Southwest Bids for Frontier Airlines

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Q&A with Ron Ricks, Executive Vice President Corporate Services and Corporate Secretary 

Today, Southwest Airlines confirmed that it is preparing a bid to acquire Denver-based Frontier Airlines, which will be sold at auction in bankruptcy court next month.  We sat down with Ron Ricks, our Executive Vice President Corporate Services and Corporate Secretary, to discuss the bid and what this news means for Southwest Airlines.

 

Q:  Ron, what’s the news today?

Southwest Airlines is preparing a bid to acquire Denver-based Frontier Airlines, which will be sold at auction in bankruptcy court later this month.  The bid is worth a minimum of $113.6 million, and is a nonbinding proposal in accordance with the bidding procedures established in the U.S. Bankruptcy Court for the Southern District of New York. 

 

Q: What does that mean exactly?  What’s in proposal?

A:  Southwest is still preparing the proposal, so it's premature to comment on the specifics at this time.  What we can say is that we are interested in a substantial investment in Frontier and to operate Frontier as a wholly-owned subsidiary, independently and separately from Southwest Airlines, for a period of time until the carrier could be combined into Southwest.  

 

Q. When will we know if Southwest’s bid has been accepted?

A. A nonbinding submission of interest must be provided by August 3, 2009.  Assuming that Southwest is determined to be a qualified bidder, Southwest has until August 10, 2009, to submit a binding offer.  If there is more than one qualified bidder, an auction will be held beginning August 11. Southwest believes our bid ultimately will be seen as the strongest bid by all interested parties, including Frontier Employees, management, and its creditors.  

 

Q. Who approached whom?  Is this a response to Republic’s bid?

A. Frontier has been in bankruptcy since April 2008, and we’ve been considering a bid for some time, independent of any action Republic took with its bid proposal.  In the past month, we began an intensive study of the airline and expressed that interest to Frontier.  

 

Q. Obviously, we are in a tough economic environment.  What makes this the right time for Southwest to seek to acquire Frontier?

A. We have always prepared in good times to weather the bad times and to be able to take advantage of a good opportunity, like this one, when presented to us. We have the cash, access to capital, and collateral that allows us to take advantage of this existing opportunity and synergies between Southwest and Frontier.  We believe this is an opportunity to expand our network with legendary low fares, add jobs into Southwest, and boost competition in Denver as well as other cities with our low fares and high quality Customer Service.

 

Q. Is this a cash offer, or a combination of some sort? And, will Southwest accept all of Frontier’s debt?

A. We are still exploring what a final bid would be – it’s really too early to say.  

  

Q: What would a possible acquisition by Southwest Airlines mean for the employees of Frontier?

A: We believe our bid proposal will allow Frontier to emerge from bankruptcy.  Frontier would continue to operate independently and separately for a period of time with its Airbus aircraft and personnel.  Over time, Frontier Employees would be hired into Southwest as needed to support our fleet growth and expanded operations.  We believe the acquisition will boost low-fare competition across the country and certainly in the Denver market.  And, again, we believes our bid will be seen as the strongest bid by all interested parties, including Frontier Employees, management, and its creditors.    

 

Q: What about Lynx (the regional carrier operating as a wholly-owned subsidiary of Frontier)?

A. As part of our overall due diligence, Southwest Airlines will study Lynx.  Until a bid is finalized, it’s too early to say.     

 

Q. Do Southwest’s most recent Union agreements include language that would allow for acquiring another airline and its Employees?

A. All of our collective bargaining agreements have provisions for the acquisition of or merger with another carrier. This is not new to Southwest, as it has in its recent history purchased assets of ATA Airlines (2008) and acquired Morris Air (1993). 

 

Q:  Final thoughts?

A: From a Customer perspective, nothing today changes at either carrier.  This is merely a preliminary step in the process.  There are many details to be worked through, but we are excited about the opportunity to submit a bid. We see a strong fit between our Company cultures, a mutual commitment to high quality Customer Service, and our similar entrepreneurial roots. We are confident that our bid, if successful, will boost low-fare competition and benefit consumers in Denver and other cities our expanded network will serve.

