Topic of the Week: Southwest/AirTran Merger is Approved

April 29, 2011 CF 17 comments

The Department of Justice approved the Southwest/AirTran merger without any changes this week. The DOJ said it had no concerns about an anti-competitive impact from the merger. Do you agree? Are you surprised that it sailed through?

AirTran, Mergers/Finance, Southwest none

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Written by Nicholas Barnard on April 29, 2011. Reply

Given how Delta and US Airways are having trouble with their LGA/DCA swap, I’m a bit surprised…

That being said, this is Southwest we’re talking about, which the government has an irrational attraction to..
- Written by Nicholas Barnard on April 29, 2011. Reply
  
  Uh, let me finish that thought.. I’m surprised that neither of them had to give up an LGA slot or two. To some upstart, you know Independence Air or someone like that..
Written by David SF eastbay on April 29, 2011. Reply

Unlike some of the other majors that have merged, the airlines did not cover almost duplicate cites. Air Tran flys to a lot of cities that Southwest doesn’t, and Southwest covers a lot of the west which Air Tran doesn’t, so that could have a big impact of getting approval.

Think back to Western and Delta, did they have much trouble? One fly mostly in the west and the other in the east so their wasn’t much to think about as far and one major would dominate a bunch of cities/markets.
Written by DesertGhost on April 29, 2011. Reply

Based on my observations, there haven’t been many regulatory hurdles thrown up against any recent airline merger.

If I remember correctly, the last merger that was stopped was UA/US. The biggest issue with that merger was that both had a large presence in the Washington D.C. market and particularly at DCA which is slot controlled. BWI (not to mention DAL, MDW, LAS, PHX) isn’t slot controlled. The Washington market is much more fragmented now, so WN’s concentration at BWI is less of an issue.

“End-to-end” mergers like HP/US, DL/NW and UA/CO seem to have an easier time of it. If US had been successful in acquiring DL, that “parallel” merger would have faced much more scrutinty, for the reasons Delta articulated in its defense.
Written by Dr. Kenneth Noisewater on April 29, 2011. Reply

There’s not a whole lot of route overlap between the two airlines. FL’s primary hub is ATL which WN does not serve at all. They both have a big combined share of BWI traffic, but that whole DC/Baltimore market is big enough to support a merged airline and still be open to competition. WN and FL only have a handful of slots at LGA so the combined airline would still be only a smallish operator at that airport.

Despite WN’s status as a major airline, I don’t think they’re viewed in the same vein as the legacy airlines when it comes to competition. This likely has to do with their reputation for increasing passenger traffic in their markets (“Southwest Effect”) and having no real instances of predatory competitive practices.
Written by Sam on April 29, 2011. Reply

Can someone enlighten me as to what happens after this deal closes? How quickly will we see, for instance, a WN jet in Atlanta? A 717 in WN colors? Do you think we’ll see AirTran flight beginning to be marketed as “Southwest Airlines operated by AirTran”?
- Written by Nicholas Barnard on April 29, 2011. Reply
  
  Well here is the general template for airline mergers:
  1. Holding companies merge.
  Steps 2-6 happen at various times, generally concurrently.
  2. Airlines begin to align their service offerings.
  3. Airlines start code sharing. This is usually a few months after closing, but given Southwest’s legendary IT problems, it might be longer for them.
  4. They start repainting planes at this, although there is always the operating carrier on the outside of the plane until the certificates are merged. (e.g. Southwest Airlines in big text, with a little decal “Operated by AirTran Airways”.)
  5. Labor integration happens. This can sometimes be contentious (e.g. US Airways) or pretty smooth (e.g. Delta) Until this is done the airlines operate their labor contracts independently.
  6. The Airlines merge certificates. At this point the “Operated by AirTran Airways” stickers come off the planes that are painted in Southwest colors. At the same time any planes still in AirTran colors get a “Operated by Southwest Airlines” sticker” They also start using the same codes and callsigns when interacting with the FAA..
  
  Thats the broad view, but there are 239,482 other things that also have to happen..
- Written by CF on April 29, 2011. Reply
  
  My understanding is that Southwest is looking to go very slow with this merger, so I don’t think we’re going to see the same kind of speed we’ve seen with other recent mergers like Delta/Northwest or United/Continental. I wouldn’t be surprised to see AirTran operating independently for awhile. And remember, Southwest’s IT systems are so backwards that the likelihood of even a simple codeshare is slim.
  
  But maybe we’ll hear more on May 2 when the merger is expected to be finalized.
Written by chris on April 29, 2011. Reply

Of course cranky does not like this merger because it will destroy republic airlines. Cranky has a thing for republic for some reason
- Written by CF on April 29, 2011. Reply
  
  I can’t wait to hear this rationale.
  
  1) If anything, this merger should be good for Republic (owner of Frontier). It will rationalize capacity in Milwaukee, the only place they have significant overlap. So I have no idea why you think this would destroy Republic.
  
  2) I have a thing for Republic? Um, ok. Not sure where you get that, because I have no such “thing.”
  - Written by David SF eastbay on April 29, 2011. Reply
    
    Brett maybe he confused Republic with Alitalia……lol
Written by Frequentflier on April 29, 2011. Reply

Well there goes another carrier that give a passenger some dignity and ammenities and makes Southwest, already the “Greyhound of the skys” bigger.
A cheap way to travel if you are traveling on the cheap. I never fly them if the flight is over an hour and a half
Written by Reed on April 29, 2011. Reply

Bring back National Airlines !!
- Written by Frequentflier on April 29, 2011. Reply
  
  Yeah NICE ALL FIRST CLASS Just like Southworst
Written by Bill on April 29, 2011. Reply

My understanding from a friend of mine who does some consulting work in the airline field is that WN is looking to see if they can migrate their IT over to AirTrans system which is has more technology capabilities.
- Written by Sean on April 29, 2011. Reply
  
  Very interesting, that would probably be the easiest way to do it. Maybe buying airtran and their associated reservation system was the cheapest way to move to a new booking system! :)
Written by Jim on April 30, 2011. Reply

No, I am not surprised. The government doesn’t seem to be the least bit concerned about the overall number of airlines in the US. They just look at individual route pairs. Even if there are route pairs that Southwest will monopolize after the merger, other airlines “could” establish service on those routes.

Based on the approvals of the last 3 mega airline mergers, it has become clear what their standards are. In order for the government to object, the following conditions have to be met.

1. the two airlines should be competing on a certain route
2. there should be no other airlines flying that route
3. at least one of the airports involved should have slot restrictions.

In this case, there are no routes meeting all three conditions.