Monthly Archive for July, 2009

More Thoughts on the Southwest-Frontier Deal

Published
by
Dan Webb
on July 31, 2009
in Frontier, Republic and Southwest
. 4 Comments

Now I’ve had a few more hours to think about this whole situation and my opinions have developed and changed. Before I get ahead of myself, though, I did record a half-hour podcast with two other BoardingArea bloggers, Ben from One Mile at a Time, and Steven from Flying with Fish. Thanks guys, for recording with me! I think we had a great discussion. You can grab a copy of that here.

And now for my thoughts, in no particular order:

I found some of the media call contradictory. While Southwest stressed that this was a non-binding agreement, it was also said, “We are in this to win….We want this to happen.” Huh? Could this simply be a “we don’t want Republic to have them” move? Or perhaps Southwest just wants a bigger piece of the DEN market – get rid of a competitor and compete more with United.

After the press release, blog post, and media call, I really haven’t heard a (good) reason for this move. The best I could find was in this press release:

A successful acquisition of Frontier Airlines will allow Southwest to expand its network with its legendary low fares, add jobs into Southwest, and boost competition in Denver and other cities.

I don’t see how this will really let Southwest boost the route map. There’s already a bunch of overlap with Frontier, except Lynx (more on that later in this post) and the international routes (more on that later, too). The add jobs line also doesn’t make too much sense, especially a week after Southwest said 1,400 employees were leaving through buyouts. Adding jobs might be a result of a merger, but I don’t see it as a reason. Finally, I’m not really buying this “boosting competition” line. Southwest was saying that this would allow it to compete more directly United, which still has about half of the market, but I still see removing a competitor, is, by definition, reducing competition.

Next – what’s up with the fleet? As we all know, Frontier mainline is all Airbus – 10 A318s, 38 A319s, and 3 A320s. 37 of these 51 aircraft are leased. Southwest says that the Airbus aircraft will go away to be replaced by 737s, and while it can return most to lessors, it will have to try to sell 14. Meanwhile, the company now acquires a bunch of Airbus pilots. What happens there? Will they all get trained for the 737? What will SWAPA have to say about this? It will probably bring up some seniority issues.

What really confused me was how Southwest was saying this acquisition will help it grow. The airline is planning to get rid of just about 50 planes, and it would half to replace those to maintain service. According to this filing, Southwest has 10 firm 737 orders for 2010, 10 for 2011, along with 10 options for 2011. Will that schedule have to be changed? Will Southwest need more aircraft? How will they finance that? Will they go and try to lease some more aircraft? Like I said, more questions than answers.

A big question for me is Lynx, and to be honest, Southwest didn’t have a whole lot to say about that operation. Could Southwest start up a regional operation to feed the mainline service? Hmm. I really don’t know what to think about this one.

And next – international operations. Southwest claims that buying Frontier can help with near-international service (read: Mexico). I get that a bit, I don’t see why buying another carrier is needed for that, though.

So, to conclude…

While that $113 million price tag might sound low, there are other costs that need to be considered, at least the way Southwest is reporting things right now. The biggest item is dismantling a sizable fleet of Airbus aircraft and replacing those with 737s. But there are also concerns on the labor front. I agree with what Steven said on the podcast. This is a much better deal for Republic, who plans to keep the Airbus fleet going, while Southwest has to deal with merger headaches, unless if they only buy the pieces they need (a la ATA’s LGA slots).

Anyway, this will be sure interesting to watch. I especially want to see what Republic does now. How high will they be willing to go?

Breaking: Southwest to Bid for Frontier

Published
by
Dan Webb
on July 30, 2009
in Frontier, Republic and Southwest
. 0 Comments

From Southwest’s blog:

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.

From an interview with the company’s Ron Ricks:

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.

And later on:

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.

So, this is very interesting to say the least. But, unfortunately all we know is that Southwest is planning to compete with Republic on this one, but there’s not much in terms of detail as to what Southwest will do with Frontier. For example, when asked about Lynx, Ron said that “Southwest Airlines will study Lynx.”