 

269 Comments
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this seems a bit crazy for southwest to be considering. though it may be a great opportunity to acquire and airline for a cheap price, swa keeps pushing how much trouble we are in financially to its employees. swa employees are expected to do ten times more with ten times less just to stay afloat. i dont see how we are able to take over frontier and continue to run an airline that is in bankruptcy if we are barely surviving ourselves. unless, swa has just been fabricating stories to its employees to make us fear for or jobs.
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KEEP F9 MY F9!
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To the first commentor, I understand what you’re saying. However, I don’t think that the message from the Company has been that we are in trouble financially, but more that we (like the entire world) are facing very challenging economic times and, without knowing how long this tough economy will last, we have to do what we can to adjust. As Ron says in his Q&A above, we have the cash, access to capital, and collateral that allows us to take advantage of this opportunity. If successful, we could expand our network, add jobs into Southwest, and boost competition in Denver and across the country.
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How can an only B737 airline like Southwest purchase an A318/319/320 airline like Frontier? It sounds unbelievable to me.
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Hallalujah!! Does this mean I can FINALLY fly Southwest into Atlanta??? Frontier has at least one gate there.
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Aren't we concerned about our unique culture that begins with the hiring process? Seems to me trying to integrate Frontier employees, who may not believe in our Golden Rule, will destroy what we have built over 30+ years. I'm worried about our culture going away.
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Good point about the aircraft. We do not intend to integrate the Airbus into our fleet. As we would be able to retire Airbus aircraft from the fleet, we would add Boeing 737 aircraft.
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Many carriers have both Boeing and Airbus aircraft. How is that so unbelievable?
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expand our network? add jobs into Southwest? and boost competition? This sounds like promising news to me!!
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Dear Concerned SWA Employee - Agree that our Culture needs to be protected - it's what makes working here so special. As someone who spent seven years living in Denver, I can tell you that Frontier has a very strong Culture, similar to our in its commitment to Customer Service and the genuine affections it garners from its Customers. I think their Employees would actually mesh well with our Culture.
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"Good point", but you're going in the wrong direction. You're buying only the brand, the employees and the slots. You're going to trash the entire fleet of 51 aircrafts (good aircrafts). You can do anything you want with your money, but...
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Very interesting. The one thing I don't get is, how does this "boost low-fare competition...in the Denver market"? It seems to me that eliminating one competitor would in fact decrease competition. Or are the execs anticipating that this would create a vacuum in the DEN market, which would prompt other LCCs such as FL and B6 to expand there? Wouldn't the latter simply prompt a defensive response from WN/F9?
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the word for today boys and girls is culture,culture,culture
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Other airlines, including Frontier for several years, have made a combination of Boeings and Airbuses work. Eventually the 737s would probably win out, although it might be to Southwest's advantage to replace its -300s and -500s with Frontier's newer Airbuses. This would give Southwest a little more service to LaGuardia and open up flights to Washington National, assuming it wants to go there.
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Fabio - no one said anything about trashing, but rather retiring as we are able to or as is appropriate.
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I AM EXCITED! As an Employee of WN I think it's a great opportunity! The message that's been conveyed (and rightly so, due in part to our "turbulent" economy) to all Employees is to be as efficient, productive, and SAFE as possible while still delivering the Customer Service that should be synonymous with Southwest Airlines. In a nutshell, I'd summarize it as: Come to work. Be safe. Be productive. Have fun. 😄
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I'm not so sure of that. . . .anytime you have a chance to acquire someone who will make you stronger and a better carrier, you ought to take it, particularly when the other guy is in bankruptcy and you aren't. I am old enough to remember the purchase of Muse, the purchase of Morris and the purchase of the Midway gates. All were good for Southwest.
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As an Employee of SWA, This is very exciting, also a little shocking news, But I completely trust our leaders that this is a great opportunity, and will work out best for SWA and Frontier employees.
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If it ain't Boeing, I ain't going! Please keep SWA an all Boeing fleet!
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Regarding fares, Southwest lowered fares when it entered the Denver market in 2006, and it continues to be the low fare leader. Our low cost, high efficiency model helps us maintain low fares across the nation.
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I would love to see southwest aquire frontier.However i do own shares in frontier, and was hopeing that bid from another airline would compensate shareholders. not like the deal republic made of which i would get nothing.Great deal for swa bad deal for me?
