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Catching Up With Frontier: What Southwest-AirTran Means for Milwaukee

Published
by
Dan Webb
on September 30, 2010
in AirTran, Frontier and Southwest
. 5 Comments

On Tuesday morning, I tweeted about what the Southwest/AirTran merger would mean for Frontier. A couple of hours later, I heard from Frontier’s PR department offering me a chance to chat with Daniel Shurz, Republic’s VP of Planning and Strategy. (Three cheers for social media!)

While Daniel’s official title is from Republic, he was with Frontier before the airline was acquired last year, and before that he was VP of Network Planning and Alliances at Air Canada.

Since coming to Frontier, he and his team have had to deal with plenty – a growing third competitor in Denver (Southwest), combining the Midwest and Frontier route maps, and strategically placing the E-Jet fleet that Republic brought to Frontier.

Frontier is no stranger to competing with Southwest, who has grown Denver very quickly – the city only had a handful of flights in January 2006 and is now one of the carrier’s largest operations. Southwest has also overtaken Frontier as the second-largest carrier at Denver in terms of originating O&D traffic – while United continues to hold the top spot.

And the carrier has also faced very tough competition in Milwaukee from AirTran. Southwest started serving Milwaukee a year ago, but the airline has kept its operation relatively small.

So what does Southwest taking over AirTran mean for Frontier?

Daniel said this could be good for Frontier from a cost perspective: “AirTran is the lowest cost network carrier in the country. Southwest’s costs are meaningfully higher….Assuming Southwest’s costs apply, then the costs of the operation increase. In and of itself, it’s easier to compete with airlines that have higher costs.”

One of the big cost questions is labor. Southwest has some of the highest-compensated employees in the business. Assuming all the workgroups successfully integrate, it would be fair to say that AirTran’s labor cost advantage would disappear.

And, obviously, a cost advantage means that Frontier can better survive in a revenue environment with limited pricing power.

Speaking of cost advantages – this is why I think Republic/Frontier can’t get their hands on the CSeries soon enough. If the CS300 can deliver the cost advantage that Bombardier is promising, that will certainly help improve Frontier’s margins.

Another topic of conversation was that of the SkyWest partnership with AirTran – something I have found very interesting lately. But Daniel’s main point was that the current AirTran scope clause allows for this operation, and Southwest’s does not. Depending on how everything shakes out, those destinations might go away if the partnership ends.

Just to provide some history – two of the SkyWest destinations – St. Louis and Pittsburgh – were previously served with mainline aircraft before SkyWest took them over. In addition, the partnership started with five aircraft, but the latest SkyWest 10-Q has it at four CRJs. Hmm.

Daniel also had plenty to say about the products of the two airlines. Naturally, since we’re talking about Southwest here, the topic of bag fees came up. Daniel did note that it’s a bit easier competing with AirTran, since they charge for bags as well.

He then focused on what he thinks is a big advantage over Southwest – Frontier offers more amenities and choices for travelers.

Of course, Midwest’s cookie, which is now being served on all Frontier flights, was brought up.

Daniel mentioned that some passengers had shifted over from Midwest to AirTran due to the latter’s business class offering. (Many of the E-Jets were all-economy with nothing special.) But Southwest will be converting the AirTran fleet to a single class of service, and Frontier now has Stretch seating fleetwide. It’s not first class, for sure – but it is nicer than plain old coach. So that’s an opportunity.

Also on the amenity front – Frontier offers assigned seating, and Southwest says the combined airline will not have it.

And one fee where Frontier wins – same-day changes. Frontier charges economy passengers $50 for a confirmed change. If you’re on a nonrefundbale fare on Southwest – you need to pony up for the full refundable fare, which can be pricey.

Daniel was also pushing Frontier’s Classic fare, which costs $25 to upgrade from economy, and includes two bags, LiveTV, a lower change fee, and some other features.

