Southwest Wants to Buy Frontier and Make it Disappear

My head is still spinning from all the news that came out yesterday. JetBlue’s relaunch of its TrueBlue program is going to have to wait, because the news that Southwest was putting in a bid for Frontier certainly takes top billing. Let’s talk about what this will mean for customers if it’s successful.

Southwest has put out a non-binding bid for Frontier that was about $5 million more than Republic’s current bid of $108 million. Final bids are due on August 10 and an auction will happen during the following week. Southwest can still back out easily if they don’t like what they see, but I doubt that’ll happen. If we assume that Southwest does, in fact, win this fight (they keep saying they’re “in it to win it” so that’s a good bet), then here’s what would happen.

Initially, Frontier would operate as a separate subsidiary until Southwest could start to work its magic. Southwest said that it has no interest in the Airbus aircraft, so it would get rid of those as soon as it had enough 737s to take over. Frontier employees would slowly be brought over to Southwest, if they were up to the Southwest standards. In the end, Frontier would cease to exist and Southwest would just look bigger in Denver and have one less competitor.

From a route perspective, there are some cities where Frontier flies that Southwest currently does not. Here’s my handy dandy map:

Frontier Cities Without Southwest

Let’s talk about the red cities first, because those are the ones that are currently flown by mainline Frontier. If I were a betting man, I’d expect to see Dayton, Akron/Canton, and Anchorage disappear. I think there’s very little doubt that Atlanta would keep service, and they’ll be happy to scoop up a few more LaGuardia slots. I also imagine that Southwest would want to keep flying to Washington/National, but I don’t know that they have that choice.

Frontier has slots at National that allow them to fly beyond the 1,250 mile perimeter. When American bought TWA out of bankruptcy, they weren’t allowed to keep the Washington/National – LAX flight that TWA had flown, so I don’t see why this would be any different. If they can keep them, however, then I’m sure they’d be happy to jump in.

The rest of the mainline cities are in Mexico, and Southwest said on a call today that they would be interested in exploring those Mexico operations. It’s still unclear if they would do it – they still need to solve their IT issues before they could really ponder doing international flying.

The most interesting piece to me is Lynx, the regional airline that is owned by Frontier that operates Q400 aircraft. I said when ExpressJet launched their branded service that it could have been successful were it Southwest Express. Just think about all the markets Southwest could penetrate by adding Q400s to the mix. It would give them real growth opportunity, and I think it could be smart.

On a media call yesterday, Southwest said that they would have dismissed that thought outright before, but now that’s something they’ll actually consider. All is on the table, or so they say. To be honest, I wouldn’t keep my hopes up for that at all, but I would really like to see it.

Ultimately, however, I think this is just about one thing. Southwest can eliminate a competitor for just over $100 million. They must believe that they can benefit by more than that by simply getting rid of Frontier. I get into this in more detail over at BNET today. There really isn’t much room for three carriers over in Denver, and this is a cheap way to fix that problem.

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42 Comments on "Southwest Wants to Buy Frontier and Make it Disappear"

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Axelsarki
Guest

When i heard the news yesterday, I could not belive it… All i see that WN benefits is being bigger in Denver… But as you said, a cheap way to overtake UA.

Axelsarki
Guest

*In DEN

Dirk
Guest

GREAT move by Southwest! RP was proving to be threat-worthy in Denver and this may have just stopped Southwest’s next competitor dead in it’s tracks.

I agree with you about a Q400 Southwest-connect, but I strongly doubt it will happen. The number of markets that would open up to them with this airframe is spectacular, but I just don’t see the folks in DAL making that kind of leap.

The big question I have is surrounding Volaris. Will Southwest continue the Volaris codeshare to the original extent if they already have the Mexico rights?

Oliver
Member
This is amazing news for Southwest. I really hope that Southwest can utilize the Q400 and go to smaller markets to grow as well. I agree with you Cranky…if Southwest could start a “Southwest Express” subsidiary, more growth for the company can happen. Southwest is built on growth, and this can be the way to go. As for the Frontier employees, perhaps some mainline Frontier employees could be shifted to the Q400 ops while other Frontier employees will be folded into Southwest’s mainline ops. This way, Frontier employees don’t get totally screwed over. I did think it was funny that… Read more »
Shane
Guest
It’s interesting the talk about Southwest purchasing Frontier just to get rid of them (not from you of course). That’s a bit of hyperbole isn’t it? Who would pay $113m to literally make something go away without utilizing the assets to a maximum extent? However, when you look at it from the standpoint of of growth for Southwest, then it really makes sense. For Southwest to add all of those airplanes and routes, additional staff, etc would cost more than $113m. They will be gaining the airplanes that Frontier owns as an asset, and can probably make a great deal… Read more »
Eric
Guest
It seems that WN is all about breaking paradigms this year, so nothing would surprise me at this point. Yes, the Q400s could bring an interesting mix of destinations into the fold: but if they already said they are going to dump the Airbii ASAP, why would they want to keep the Q’s (or Lynx) around? Also I do not see this as a shot at UAL, as much as the realization that they cannot compete DEN against a recapitalized Frontier. Does anyone know what IT platform F9 uses btw? Could the integrated technology “solve” WN’s tech shortcomings when it… Read more »
flyROA
Guest

