Yesterday, Southwest submitted its complete bid to buy Frontier and I have to say that I like what I’m seeing here. There is a lot going on in this bid, and if they win, it will have a huge impact on customers. We could be looking at the possibility of Southwest coming to a slew of new, smaller markets on top of other big domestic and near-international ones. That doesn’t mean this would be an easy merger (they never are), but for the price, the benefits could be huge.
Southwest ended up putting its bid in at $170 million for Frontier and its Lynx subsidiary (more on that in a minute). Republic has also, as we know, submitted its bid. So, the two will bring their proposals on Wednesday and the auction should take place on Thursday. That’s when we’ll know who wins. At first look, the Southwest bid is better for creditors, but that’s the stuff I write about on BNET. Here, I want to talk about what will happen for the customer.
First, Southwest says that if it wins, it only wants to take 40 out of the 51 airplanes in the Frontier Airbus fleet. So my guess is that almost immediately you’ll see a cut in frequency on overlapping routes. Look at Denver to Vegas, for example, Combined they have 15 flights a day. They don’t need that, and it’s a similar situation on other overlapping routes as well. So then where will the 40 remaining planes go?
They’ve said that it will take 24 months for a full transition from Frontier to Southwest. So at the end of those 24 months, the Airbuses will be gone and they’ll have been replaced with 737s. Until then, they won’t be dropping any cities. (They will, however, be dropping Dallas/Ft Worth in favor of Southwest’s existing Love Field service.)
On a media call today, someone from Atlanta asked about their Atlanta plans. Southwest execs said that they do intend to keep flying to Atlanta initially under the Frontier name and eventually as Southwest. I asked them about Washington/National and whether they would be able to keep the beyond-perimeter slots that Frontier owns. They said that they think they’ll be able to, but they’re still studying it. So they want them for sure.
They will also be keeping Anchorage and Mexico flying. Of course, this could all change once the transition is done in 24 months, but for now it makes sense to try them out and see how they work. If they’re happy with the results, then they’ll keep them. If not, well, they won’t. It’s a great test bed for future opportunities. Oh, and Frontier is profitable right now so it’s a pretty nice testbed to have.
But the most interesting thing to me is the fact that they have decided to include Lynx in their bid. Originally, they weren’t sure about that, but they’ve decided to keep it. That means that they want those Q400s and they want to start offering service to smaller cities. It was more than a year and a half ago that I wrote this:
That’s why I think that ExpressJet could do very well if only they were Southwest Express. The connection to a large airline’s frequent flier program and access to passenger feed from a broader route network would be exactly what they’d need. Just look at the routes that are working here and you can see them fitting into the Southwest network quite nicely.
Now I have high hopes that this is what will happen. Though instead of the high cost Embraer regional jet, they will use the very cost efficient Q400 turboprop. This could be big if it works.
On the call, Southwest made it clear that it didn’t really know how this would play out. There was even discussion about having someone else possibly operate Lynx for Southwest, but none of that has been decided. I imagine that labor will dictate what happens there. If they can get reasonable rates from the flight crews, then they might try to keep it in house. I hope that’s what happens because an outsourced operation could be very problematic for Southwest.
All I know for now is that this acquisition could open up an incredibly large range of opportunity for Southwest. It gets them into Atlanta and probably Washington/National. It puts them in Mexico. And it gives them a second fleet type (Q400s) that can serve a ton of routes that aren’t currently on their map today.
Oh yeah, and they eliminate a competitor in Denver and make the place profitable. That alone makes Frontier worth buying for $170 million or more, but there is much more that’s possible. While the basic purchase of Frontier isn’t a bold move, what they might end up doing with it certainly is.
They just need to make sure that they keep the Southwest culture intact. The people piece is the most difficult and most important by far.