Bottom line – Frontier has more frills. I get that. Here’s my one problem with that. Customers need to research to figure that out, or it takes a lot of advertising for a company to show off its differences.

Southwest has “Bags Fly Free” down pat, and they’ve been using their large advertising budget to spread that message, which is easy to remember. Personally, I think some of the Frontier advantages are a bit more subtle, and harder to show off in a thirty-second TV spot.

Frontier clearly has their work cut out for them. They already have tough competition at both of their hubs, and one would assume that the Southwest merger has the potential to intensify that further in Milwaukee. The airline might have a nicer product in some areas – but price and schedule remain to be the biggest factors in the purchase decision.

And – looking down the road a few years – things get more interesting for Republic as a whole once some of the existing CPA agreements with mainline carriers begin to expire. But that could be a whole other blog post.

Anyway – thanks to Frontier for this opportunity. I think this post is long enough as-is, so in a couple of days I’ll share some of the other odds and ends that I discussed with Daniel.

(On a side note – Cranky looked into this topic yesterday. Check it out!)

Quick Thoughts: Southwest to Acquire AirTran

Published
by
Dan Webb
on September 27, 2010
in AirTran and Southwest
. 11 Comments

I was trying to work ahead yesterday – I actually had a nice blog post about American trimming down San Juan ready to go. And then this happened. And all I can say is wow!

Here’s the beginning of the press release – and my quick analysis is below.

At Southwest Airlines’ closing stock price of $12.28 on September 24, 2010, the transaction values AirTran common stock at $7.69 per share, or approximately $1.4 billion in the aggregate, including AirTran’s outstanding convertible notes. This represents a premium of 69 percent over the September 24, 2010 closing price of AirTran stock. Under the agreement, each share of AirTran common stock will be exchanged for $3.75 in cash and 0.321 shares of Southwest Airlines’ common stock, subject to certain adjustments, based on Southwest Airlines’ share price prior to closing. Including the existing AirTran net indebtedness and capitalized aircraft operating leases, the transaction value is approximately $3.4 billion.

The agreement has been unanimously approved by the boards of directors of each company, and closing is subject to the approval of AirTran stockholders, receipt of certain regulatory clearances, and fulfillment of customary closing conditions.

So. Wondering what to think here, especially since the deal announcement is less an hour old, and I (literally) read the press release getting out of bed this morning.

My first big question – labor. Southwest was all about a pilots deal when they attempted to buy Frontier. But the story seems very different with AirTran:

The agreement between Southwest and AirTran does not require Labor approval, and we are approaching the acquisition in compliance with our current CBAs. Integration of the two airlines will require fair and equitable integration of seniority lists (as stated in Allegheny-Mohawk), and negotiation of labor agreements applicable to the combined operation.

It will be very interesting to see how seniority shakes out, especially considering there’s a decent amount of overlap with AirTran’s 737 pilots. Meanwhile Southwest is already in discussions with SWAPA about the -800, and I have to think a major merger announcement can only complicate those.

Speaking of the fleet – what about the 717s? That would (obviously) change Southwest’s single fleet type strategy, but I guess one could say adding a fleet type through an acquisition might be a bit easier than adding it organically (as AirTran already has all the infrastructure set up). Southwest says that “the fleet is large enough to schedule efficiently.” (Just to add more questions, AirTran said a year ago that it was already looking at 717 replacements like the CSeries.)

From a network perspective…this deal is very interesting. Southwest would be able to build up LaGuardia, finally get a presence at Washington National, and most significantly acquire an Atlanta hub operation. Smaller AirTran cities would be interesting, too, mainly because of their size. There are only a couple of Southwest cities that have less than ten departures per day – but plenty of small AirTran markets. AirTran also adds Mexico and Caribbean service.

Meanwhile – the future of the small AirTran-SkyWest partnership is still unknown.

In the product department, there’s a bit more clarity. Southwest says right now that the merged airline will have no first and second bag fees or change fees. Also, it plans to have a single class of service and no assigned seating.