I’ve also heard some reasonable speculation that this move by WN will help them in ORD/MKE. It would keep a Republic/Midwest hybrid from taking a stronger root and give WN more foot holds in the upper midwest. Makes sense when considering the NW/DL situation. It could give WN more strength to compete against the DL/NW plans for the upper midwest. Just a thought.

jaybru
Member

Wishing WN well in picking up Frontier. Nothing WN does surprises me and it would seem almost unpatriotic not to allow WN into DCA. Just the “Wright” thing to do!

JM
Guest
I’m no Southwest expert, but why on earth would WN want to go up against Delta and Airtran in Atlanta? Frontier is nothing but a bit player in the ATL market and is almost completely unknown here. I know that the Southwest guys aren’t cowards, but DL and F9 ran JetBlue out of Atlanta in a hurry a few years back (JetBlue’s corny Gone With the Wind-inspired ads didn’t help!). Further, WN already has a huge investment and foothold already in the Birmingham, AL airport, which is about an hour’s drive from Atlanta’s western suburbs. Some locals refer to BHM… Read more »
Jason H
Guest
I’m a bit torn on this issue. I dislike WN because of the lack of assigned seats, their boarding process, the wannabe-comedien staff, and having to deal with the infrequent flyers that “LUV” their cheap fares. However, from a business perspective you can’t help but give WN a round of applause for how they have handled the operations and finances of the airline. At the same time F9 is nice for the TV’s, the international flying, and I thought the animal tails were great (emotional reason I know), but they didn’t run a tight financial ship and reaped what they… Read more »
The Traveling Optimist
Guest
All in all, honestly, I found the entire announcement rather boring. For $113 million they wipe out a weak player in a large market. Good. For $113 million they get slots at LGA that would cost far more to buy direct. Good. For $113 million they antagonize UA unlike anyone at DEN since CO operated a hub at Stapleton. Yawn. I told some friends at AA what the real story behind this to me is and no one seems to be aware of it: Once the Wright Amendment is rescinded at Love Field expect that operation to explode and, with… Read more »
robertdavidek
Member

Cranky– what do you see happening to Early Returns points under a SW acquisition? Typically it seems the acquiring airline transfers the points to its own FF program, but with SW’s segment system it’s apples => oranges.

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brent
Guest

Traveling Optimist brings up good points. I will be expecting Cranky to wright more posts about UA’s balance sheet than F9’s Q400’s.

MeanMeosh
Guest
Traveling Optimist – there’s only one problem with your theory. There’s a restricted number of gates at DAL, and that’s not changing anytime soon. The city of Dallas agreed to forever cap the number of gates at DAL at 20 (or something like that) as a bargaining chip to get the Wright repeal passed, and if I recall correctly, WN uses all but a couple of the gates already. So while I’m sure the Love Field operation will pick up steam after 2014, I’m not sure where you’d cram in too many extra flights. What’s an interesting sidenote is that… Read more »
Jay
Guest

Wow, seems to be a cluster over at a.net. Some people don’t want to see Frontier disappear. When looking at the business case, should we even care if one specific brand survives? Well, if it’s “our” brand, I guess we would. Seems to be overly emotional over there….

Eric
Guest

….and over-emotion on a.net is new and different because of……???? lol

The Traveling Optimist
Guest
MeanMeosh – Valid points, all. I don’t have the total number of flights operated by WN at Love but if they went to a 10-12 flights per day per gate in an 18 hour operating day (6am – 12M) which is about what the legacy airlines can handle, that takes those 20 gates to a potential 240 flights from Love. Not bad at all, for a start. Now, given the other majors take up to twice as long to turn a plane, from 40-55 minutes compared to WN’s average of 20-25 and that will take the gate utilization up to… Read more »
Zack Rules
Guest

Brett
Do you see a bidding war similar to the Airtran/TPG-Northwest over Midwest one? Crazy that Airtran’s original bid was just under 80m but TPG-NW eventually bought it for more than 440m. How’s Republic’s track record for sticking to something? Great post!

Benji
Guest

I don’t understand why Southwest would abandon newer, nicer Airbuses…

The Traveling Optimist
Guest

Cranky – Hah! Although a Gentile I’ll still bet you a good-fun Chinese dinner on three things:

a) AA will be around in 5 years but,
b) AA will be short-sighted enough to believe in your theory of near term growth
c) WN will use the 1-2 punch of DAL-West and DEN to clobber AA

Why will I win? Cuz the entire industry only ever looked short-term when measuring WN, starting from dismissing the LCCs for having less than 20% of the national market. Uh….oops!

