Southwest today announced a formal $170m bid for Frontier Airlines, topping a bid by Republic Airlines of nearly $109m. In the announcement, Southwest gave a high level overview of their plans to operate Frontier that sounds quite similar to our post last week in which we detailed a likely scenario.
As we expected, Southwest will maintain service to all existing markets and add several new ones by rationalizing service in overlapping markets. Of particular interest is Southwest's plan to gradually reduce Frontier's airbus fleet as they take delivery of new 737s. The naysayers were concerned about fleet integration - we said it would never be an issue because Southwest would never integrate the Frontier fleet - they would just slowly fade away. Nice to see that Southwest agrees with our prognostication.
Southwest says they will keep about 80% or 40 aircraft in Frontiers fleet. That sounds like the small, 120 seat A318s will be leaving soon, leaving the larger A320s (with 162 seats) and the A319s (with 136 seats) in the fleet for now.
And now what of Republic? Do they really want to market their own airline? And what will do they do with Midwest Airlines - surely that operation isn't quite so swift without the heft that a Frontier/Midwest combination would have allowed for.
The auction is Thursday - we'll see what happens but our bet is that Frontier gets a little Luv...
Showing posts with label Republic Airlines. Show all posts
Showing posts with label Republic Airlines. Show all posts
Monday, August 10, 2009
Thursday, July 30, 2009
Southwest to Frontier: Not so Fast
Southwest today made a counter-bid for Denver-based Frontier Airlines. Regional airline Republic (which operates regional jets on behalf of United, Delta, USAirways and others) made a bid for Frontier back in June which we previously commented on.
With this move, Southwest is playing spoiler in a quest for control of the Denver market which it re-entered with gusto in January of 2006. Since then, Southwest has consistently added frequencies and new markets from Denver.
Southwest says it will operate Frontier as a separate subsidiary (for a time) with full integration possible at some future date. This is similar to how Southwest approached Morris Air and American Trans Air (ATA) in previous growth spurts. Morris Air worked out well, ATA, in the final assessment (post liquidation probably did as well with Southwest picking up slots at LGA and gates at MDW.
With Southwest operating Frontier as a separate subsidiary, one can be sure who will be pulling the strings. Most importantly, Southwest will have control over Frontier's pricing and route planning. Should the sale go through, expect Frontier to rapidly exit markets where they currently compete with Southwest such as DEN-LAX, DEN-SFO, DEN-MDW etc. A code-share relationship will undoubtedly be quickly implemented to drive cross-sales and connecting traffic. Cross loyalty program participation is also a sure thing. And, one would bet that the Frontier/AirTran frequent flyer and cross-booking (on each other's websites) relationship would end quickly.
But don't expect Frontier's shiny new Airbus aircraft (with those fun animals!) to be repainted into Southwest's livery anytime soon. Rather, Southwest could gradually reduce Frontier's flying as they accept additional 737s (which they have to put somewhere.) This would create a gradual switch-over from Frontier to Southwest and ensure Southwest had places to put all the 737s they have on order.
In one quick, and relatively cheap purchase, Southwest will eliminate a key competitor in a major market, leaving them to focus on competing with United. And how hard can that be given the current state of UAUA? Brilliant move, WN!
With this move, Southwest is playing spoiler in a quest for control of the Denver market which it re-entered with gusto in January of 2006. Since then, Southwest has consistently added frequencies and new markets from Denver.
Southwest says it will operate Frontier as a separate subsidiary (for a time) with full integration possible at some future date. This is similar to how Southwest approached Morris Air and American Trans Air (ATA) in previous growth spurts. Morris Air worked out well, ATA, in the final assessment (post liquidation probably did as well with Southwest picking up slots at LGA and gates at MDW.
With Southwest operating Frontier as a separate subsidiary, one can be sure who will be pulling the strings. Most importantly, Southwest will have control over Frontier's pricing and route planning. Should the sale go through, expect Frontier to rapidly exit markets where they currently compete with Southwest such as DEN-LAX, DEN-SFO, DEN-MDW etc. A code-share relationship will undoubtedly be quickly implemented to drive cross-sales and connecting traffic. Cross loyalty program participation is also a sure thing. And, one would bet that the Frontier/AirTran frequent flyer and cross-booking (on each other's websites) relationship would end quickly.
But don't expect Frontier's shiny new Airbus aircraft (with those fun animals!) to be repainted into Southwest's livery anytime soon. Rather, Southwest could gradually reduce Frontier's flying as they accept additional 737s (which they have to put somewhere.) This would create a gradual switch-over from Frontier to Southwest and ensure Southwest had places to put all the 737s they have on order.
In one quick, and relatively cheap purchase, Southwest will eliminate a key competitor in a major market, leaving them to focus on competing with United. And how hard can that be given the current state of UAUA? Brilliant move, WN!
Tuesday, June 23, 2009
Republic Airlines: Delusions of Grandeur?
For the second time in as many days, Republic Airlines (no, not the forerunner of the current Northwest er, ah, Delta) has bought a struggling airline. Yesterday they bought Frontier Airlines and this afternoon they announced they were buying Midwest.
What makes this interesting is that, until now, Republic has only flown flights on behalf of other, larger airlines under codeshare agreements. Hence why you can't actually (for now anyway!) buy a ticket on Republic Airlines. You may have flown on Republic but the regional aircraft you flew on was marketed and sold by one of the many carriers Republic operates flights on behalf of including US Airways, Delta, United, American and Continental.
This will be Republic's first foray into selling, marketing, revenue managing etc their own flights - today all of these functions are handled by the larger major carriers.
The bigger question is how the major carriers who now provide the majority of Republic's business through contract flying will feel about suddenly competing against a supplier - particularly at a time when the regional airline industry has an excess supply or regional jets. It is hard to see how United could be happy about competing with Frontier in Denver at the same time Republic (which now owns Frontier) is providing flights for hire for United!
We doubt Delta, AA, Continental or US Airways are relishing similar situations either- they were probably hoping for Midwest and Frontier to be removed as competitors rather than bolstered.
On the other hand, the Street loved it - RJET was up 46% today
What makes this interesting is that, until now, Republic has only flown flights on behalf of other, larger airlines under codeshare agreements. Hence why you can't actually (for now anyway!) buy a ticket on Republic Airlines. You may have flown on Republic but the regional aircraft you flew on was marketed and sold by one of the many carriers Republic operates flights on behalf of including US Airways, Delta, United, American and Continental.
This will be Republic's first foray into selling, marketing, revenue managing etc their own flights - today all of these functions are handled by the larger major carriers.
The bigger question is how the major carriers who now provide the majority of Republic's business through contract flying will feel about suddenly competing against a supplier - particularly at a time when the regional airline industry has an excess supply or regional jets. It is hard to see how United could be happy about competing with Frontier in Denver at the same time Republic (which now owns Frontier) is providing flights for hire for United!
We doubt Delta, AA, Continental or US Airways are relishing similar situations either- they were probably hoping for Midwest and Frontier to be removed as competitors rather than bolstered.
On the other hand, the Street loved it - RJET was up 46% today
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