Southwest also says the installation of Wi-Fi across the fleet is still going to happen. What’s interesting is how that proceeds, since Southwest is ramping up installations of Row 44, and AirTran has Gogo installed on the entire fleet.

Anyway – just some of my initial thoughts. There will be an analyst call and press conference (sadly I will miss the live version of the latter), so we’ll see what details are added there.

AirTran and Frontier Both Get MKE-CUN Rights

Published
by
Dan Webb
on June 24, 2010
in AirTran and Frontier
. 0 Comments

Fortunately, it appears that a regulatory catfight between Frontier and AirTran  has been avoided. Yay!

It all started when Frontier decided to announce last month that it wished to start up service between Milwaukee and Cancun. Like a couple of the routes that I was talking about last week, this one was cut a couple of years ago back when oil was going up to incredible heights and Frontier was dealing with some major financial issues at the time. So it does appear that Frontier thinks those routes can still work out fine since its rebuilding that network.

One important difference, though, is this time around this route could work a bit better as now Frontier has the Midwest network to connect to that flight.

Anyway, the airline was planning on seasonal service with with between one and tree weekly frequencies depending on the time of the year. All of the routes would be operated with A319s. So that’s all fine and good, but then on June 7 AirTran decides to step in and announce year-round service with 737-700s. Service would range from one weekly to daily service. I think this kind of illustrates how aggressive AirTran has been in Milwaukee.

Then we see some drama unfold between the two airlines. (You can check out each docket folder to see: click here for AirTran’s and here for Frontier’s.)  The source of said drama is a discussion of how many route authorities that are available actually exist. According to the United States’ current agreement with Mexico, only three US carriers can be flying the route. Most recently, Delta, Sun Country, and USA 3000 have the authority, and Frontier argued that those airlines should lose the right to fly the route since they haven’t flown it in awhile. (Or, to use the technical term, the service is “dormant.”)

DOT said that only Delta and USA 3000 still have authority, and the latter has given notice that the service is dormant, so both carriers will get to fly the route.

I’m very interested in seeing how the schedules turn out there. Frontier is planning to get started this December, while AirTran has said their service would start around April 1. Airtran’s schedule, with occasionally daily service, does seem like a lot of capacity, especially with another carrier onboard. Part of me thinks that AirTran wanted to show higher frequency than Frontier when it was thought that only one carrier would be allowed to fly the route, and perhaps the schedule might help their case.

So we’ll see how that all pans out. But I think this argument over one route shows how cutthroat things are in Milwaukee.

Looking at BOS-BWI…Again

Published
by
Dan Webb
on May 26, 2010
in AirTran, JetBlue and Southwest
. 2 Comments

Yesterday evening was very exciting in the Webb household…it was the first time I had really tried to do any kind of serious analysis using the DOT’s DB1B data, which looks at origin and destination passengers. (I realize this is not considered exciting by anyone else.) It can provide some great insights, as long as you know what you’re doing. Sadly, I can’t say I exactly do. :D

But last night I decided it was time to dive in and start figuring out things for myself by looking into a market I have written about here plenty of times before – Boston to Baltimore (I just looked at that direction, and only on nonstop flights). And with the help of a friend I think I found some interesting things.

The DB1B data is based on a survey of 10% of tickets. So we can estimate the total number of origin and destination passengers for one quarter if we multiply the number by ten. And by using the segment data in Form 41 we know how many passengers were on the flights – so therefore we can estimate how many of the passengers are O&D and how many are on connecting itineraries.

I don’t think these results are too surprising. AirTran and Southwest have Baltimore hubs, and the latter’s network there is more robust. Yes, JetBlue has connections out of Boston for sure, but that’s not really the most convenient connecting point to get to Baltimore as it involves some backtracking.

