Scott McCartney at the Wall Street Journal shares his thoughts on yesterday's announcement
By Scott McCartney
It’s hard to run a huge hub at an airport where Southwest Airlines becomes a strong number two in market share. So the biggest impact of Southwest’s potential bid to buy bankrupt Frontier Airlines may fall on United Airlines.
If Southwest is successful in acquiring Frontier in bankruptcy court, the two airlines together will have about 30% of the market at Denver International Airport, with UAL Corp.’s United hanging on to 50%. But United is shrinking, and struggling financially.
A bigger fight in Denver with a stronger number-two airline could well weaken United. It might not be long before Southwest could overtake United as the largest carrier in Denver.
Southwest has always been a shrewd, opportunistic player. When Midway Airlines shut down years back, Southwest dispatched a virtual SWAT team to the Chicago airport to move in quickly. Southwest jump-started its growth in the west by acquiring Morris Air, and took out a potential irritating competitor in Texas by buying Muse Air. Buying assets of bankrupt ATA Airlines gave Southwest slots and gates at important East Coast airports–plus more gates at Midway–at fire-sale prices.
The company has had a keen sense at pegging weak carriers not up for big battles to defend markets (viz. US Airways in Baltimore). Southwest has eaten away at entrenched hubs, weakening Trans World Airlines in St. Louis, for example, and Delta Air Lines in Salt Lake City. As Southwest has grown at Los Angeles International Airport, United has shrunk, from some 240 daily flights to fewer than 100 departures a day. Airline hubs can better compete when Southwest is at a secondary airport, like Houston, Dallas, San Francisco and Chicago. But when the competition is head-to-head, it’s a lot tougher on incumbents.
Bob Jordan, executive vice president for strategy and planning at Southwest, notes that Southwest’s growth has already been strong in Denver. The airline started flying to DIA in January 2006 and in three-and-a-half years has grown to 113 flights a day. But combining with Frontier takes that operation to a whole other level.
“We’re in this to win,” Mr. Jordan said in an interview.
Be careful about betting against them.
Comments:
o 9:09 am July 31, 2009
o Scott McCartney wrote:
About employees and planes:
If Southwest ends up the winning bidder, and it has more cash and credit than any other U.S. airline company, Frontier will still be in bankruptcy reorganization for some time and the winning bidder will be able to reject or rework aircraft leases and take advantage of other cost-cutting moves in bankruptcy. Southwest has made it clear it wants Frontier so it will add growth to the company — so it needs to retain planes and people.
On planes, Southwest, like any other merged airline, will operate Frontier as a separate unit for some time until full integration can be completed. That includes aircraft. Southwest will likely replace the 51 Airbus jets at Frontier with Boeing 737s. With all the deferred orders out there, Southwest can probably pick up planes quickly if it wants. And it can rework leases on the Airbus jets to fit a 737 delivery schedule. Pilots will be retrained, of course.
When I talked to Bob Jordan of Southwest, we talked a bit about seniority integration — something Southwest unions really haven’t done union-to-union. Frontier employees will be folded into Southwest. Southwest pay rates are higher than Frontier contracts, but work rules are different. Where each employee ends up will largely depend on seniority integration.
Frontier adds roughly 10% to Southwest’s fleet, and Southwest wants that 10% growth. If it buys Frontier, it’s not to shrink it.
–Scott
