Southwest Details Its Frontier Bid and I Like It

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 Southwest Tries to Eat Frontierended 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.

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30 Comments on "Southwest Details Its Frontier Bid and I Like It"

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David SF eastbay
Member
Mexico would be interesting to see how it plays out being it would be an international market which they have never dealt with before. It would be very big for them since they are a big player in the southwest which does a lot of vaction travel to Mexico and has a very large Mexican population who would travel home to visit family. Anchorage doesn’t seem to fit for them unless they want to try invading the state and push Alaska Airlines out. A commuter carrier and international market, two things Southwest has no experience in. It will be an… Read more »
A
Guest

Keeping those Q400’s is interesting and to a lesser extent the Mexico destinations. Perhaps Southwest is seeing that they have to branch out more to add growth opportunities. Is WN begining to hit the wall in terms of their 30+ year growth strategy?

john96
Member

Doesnt Frontier have Live TV? Cranky, do you think WN will do some test marketing of that feature elsewhere in their routes?

Dan
Guest

Crank,

Will WN have to keep the Frontier operating certificate around to operate in Mexico and also to keep the DCA slots? Or is the idea to test it while the certificate is still around, and if it’s profitable, then transition all of that to the WN certificate?

As an aside, do you know what benefit the airline has in merging operating certificates?

Oliver
Member

It was great news to hear a few more details on the bid. I too was happy to hear that the Q400 Lynx operation is part of this bid. Many smaller markets can be served with the Q400…
I think there’s a lot of possibilities with this acquisition that Southwest is jumping on. Perhaps they could get into Hawaii again and go to other Latin American or Caribbean destinations also.

Karl
Guest

Cranks,

Check out this group on LinkedIn http://www.linkedin.com/groups?about=&gid=2072193&trk=anet_ug_grppro

My entire firm seems to have adopted it daily, worth a look I think.

Kim
Guest

It would be awesome if Southwest continued the Anchorage routes and gave Alaska Air a run for their money. Alaska pretty much has a monopoly here (especially out of Fairbanks) and charges insane amounts because we basically have no other choice in the winter months. I would love to be able to fly out of here for less than $800.

sggolfer17
Member

Southwest prides themselves on low fairs, if they win the bid what are the odds that they will charge those famous low fares on a route like Denver-Aspen? I would be so happy to be able to pay $150-300 for a fort lauderdale-aspen via Denver versus the usual $400-500 for frontier Or delta

JJG
Guest

Talk about those Q400s CF. Might those aircraft form the backbone of an “overlay” network 5 years down the road? Q400s serving smaller but profitable markets linking in to DEN, MDW, and maybe others? They simply can’t go to Fargo or Green Bay as currently configured and probably struggle with existing smaller airports like Boise with the current 737-only fleet. Can they fly Q400s cheap enough to open a whole new universe?

RobG7aChattTN
Guest
I think Southwest has toyed with the idea of a second smaller aircraft to use as feeders for their larger cities. Also, near-international has been in the plans for quite some time. The code-share with Volaris is unpopular with SWAPA, the Southwest Arilines Pilot’s union…they want to fly the routs themselves and their contract hasn’t been signed yet. I was hoping that they would keep the ATL gates. It will be interesting how Air Tran takes to this. Southwest and Air Tran have been butting heads lately and this just adds to that. I think Anchorage is a good idea… Read more »
Shane
Guest
How much do the Q400’s cost? I could imagine that these would not just be used for bringing in smaller markets, but also for connecting the dots between their existing smaller markets in a point-to-point configuration where 737’s wouldn’t work. The international aspect is brilliant. They can use Frontier’s infrastructure and gate leases to connect in some of Southwest’s larger focus cities. Plus Southwest already has a lot of service to Frontier’s other international cities: SLC & MCI. DCA: do you think they wish now they had kept the 4 ATA slots? That would give them 7 slots which would… Read more »
SAN Greg
Guest

Spoken like a true disciple of Southwest.

NM
Guest

Great to hear that Southwest will eventually fly to/from ATL.

Oliver
Member

It would be interesting to see how Southwest would deploy the Q400s.
I could see a Q400 being useful for some midday or late night flights.

Point-to-point routes make sense to connect the dots of the smaller markets. But wouldn’t SWA need MORE Q400s to expand this way?

Is Lynx (and therefore SWA if they win the bid) going to acquire more Q400s other than the current 11 in the fleet? 11 planes isn’t that many to spread around the whole SWA network…

stephen.toernblom
Member

I think that the Q400’s could actually work in the WN fleet if they were to do it as a WN express. It would give WN a whole new market for them and I believe they could make it profitable for the long haul.

Shane
Guest

@ CF:
I was kind-of accurate, ATA had 2 slots that Southwest turned down when they purchased the LGA slots:
http://tinyurl.com/nw9neo

AirTran ended up purchasing those and I guess the other 2 ATA slots at DCA were forfeited.

ATLguy
Guest
Cranky and other commenters: I have been laughing everytime people state in blog posts or news articles about how this will “get Southwest into Atlanta.” Two questions: 1.) What kept Southwest out of Atlanta before? Especially if your answer is “gates” then please answer the following: 2.) Do you realize Frontier has zero gates in Atlanta presently? Frontier uses the Midwest Airlines gate (owned by Midwest) and subleases half of Midwest’s ticket counter, and Midwest’s office space. Additionally, Frontier only has employees above the wing (customer service). Ramp handling is done by…. Midwest Airlines. I just see all over the… Read more »
oldiesfan6479
Guest

CF wrote:A Q400 lists for about $25 million, but you can bet they could get some for cheaper than that. If not from Bombardier, SAS probably has some lying around . . .

Lying around–was that “pun intended”? As in…gear collapsed?

Allan
Guest

Why does Southwest hate on the Airbus’ Frontier uses? I’m an A List member on Southwest with a ton a rapid reward tickets. I also vacation in Mexico a lot and in the past have used the LAX to Cabo route on Frontier. I love their planes. The cabin is much more attractive than the Southwest 737’s.

It would be nice to see Southwest use those planes and maybe bring seat back entertainment to their existing 737’s.

DRG
Guest

Apparently Southwest made reaching an agreement between its pilots and Frontier pilots a condition for its bid. Has Southwest ever met a pilot?

DRG
Guest

@ oldiesfan6479:

Scandinavian (as brands itself now) is buying more Q400s.

David SF eastbay
Member

WN has annouced that it’s bid for Frontier was not selected at the auction.

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[…] is seemingly desperate for Frontier and has upped it’s bid to US$170m for the airline. Cranky has an excellent analysis of what it means, but it does mean an inital fleet reduction to 40 Airbus […]

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