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Exciting news! Two strong brands and great cultures coming together as one. Good news for the industry and the flying public. I will be keeping a very close eye on this one.
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It is our Culture to buy distressed airlines! Transtar, Midway, Morris, Western Pacific, these were all Airlines we purchased assets from and all were cash strapped except Morris. With each of these purchases our Airline prospered and we were stronger as a result....now is not the time for timid souls and weak spirits! Denver will never be the same!
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With so much route overlap between F9 and WN I am curious to know exactly what WN gets from the deal. Frontier was strong in the West were Southwest is already very strong. Usually when an airline takes over another they are looking for route compliments. And airline that has a strong presence where you are weak. Because F9 has so much route overlap wouldn't it have been to WN's advantage to simply allow the weaker airline to file for Chapter 7 and disappear? That would mean fewer seats chasing after a depressed pool of customers. Keeping F9's planes and routes that WN already flies, will simply keep downward pressure on the price WN can charge. Too many seats chasing too few butts to fill them.
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"Many carriers have both Boeing and Airbus aircraft. How is that so unbelievable? Marco90821 — Thu, 07/30/2009 - 12:48" Sure they do, but they are losing money and fleet uncommonality is a contributing factor. UA proves this daily. DL is getting a taste, and after the merge is complete will soon be choking on a serious dose of too much Airbus integrated into their fleet. Simplifying the WN fleet back to all Boeing 737s only makes sense for WN.
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I hate Southwest! They suck! Customers hate flying on Southwest that is why they pay more to fly on Frontier Airlines. Keep Frontier Alive!!!!
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Having worked in the industry for many years I have some concerns about the merger. Other mergers have been disasters such as HP/US, PA/NA etc. The combined US has miserable customer service ratings and two employee groups that have gotten into fist fights over seniority. I hope WN integrates some of the F9 product across the merged airline such as the inflight satellite TV. WN will never go with a combined 320/737 fleet. Lynx would probably be killed. I don't think there ever will be a "Southwest Express" brand. If any airline can pull this off while maintaining high levels of customer service it is Southwest.
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This is the worst possible thing for passengers. Look at what happened in Chicago. Southwest goes in with low fares and runs out the other airlines and then once they hold the market share they raise the prices because the passengers have no other choice but to fly them. They are doing the same thing in Denver right now but they have run into a company that can compete with them and still make money in Frontier. So to deal with it they will buy Frontier and watch the fares raise in Denver...Yeah that is passenger friendly. As far as the culture goes...without a doubt Frontier has a better culture and their loyal passengers will not see any of Frontier in Southwest. Sad Sad day 😞
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I dont like this at all. Southwest and frontier are two of my favorite airlines. But I cannot like them together. i love frontiers animals on the planes and free directtv. So is southwest just going to get rid of all of that completely? Will the Frontier animals on planes be lost forever?
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To the Customer who hates Southwest – I’m so sorry that you don’t enjoy flying with us. We carry over 100 million Customers a year and manage to maintain some of the best Customer Service statistics in the biz, suggesting that many Customers do enjoy flying with us. In fact, Southwest Airlines has consistently received the lowest ratio of complaints per passengers boarded of all Major U.S. carriers that have been reporting statistics to the Department of Transportation (DOT) since September 1987, which is when the DOT began tracking Customer Satisfaction statistics and publishing its Air Travel Consumer Report. Perhaps you’ll give us another try someday.
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Concerning fares and Chicago...consider that within in two years of SWA entering the DEN market: -routes from Denver to Chicago Midway, Phoenix, and Salt Lake City experienced double-digit growth in passenger traffic and double-digit declines in average air fares year-over-year. -routes from Denver to Phoenix experienced the largest increase in traffic at 70 percent and the largest decrease in average air one-way fares, down 37.5 percent. -traffic from Denver to both Las Vegas and Chicago Midway increased more than 55 percent while the average one-way fares declined 28 percent in Las Vegas and 18 percent in Chicago. -and, average one-way fares declined for both Frontier Airlines and United Airlines.
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For those of you concerned about the Southwest fleet and "trashing" the Airbuses inherited from Frontier: All of Frontier's birds are leased. They will simply be returned to lessors and replaced with 737's that are most likely already on order or can be ordered. I highly doubt those planes will get painted into the canyon blue so its really not that big of a deal.
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Awesome news! Congrats to both airlines - this is going to be wonderful.
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To the anon poster who hates Southwest: A) Grow up. B) If people were flocking to Frontier to avoid Southwest, why is Frontier bankrupt?
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As a Frontier employee in maintenance, I guess it's time to start looking for other employment if this happens. As Ron said," Frontier would continue to operate independently and separately for a period of time with its Airbus aircraft and personnel. Over time, Frontier Employees would be hired into Southwest as needed to support our fleet growth and expanded operations." Won't be much need for our outstanding maintenance services since WN out sources most of their work anyway. If this happens it will be a sad day for Denver, Frontier, and all the dedicated employees of Frontier.