But this also has implications for the three carriers that have been duking it out, as all three have been running promotions on and off for months. For AirTran and Southwest, they’re more “immune” from fare sales and promotions on the route since more of their traffic isn’t local.

Now let’s look at yields to get a picture of revenue. These numbers might look a bit high for a market with three LCCs competing,  but yields are down about 10 cents year over year.

I was surprised Southwest’s yield was the highest, considering they are a new entrant. This also bodes well for them from a RASM perspective as their load factor – 86.5% – was the highest as well. (JetBlue has a 73.8% load factor,  and it was 78% for AirTran.) Of course once we get into profitability things get more complex as then one has to start allocating revenue from connecting itineraries. Plus figuring out costs for one route can get complicated. But, to keep things simple, AirTran and Southwest have historically had lower costs than JetBlue.

And finally…market share. Again, this is looking at originating BOS traffic going to BWI on nonstop flights.

As you can see there’s no dominant player right now, but AirTran take the top honors here. Not very surprising since they still have the highest frequency here.

Anyway…hope you found that interesting. I wonder what the future of this route is. The percentage of connecting passengers on Southwest might change as the airline builds nonstops out of Boston. And I do wonder what th profitability is for each carrier. Right now, JetBlue seems to be the weak carrier here, and I wonder how long they’ll keep it up. The airline has said they will be maintaining service to all three DC-area airports from Boston, but I’m sure the yields for flights to Reagan look much more attractive.

Frontier and AirTran Break Up

Published
by
Dan Webb
on May 18, 2010
in AirTran, Frontier, Midwest and Republic
. 3 Comments

Well, I was wondering about this yesterday – and it happened. Frontier and AirTran have decided to end their partnership that started in 2006. The partnership was not a codeshare, but did have the two airlines sharing customers. For example, I can enter a trip between Atlanta to Ft. Lauderdale on the Frontier site, and will booted over to AirTran’s site. Meanwhile, passengers could earn and redeem points in either program.

This announcement is not too surprising. Why? The answer lies in Milwaukee, I think. Midwest is becoming Frontier and Midwest Miles is merging into Frontier’s EarlyReturns program.  AirTran trying to steal frequent flyers away from Frontier/Midwest in Milwaukee doesn’t exactly lay the foundation for a strong partnership. Speaking of Milwauke, AirTran announced some new routes there this morning.

Photo Credit: Frontier

I’m trying to wonder how much this will hurt AirTran/Frontier. I’ve searched through some SEC filings, but can’t seem to find any number as to how many passengers were actually taking advantage of the partnership. So that’s one question.

From a network perspective, the two route maps seemed pretty complementary, especially if we look at Frontier from a few years ago when its only hub was in Denver. AirTran had the Eastern half of the country, while Frontier opened up the West. But now, Frontier does have better access to the East thanks to the Midwest route network (granted, Milwaukee and Atlanta are in completely different regions). So, does that reduce their need for AirTran?

I also wonder which party decided to end things. From the news release, it seems that it could be Frontier/Republic. Do they think that they need AirTran less than they did a few years ago? Though I have to think the new intense competition between the two in Milwaukee was the big driving factor.

What do you think? Leave your thoughts in the comments.

AirTran Gets Aggressive

Published
by
Dan Webb
on May 17, 2010
in AirTran
. 6 Comments

When I saw this press release come out from AirTran last week, I laughed out loud. The airline is offering 32 A+ credits (good for two roundtrips) in exchange for a donation of 50,000 Midwest miles (good for two roundtrips at the lowest redemption level) to charity using Midwest’s “Miracle Miles” promotion. 64 will be given for 100,000 miles. The donation must be made by June 15. While the promotion has already been covered here on BoardingArea, I wanted to share some of my thoughts.

AirTran has become a large player in Milwaukee fairly quickly, thanks to the new competition they’ve added on there. But just adding extra passengers through low fares is not the best profitability-wise. So here we see AirTran making a move to attract the loyal, frequent business travelers over at Midwest. And having those travelers forfeit their Midwest miles only makes the pot sweeter. On the more traditional side, AirTran is also offering status matches to any Midwest elites.