I think some clues can be found from last week’s earnings call, when one analyst asked about a potential deal. Gary Kelly responded:

Our desire is to maintain the integrity of our fleet, which is, of course, an all Boeing 737 fleet. We have absolutely no interest in any kind of a regional jet operation. So any opportunity out there is going to have to fit our operating style…So in summary I think we’re open, but I certainly can’t comment specifically on any particular situation.

So, there are definitely more questions than answers. What happens with Frontier’s fleet? Based on what Gary said during the call Southwest would probably like to dump those over time. Will Lynx be completely dismantled? Will they operate as a separate subsidiary? Could Southwest find somewhere else to use those Q400s? Frontier has a few Mexico destinations – what does that mean for the Volaris deal? Frontier has service out of DCA and ATL – what happens there? (This would also give Southwest some more LGA slots to boot.)

There’s plenty of stuff to ask about here. I guess we’ll just have to see how it plays out.

Republic Earnings

Published
by
Dan Webb
on July 30, 2009
in Midwest and Republic
. 0 Comments

Yesterday, Republic announced earnings of $0.41/share, which is a bit worse than expected. But let’s look at the exciting stuff/

First, “During the quarter, the Company removed twelve 50-seat aircraft from its Continental operations.” Hm, I didn’t know that Continental was sizing down that operation a bit.

On the Frontier front, nothing much was mentioned in the release, and right now things just need to move through bankruptcy court. If I recall correctly, there are still a few days left for competing bids to be filed. Everything should be taken care of next month.

Next, the airline reported, “On July 10, 2009 the Company invested $7.5 million of cash in Mokulele Airlines, increasing our investment from 55% to approximately 89% of Mokulele’s common stock.” Maybe I was just paying attention, but I hadn’t heard about that additional investment.

Finally, with Midwest:

In addition to the 12 E170 aircraft currently operated for Midwest, the Company expects to operate nine 99-seat E190 aircraft and twelve 37-50 seat aircraft, all of which will be placed into service between July 2009 and January 2010. The E190 aircraft will be sourced on short-term leases and the 37-50 seat aircraft will be sourced from the Company’s existing fleet of aircraft or on short-term leases through a third party lessor.

So, there will be an E190 to replace each 717, as was pretty much expected. As for the RJs, here’s how the ERJ looks in Midwest colors.

Silver One to Receive New Paintjob

Published
by
Dan Webb
on July 30, 2009
in Southwest
. 1 Comment

I was very sad to read yesterday that Southwest is putting Silver One, the aircraft painted in a special livery to celebrate the company’s 25th anniversary, in a regular livery. When the aircraft was first introduced, it was in a bare metal scheme, but was later switched to a reflective gray paint (sort of like Northwest’s livery, I guess), but that hasn’t been working out, either. Southwest’s Brian Lusk writes:

This aircraft has been painted several times with improved paints, and it still doesn’t hold a shine. Southwest wants this aircraft to be a shining representation of this significant milestone in our history, and the grey appearance is simply not doing it justice.

He goes on:

However, there will be two places on the aircraft that will designate it as Southwest’s Silver Anniversary Aircraft. The graphic on the nose of the aircraft will remain the same, along with the dedication art on the windscreen as you enter the aircraft. The change to the Canyon Blue livery should take place in mid- to late-August.

Well, it’s sad to see this go, simply because I love special liveries, and the reason behind this one, but at least it will retain some things to show that it’s a special aircraft.

Now that the repainting has been announced, I’m glad that I was lucky to  ride on Silver One from Orlando to Ft. Lauderdale in 2006.

jul30

Southwest’s Sweet E-Mail Marketing

Published
by
Dan Webb
on July 29, 2009
in Southwest
. 1 Comment

I’m heading to San Diego in a little less than a month for the National Business Travel Association conference (which I’m really looking forward to), and I’m flying down on Southwest. Last week, I received this e-mail:

jul29_2

Other than that minor typo, this is great. As the text mentions, it has a list of my flights, a link to Southwest’s new travel guide, and links to hotels and rental cars. Southwest tells me that they’ve been doing this for about a month now.