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"B) If people were flocking to Frontier to avoid Southwest, why is Frontier bankrupt?" Because the previous management made poor decisions, fuel prices were going up, and their credit card processor demanded a whole bunch of cash they did have pretty much over night. It had nothing to do with either company's customer service or product. If anything, the one loosing passengers in DEN is UA, not WN or F9.
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To the gentlemen that said Frontier leases all it's aircraft that is not true. Frontier owns 15 of their Airbuses.
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Frontier is an airline that gives really good service and cares about its customers. In this respect it is a lot like SW. A few quick reactions to the story, some already discussed: 1) The Airbus/Boeing integration just won't work. Frontier in bankruptcy probably means that aircraft leases & orders can be easily terminated, so not a big problem. 2) Does SW really want Frontier, or is this just a strategic move to make sure that Republic has to pay a higher price than the sweetheart deal they have previously negotiated? 3) Is this an entree into Mexico? F9 flies there now, so SW can fly their own planes there in the future without having to establish Mexican infrastructure from scratch. 4) Frontier code shares with AirTran, another fine airline almost as good as SW. What would be really great is for SW to acquire AirTran. Alas, they are not for sale, as far as we know.
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Paula, I appreciate your prompt, well-worded, and enthusiastic answers. If everyone loved their company as much as you do, the world would be a much better place. However, I think you may have missed the point I was trying to make, as well as the somewhat similar point of the person talking about Chicago. I was talking more about the word "competition" than the word "fare"...although I recognize that those two are like the chicken and the egg. It just sat funny with me that the blog essentially said they're going to increase competition by (eventually) eliminating a competitor. And if I may speak for the person who was talking about Chicago...consider three phases: 1) Southwest doesn't serve a particular city yet. 2) Southwest comes to town, and the "Southwest effect" is felt. 3) Other airline(s) bail out of that city or airport or are purchased by Southwest (in the case of the proposed purchase of F9). You're absolutely right that in phase 2, fares go down. No doubt about that. But I believe the other poster was referring to phase 3. If one or more players exit a market (or stay in a market, but stop flying a large enough set of routes), the remaining players almost invariably raise fares. I think it's entirely reasonable to predict that once DEN moves from being the hub/major focus city of 3 airlines to only being that of 2 airlines, the fares are likely to go up. Not that I'm necessarily saying that's a bad thing...I'd like it if airlines raised fares across the board, and used that money to pay their employees more (and I say that as someone who is no longer in the industry).
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Wow!! Big News!!!
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My records indicate the F9 currently has 51 aircraft and leases 37 of them.
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I have been through too many of these to try and out guess the front office! Lets hope for the best. Is the regional a good idea or bad?
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Soutwest's real motive or corprate culture is to put it's stiff competition out of business in Denver period! This is a win for WN only and a HUGE lose for the dedicated customers who love Frontier, Denvers only real hometown airline.
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To bad greed and the need to eliminate a better airline carrier may be the end of the best airline in Denver. I hope Republic is able to out bid Southwest and keep the quality, service, value and integrity of Frontier Airlines intact. If Southwest becomes the the "low cost carrier" in Denver, I will pay more to fly another airline.
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Former ATA Webmonkey - thank you so much for your cordial response...apologies if I missed the mark. I'm running in to the media conference call, but will try to respond when I return.
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I love the Frontier Airbuses! I wouldn't be so quick to get rid of them if I were you... why not run a survey and see which one the traveling public prefers? The merger of Frontier and Southwest is very exciting news and will be absolutely great for Denver!
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I would love to see US Airways TAKEOVER Southwest Airlines just to get rid of those bandits!
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Could F9 become WN's "international" carrier...? Operate them side-by-side? I really thought that WN should have done that with TZ...
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Good luck F9 employees...you're going to need it. You need only look at the Morris Air takeover and realize A JOB AT SWA IS NOT GUARANTEED. Most of us (Morris people) had to "re-interview" at SWA during the takeover. And even though I was lucky enough to keep my job here, many were not. It wasn't because the didn't "fit in". It was because we didn't need them.
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I think this bid would be a massive loss for the state of Colorado and the people of Denver. Frontier is our home airline, with is headquarters and employees based out of Denver. Southwest does not offer near the ameneties that Frontier does and really only looks to clear out some competition in Denver. We, people in Colorado, lose jobs with this proposal and a great company from our state. I guess it would mean fly United, the only other airline that is committed to Denver and has been for decades.