Anyway, an interesting, hilarious, and aggressive move. Also, on a side note, AirTran is still partners with Frontier, the brand that is replacing Midwest. Yeah, awkward.

SkyWest For AirTran – Early Performance

Published
by
Dan Webb
on April 22, 2010
in AirTran and SkyWest
. 1 Comment

A few months ago AirTran and SkyWest announced an interesting partnership together. SkyWest, looking for a new home for idle CRJs, decided to fly them out of Milwaukee in partnership with AirTran. But instead of a traditional regional agreement, SkyWest would be doing this flying at risk, and is currently flying the CRJs to six cities in its own colors. The DOT traffic data for January just came out, and that includes data for the first four cities (the last two came in February), so I decided to take a peek. Here are the load factors:

Akron-Canton’s performance wasn’t too hot. It was a brand new city for Milwaukee service. Indianapolis, Pittsburgh, and St. Louis performed much better – especially the last of the three. These three cities were all large enough to merit mainline service from AirTran, though the carrier felt that RJs would work better schedule-wise, apparently – and I agree. With three CRJs you only have a bit more capacity than a 737-700 but with a more convenient schedule.

Of course, we can’t derive revenue performance from these results but loads do give us an idea. Plus, AirTran’s schedule moves also provide good hints. Each of these cities started with three daily roundtrips. Akron-Canton has since been cut back to two daily roundtrips, and Omaha, which started in February, sees a similar cut.

This is certainly an interesting partnership, and we’ll have to wait and see how it develops. I wonder, will SkyWest add any more cities out of Milwaukee? Could this partnership be extended to other AirTran hubs?

Delta and US Airways Adjust Slot Swap

Published
by
Dan Webb
on March 24, 2010
in AirTran, Delta, JetBlue, Spirit, US Airways and WestJet
. 3 Comments

Remember the slot swap? The one that many thought were dead when the DOT announced the concessions that it would require? Well, US Airways and Delta announced their own compromise earlier this week that’s very interesting. The airlines says that if this idea isn’t approved by the DOT, the deal’s off. So here’s the breakdown of the deal.

First, let’s take a look at Washington-National just because it’s the simpler one. DOT/FAA wanted US Airways to give up 14 of its 42 (33%!) of its new slots, a pretty hefty piece of the pie. US Airways has said that if the deal is approve, it will give JetBlue five slots at the airport. DOT wanted carriers that didn’t serve or had a small presence at DCA and LGA, and JetBlue fits the bill since DCA would be a brand new destination for them. JetBlue has said that they’re interested in the airport, though it’s kind of tough to guess where they’ll serve. For example, flights to their hubs in Boston and New York would make sense for connecting traffic, but there’s plenty of capacity in these markets already. And that pesky perimeter rule prevents service to the West Coast. Florida service could be likely as well.

Next up is LaGuardia, where Delta plans to sell up to five slots each to AirTran, Spirit, and WestJet. AirTran and Spirit are already there, but their share is small enough (less than 5% of slots) to satisfy the DOT’s guidelines. If the deal were to go through, this would be WestJet’s second attempt at LaGuardia service after cutting Toronto flights in 2005. Right now the airline is present in New York with a seasonal flight to Calgary from Newark, though that couldn’t be moved over due the perimeter rule. So Toronto and Montreal would be the big markets here, both of which already have Air Canada service. Porter goes to Newark, too.

So what will the DOT think of this one? I’m not so sure. For LaGuardia Delta comes close to what the DOT wanted by giving up 15 slots (DOT was throwing around the number 20), or 75% of what the DOT was suggesting. But US Airways is only offering up 35% of the DOT’s suggest divestiture.