Airlines love it when you book travel using their website. First, when you go look at flights, you’re no longer seeing the prices of the competition (though Southwest isn’t in that situation). But airlines also love it because they get a piece of the revenue when you book a hotel or rental car. So these e-mails just give Southwest another change to grab some revenue. Nice move, I think.

Best Birthday Gift Ever!

Published
by
Dan Webb
on July 29, 2009
in Random
. 1 Comment

It was my birthday this past weekend, and I got an awesome gift from my parents – Biscoffs! Now I can always pretend to be in an airline lounge! :D

jul29

Regional Revenue Becomes More Important for United

Published
by
Dan Webb
on July 28, 2009
in United
. 1 Comment

Well, I guess this could be expected, considering United’s decision to cut the 737 fleet. Now, the regionals are more important for United  – while mainline ASMs are down 10.8% compared to the second quarter of 2008 (and mainline domestic ASMs are down 13.2%), regional ASMs are up 7.1%. Also – look at revenues. This quarter, mainline revenues are off over 28%, while regional passenger revenue is only down about 6%. Meanwhile, just look at some of United’s new routes – mostly CRJs. (MCI-SFO on a CR7? No thanks!)

Anyway, take a look regional traffic’s share of United’s total passenger revenue for the past few second quarters:

jul28

Click to enlarge.

So, in the past, the regionals’ share has been between 16 and 17%. Now, it’s over 20%, which is a pretty significant increase. I wouldn’t be surprised if that share increased further in the future.

Airplane Geeks Episode 58

Published
by
Dan Webb
on July 28, 2009
in Airplane Geeks
. 0 Comments

This week’s guest is Elizabeth Clark, who flies the Challenger 601 and Lear 45 for FedEx Express Corporate Aviation (she gets to fly people, not boxes!). She is also Executive Director for Women in Corporate Aviation and the current President of the Memphis Belles Chapter of Women in Aviation International. We talk about things like the 787, airline earnings, and Oshkosh.

You can get it here.

Would You Stand on Ryanair? I Would!

Published
by
Dan Webb
on July 27, 2009
in Ryanair
. 6 Comments

One of the stories that a lot of people have been talking about this summer was Spring Airlines’ idea of having standing passengers on flights for a cheaper price. Of course, not to be outdone, Ryanair said they would like to do the same thing. Last week, the Irish carrier released the results of an online survey. 66% of respondents said they would stand on a flight for an hour or less if its was free. Of course, this would be Ryanair’s version of “free.” :D When asked if standing would be available for half-fare, only 42% said they would be interested.

Tell you the truth, I’d be willing to do it for a relatively short flight. Since I’m stuck with a college student budget, it could open up some possibilities for me. My only concern would be a delay – that extra time standing on the ground could be annoying.

How Well Do Airline Revenues and GDP Relate?

Published
by
Dan Webb
on July 27, 2009
in Finance
. 1 Comment

For the heck of it I wanted to compare GDP to airline industry performance, but I wasn’t really sure how. Then I found this handy chart from the ATA that has operating revenues for passenger airlines, which made it pretty easy. So a graph of the data looks like this:

jul27_2

Click on the graph for a larger version.

They seem to move pretty well together, as I got an r-squared value of about 0.90. Then, I decided to take out 2002, because I think it’s fair to say that the airline industry was hit harder than other areas of the economy – then r-squared jumped up to 0.935. Not bad! After playing around with the numbers a bit, I can estimate that a one billion change in GDP will go with a change in airline revenues of about $8.5-8.7 million.

Now, we’ll have to see what happens this year when both GDP and revenues have been hammered.

Sunday Video #33

Published
by
Dan Webb
on July 26, 2009
in Uncategorized
. 0 Comments

I love Pam Ann. :D

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