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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