But if this works out, it’s certainly good news for Delta and US Airways. By selling slots to specific carriers and only giving up to five total, they get to control the amount of competition present at the airports. And the limited amount of competition was something that was brought up by Southwest in Monday filing on the slot swap – and they were talking about the larger number of slots that was being suggested by the DOT.

Southwest and a few other carriers submitted comments to the DOT about the deal earlier this week, and tomorrow I’ll be covering those in more detail.

A Quick Look at Boston-Baltimore

Published
by
Dan Webb
on March 18, 2010
in AirTran, JetBlue and Southwest
. 5 Comments

Earlier this week, AirTran said it would be offering double A+ Rewards credits between Boston and Baltimore for trips booked and flown between March 15 and May 21. The airline has run a similar promotion before, but has now sweetened the pot by making those bonus credits eligible for elite status. My guess is that AirTran wants to build up some loyalty, since right now consumers only concerned about price can find a great fare Southwest, AirTran, or JetBlue.

That promotion made me want to investigate the market by looking into T100 data – and it’s very interesting to look at. Traffic has flourished with passenger counts increasing over 150% year-over-year in December (the most recent data). And control of the market has shifted a good amount. In December 2008, AirTran had over 70% of the market with some competition from Comair. In December 2009, AirTran was still the dominant carrier, but its market share had eroded to 48%.

Fares on the route decreased over 28% to $95.65 in the third quarter of 2009 compared to the same period the year prior. That number, however, doesn’t paint a clear picture since Southwest entered in the middle of August and JetBlue launched in September. We’ll probably get some more clarity once the DOT’s fourth quarter data is released.

But this is a market that I’m very interested in and want to study further, especially in terms of connecting passengers. For example, how many of Southwest’s passengers are using Baltimore to get to the rest of their network? The same question can be asked for AirTran. Meanwhile, how many JetBlue passengers on the route are going to Boston to tap into their network? Hopefully my professors will be kind in the homework department in the near future so I can check things like that out. :D

AirTran’s Interesting Milwaukee Move

Published
by
Dan Webb
on March 5, 2010
in AirTran
. 2 Comments

To be honest, it’s been an annoyingly slow news week airline-wise. Yeah, traffic reports and RASM estimates are kind of exciting, but I usually wait for all of the airlines to release results, because it just gets redundant otherwise, I think. So hence today’s fast post.

But this morning an interesting press release came over from AirTran about Milwaukee. And it’s not a new rote announcement:

ORLANDO, Fla., March 5 /PRNewswire-FirstCall/ — AirTran Airways, a subsidiary of AirTran Holdings, Inc. (NYSE: AAI), today announced that the airline will host its annual shareholders’ meeting on May 18, 2010, at the historic Pfister Hotel in downtown Milwaukee. This marks the first time the Company’s annual meeting will be held in Milwaukee. AirTran Airways operates a hub in Milwaukee and is the fastest growing airline at General Mitchell International Airport.

Is it just me, or is this decision to not have the meeting in Orlando, where AirTran is headquartered, fairly symbolic here? I think it shows that AirTran is really committed to this market. Heck, AirTran is calling itself “Milwaukee’s largest mainline carrier” and it’s opening a crew base there. Clearly they’re ready to face-off Midwest for an extended period.

There’s definitely a lot of overlap between the two airlines. But Midwest does have some advantages here, I think. First, while it’s probably eroded a decent amount, they still have brand loyalty as Milwaukee’s hometown carrier. Second, they still have some unique markets, especially the smaller ones with the ERJ service, so that can drive some connecting feed to their other flights. On a related note, Midwest does have some greater fleet flexibility. The smallest AirTran can go is 117 seats with the 717 (granted, there are a five SkyWest CRJs working for them, too), while Midwest can use those E170s, etc. in markets that might not work out for AirTran. Finally, Midwest has been able to expand its reach with the Frontier codeshare.

And, like I usually write here, it will be interesting to watch them duke it out.