Southwest Buys AirTran

Sep 27 2010 Southwest Buys AirTran BY admin TAGS Southwest

 

We've received several questions  about the day's big business news: Southwest Airlines (SWA) is buying AirTran for $1.4 billion. "Mizzou" posted this:

"Can you discuss the merger of Southwest and AirTran?  I cannot believe it but this means that Branson Airport is going to get Southwest Airlines before we do.  It also probably means we will never get Southwest with them flying into an airport an hour away.  This seems like a very unfortunate turn of events for SGF and the greatest news possible for Branson.  I realize that we are still years away from this playing out, but how do you think this affects our airport?  Will it be good due to increased competition or will it be bad as more people may drive to Branson for Southwest? How do you think the Continental and United merger will affect us?  I could see that possibly being a good thing for our market as I speculate that we may get flights to Houston out of the merger."

Let's start with the Southwest news; it generates lots of questions. There are no clear answers, but here's our best analytical stab at it... The best thing that could possibly happen is that SWA would keep Branson in its network. Hopefully that would bring down the cost of fares in Springfield (finally!) because the airlines serving Springfield would face some very real brand competition from SWA. That being said, there are many issues that have to be resolved first:

  • Approval of buyout from the federal government. This probably won't be a problem.
  • Will the buyout change the SWA business model rule that says the airline won’t serve a metro area with less than a million people? We have approx. 426,000 in the Springfield metro. If you include the counties around the Branson airport, it would boost the number some, but not close to 1 million.
  • Will the buyout change the SWA business model rule that says the airline won’t take subsidies to fly into a market? SWA has softened this a little. This year, for the first time, it took subsides to fly into the Panama City, FL market. The issue of subsides is important because the Branson airport is, one way or another, paying airlines to fly there. Without subsides the service wouldn't exist at the airport.  This business point has been missed by many.
  • Will the Branson airport be able to hang on long enough for SWA service to become a reality? The airport has been struggling to make its finances work.
  • Even with a merger, SWA faces many challenges in today's fragile airline economy. It will do everything it can to maximize the resources it obtains from AirTran. SWA could decide to pull the plug on the Branson service and use the resources (the planes) elsewhere.

If SWA continues service in Branson, what impact would it have on Springfield?

  • It could lower fares in Springfield.
  • There's no doubt that the  presence of SWA in Branson would attract customers that would otherwise use the Springfield airport. But given the limited frequency (number of daily flights) of Branson flights, and the limited number of destinations, it probably would not be significant. We think it’s unlikely that SWA would make significant changes to frequency or destinations.
  • Which airline in Springfield would feel the most impact from the presence of SWA in Branson? Probably the Delta service from Springfield to Atlanta. AirTran has a strong presence in Atlanta.  AirTran's Atlanta resources will help SWA's connectivity in the Southeast.

When will the merger be a done deal? We'd guess the second quarter of 2011.

Mizzou... there have been people in the community predicting the demise of the Springfield airport since they first started talking about building an airport near Branson. At the risk of being too blunt, they simply don't understand how airlines and airports work. The economics are enormously complicated; airlines operate on business models that are counterintuitive to most of us–there are folk who are so misinformed they think airports set ticket prices. Here's the bottom line: if SWA flies into Branson it will not spell the end of the Springfield airport. It could definitely cause changes in the market, but the airports will co-exist. And hopefully, the airlines serving Springfield will lower fares. That would be a win-win.

 

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