Southwest dominance to grow at BWI

Posted: 10:21 am Mon, September 27, 2010
By Nicholas Sohr
Daily Record Business Writer

The merger of Southwest Airlines Co. and AirTran Airways would give the combined company a commanding presence at Baltimore-Washington International Thurgood Marshall Airport, an arrangement that could benefit local travelers, industry experts and airport officials say.

Southwest’s purchase of AirTran for $1.42 billion would combine the nation’s biggest discount carriers. Nearly 70 percent of those who travel through BWI would fly on the new Southwest, and Baltimore is one of the markets where Southwest and AirTran have the most overlap in their routes.

But, the loss of competition between the airport’s top two airlines won’t necessarily mean higher fares and fewer flights, said Robert Mann, of R.W. Mann & Company Inc., a New York-based airline consulting firm.

“I think that Southwest’s institutional view is that fares need to stay low,” he said “I see the combination generally benefiting the places that are served by the combined company.”

Paul J. Wiedefeld, the airport’s executive director, said he spoke to Southwest officials Monday and came away from the call “excited” about the merger.

“They’re very positive on BWI and the future growth here,” he said. “Clearly where we are in the Northeast is very strategic for them. That doesn’t change.”

Wiedefeld and Mann both said Southwest’s prices will be held down by competition from outside the airport.

“They tend to dominate the places that they serve and that doesn’t lead to high prices,” Mann said. “They don’t worry about what other airlines charge. They worry about being competitive with land transportation in the area. They worry about what the Bolt bus charges. They worry about what Amtrak charges.”

The acquisition moves Southwest into 37 new cities. The largest of those is Atlanta, where Delta Air Lines is based. Atlanta’s Hartsfield-Jackson International airport is the nation’s busiest, and a primary hub for business travelers, a group that Southwest has increasingly been targeting because they tend to pay higher fares.

The acquisition also gives Southwest a bigger slice of the market in cities like Boston and New York, major East Coast cities where it has been expanding. The deal is also a boost to Southwest’s plans to expand internationally, though Wiedefeld said it’s too early to tell what that might mean for BWI’s efforts to grow its business overseas. The Dallas carrier gains routes to Mexico and the Caribbean, where fellow discount airline JetBlue Airways has a big presence. The union also furthers a consolidation trend seen in the industry in recent years.

Southwest flies 182 daily departures from BWI and accounts for 52 percent of its passengers. AirTran has 63 daily departures, and 16 percent of the airport’s passengers.

The airlines compete directly on at least eight routes from BWI, including Indianapolis, Boston, New Orleans, Milwaukee and four Florida cities — Tampa, Orlando, Fort Lauderdale and Fort Myers.

John Pincavage, of Connecticut-based Pincavage & Associates, said he sees little room to trim flights, but pointed to Orlando as one airport that could see cuts.

Still, he said, travelers will still be able to find cheap Southwest tickets.

“When you look at Southwest’s basic fare, if you buy 90 days ahead, you’re going to get a great fare on Southwest,” he said. “If you buy a week ahead, you’re not going to be paying much different than you would with anyone else. So if you buy smart, you’ll still find a good fare.”

There is one change passengers will surely welcome: Southwest said it won’t keep AirTran’s bag fees when they fully combine in 2012. AirTran currently charges $20 for a passenger’s first checked bag, and $25 for the second. Major carriers like United and American charge $25 for the first bag and $35 for the second. Southwest says it has lured passengers from those airlines by refusing to charge for bags, and has built a marketing campaign around the policy.

Southwest, based in Dallas, carries more passengers than any other airline in the U.S. AirTran is the nation’s eighth-largest carrier. Besides its base in Atlanta, AirTran has hubs in Milwaukee and Orlando. Southwest will remain the No. 4 airline by traffic.

This latest deal continues the airline industry’s move to consolidate. Continental Airlines and United Airlines parent UAL Corp. will formally combine at the end of this week and become the world’s largest, toppling Delta. Delta claimed that spot when it acquired Northwest Airlines two years ago.

Southwest tried unsuccessfully last year to buy Frontier Airlines out of bankruptcy. Republic Airways Holdings won the auction for Frontier last August, buying the Denver-based carrier for almost $108.8 million.

Southwest’s acquisition of AirTran is expected to close in the first half of next year. It requires both regulatory and shareholder approval. The airlines expect to fully blend their operations in 2012.

Based on Southwest Airlines’ closing share price on Friday, the deal is worth $7.69 per AirTran share. That’s a 69 percent premium over its closing price of $4.55. In pre-market trading, AirTran shares jumped 61 percent to $7.31, while Southwest shares rose 12 cents to $12.40.

Southwest will pay about $670 million with available cash. Southwest will assume $2 billion in AirTran debt.

Southwest and AirTran said the new airline will operate from more than 100 different airports and serve more than 100 million customers.

In April, AirTran Holdings Inc. CEO Robert Fornaro signaled his interest in making a deal, saying the airline would consider a combination with another carrier if approached and if such a deal made sense for the company and shareholders.

But when asked by The Associated Press who might be a potential suitor for AirTran, Fornaro said, “I’m not sure that we’re necessarily a natural fit to be gobbled up by somebody else.”

AirTran would be Southwest’s largest acquisition by a wide margin. The company, which began with a handful of planes hopping among three Texas cities in the early 1970s, bought Morris Air and Muse Air in the mid-1980s. Two years ago, Southwest bought assets of ATA Airlines out of bankruptcy, which gave Southwest an opening to serve New York with ATA’s takeoff and landing slots at LaGuardia Airport.

The Associated Press contributed to this story.