Abhishek
Guest

The only way this makes sense for Southwest is they drop all the capacity that Frontier flies. They are having a really hard time filling seats in Denver. With Frontier having a loyal fan base they have managed to survive even in BK and turn decent profit. The other big thing is 40% of traffic in Denver is connecting. With lot of those coming from outliers that Southwest doesn’t do and Frontier just started to do.

Jim
Guest

I’m not sure they’d cede DAY. There are a lot of folks who hate the high fare that DL charges at CVG by virtue of being nearly a monopoly player there. So many of those people use DAY instead.

It’d give them access to a population very hungry for the fares and ease of use that WN is famous for.

Not saying they won’t dump it; just saying there may be reasons not to.

J

SmarteCart Thief
Guest
I can see WN pulling out of CAK after an aquisition, but I’m not so sure about DAY and ANC. WN’s business model is evolving from what it started as (no secret there). Although Herb is out of the picture, I did read once that one of his regrets after the Morris Air purchase was discontinuing COS and ANC (Does anybody else remember reading that?). Perhaps Gary Kelly will consider that. DAY would be a cheap way of entering the Cincinatti market without paying the exorbitant CVG fees, much to the dismay of DL. I’m not familiar with the area,… Read more »
Ryan
Guest
I think there are a number of things that WN is considering with this announcement – but I agree with Brett and think DEN is their primary objective. Sure extra competition with AA is nice – and so are the extra cities they serve, but ultimately its about growing DEN. I also wouldn’t bank on ANC – I’d say yes to it if they could build in a stop somewhere, but from DEN the only logical stop I can think of would be either SLC or SEA, both easily covered by DL and AS respectively. With AS offering a cheaper… Read more »
Nick Barnard
Member
While I agree DEN is behind a lot of this, I think a more compelling reason is SWA is probably finding that they have fully expanded through their niche and now they figuring out how to continue growing. We’ve seen evidence of this by going into DEN, LGA and restructuring fares and boarding procedures around business travelers, but there is only so much you can do. Southwest gets two things in addition to DEN: 1. North American international ops experience and procedures. Sure they’ll have to fix their reservations system, but in the mean time they can use frontier to… Read more »
Nick Barnard
Member

Oh.. And I really want to hear about CF’s take on the new true blue. It seems like its going to address many people’s concerns about FF programs.

There is too much good news flowing around right now that I haven’t been able to catch up because of flying.. (its an impromptu weekend trip.) I’m also testing a new travel industry product. Its really interesting right now, but I can’t say anything due to NDAs.. I’m sure once it comes out, and Cranky learns about it he’ll devote a full entry to the subject…

Zack Rules
Guest

Cranky
Aren’t Akron/Canton and Dayton classic Southwest markets? They’re both underserved airports near major metro areas with local populations of around 1m [some of CAK’s 1m are mostly 30-40 minutes away]. Granted, Southwest already serves Pittsburgh and Cleveland which are both close to CAK but Airtran seems to do okay there. And it allows Southwest to enter markets where Airtran has an LCC monopoly. Anchorage could a market that Southwest would keep. Retaining seasonal service from Denver, they could later add Chicago Midway, Las Vegas and Phoenix without stepping on AS’s toes too much.

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James
Guest
I think Frontier has done a phenomenal job at marketing their product over the past eight years. Everyone in Colorado knows them and loves the brand, even if their focus cities have died and people outside Colorado still write “Is Frontier any good?” on various travel boards. Many of the comments in this week’s Denver Post articles bag on Southwest with the typical “cattle call” comments and dissing their older 737s, but as stated in this article and others Southwest wouldn’t have expanded so rapidly had folks been selecting airlines based on Frontier’s “hometown pride” versus price and schedule. (Which… Read more »
James
Guest

Actually you did answer this in Nicholas’s response:

/quote: The international experience is sort of a wildcard in my mind.

I think it’s a big part of Frontier’s picture – and it’d be nice to know right now what’s up :) I can’t see too many people booking their winter trips to Mexico with their status in limbo.

Dirk
Guest
I’m still a bit disappointed that you guys aren’t picking up on the real story here, and that’s Bedford. What he’s trying to do is big enough to raise eyebrows in DAL and have them throw down $113.6 million to stop him. This is a major, MAJOR shift in our industry to have LCC’s fending off Regionals with cash. AA is outside this fight, other than they’d be happy to see the thorn in their sides in Dallas throw down some cash. DL and FL see this story as bathroom reading and little else. Because Frontier flies into ATL now… Read more »
Doug
Guest

@ Oliver:
I work on the Q400 for frontier and we only have 11 of them and and more than 30 mechanics. There is no place for mainline workers to come over to!!

Oliver
Member

@Doug

I more so meant that the Lynx Q400 operation can be integrated to Southwest to serve the greater network as it does now for the mainline Frontier operation.

In any case, I do hope for the best for all.

Allen
Guest

@ flyROA:

Actually, if Southwest wanted Republic to be weakened, they’d want them doing the Frontier deal. Republic would be too pre-occupied with getting frontier to work and sinking a lot of resources into that deal to be able to do much in places like Milwaukee.

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