Monday, August 10, 2009

Southwest's 8/10 Conference Call

Hey Everyone,

One week ago Southwest Airlines finalized it's bid with the bankruptcy court for Frontier Airlines. This morning they put in a bid for $170 million! This is outdoing Republic's proposed bid of $108 million for Frontier Airlines. I don't know if RP will upgrade it's bid, or if it has been announced if they have yet, but I would think that they certainly need to! I imagine that it would be really hard to compete against Southwest in this scenario, due to Southwest's favorable cash situation.

I listened to the conference call today with Southwest employees Ron Ricks (VP Corporate Services) and Bob Jordan (VP of Strategy and Planning). There were many interesting points and questions brought up in this call, and I just wanted to share some of the items I found interesting.

Okay...we all know that the economy sucks, and people are traveling less...Why on earth would an airline be expanding?

As heard in the conference call, "
When other airlines zag, Southwest zigs"
.... Southwest knows that things will turn around and expanding now will position themselves better in the future. But they also know that all markets are not the same, which is the case of Denver (which is what WN will acquire with an F9 purchase). Denver remains a strong market for both business and leisure travel during this tough time, which is why Southwest wants to expand there--and an aquisition of Frontier will allow them to do so. Denver is also a huge airline market that needs a low-fare alternative. Sure Frontier is offering some low fares, but they didn't do that until after Southwest entered the DEN market, and right now they are not financially stable. Southwest believes that the people of Denver need a stable low-fare airline who can viably compete against United (who currently controls over 50% of the market)

Out of all of the carriers Southwest could purchase, why Frontier?
The reason Southwest is bidding to purchase Frontier Airlines is because they are in bankruptcy, and by filing for bankruptcy they put themselves in a position for anybody to come and bid for them. Some people say that Frontier is profitable, which is technically correct--but only with a bankruptcy cost structure that doesn't really work for many of their creditors. But Southwest says that it will look at and emulate some of Frontier's advantageous practices.

How long would it be before Frontier becomes Southwest?
Integration will slowly be rolled out during a 24 month period. On the first day Southwest will reduce the fleet size to 40, and within that 24 month period they will aquire 40 737s as they sell off Frontier's Airbus fleet.

What about Atlanta, Honolulu and the International Routes?
Southwest says that they will try and keep as many of Frontier's current routes as possible, and they intend to stay in the Atlanta market! They haven't made any speculation about what they will do with Atlanta, as they are currently focused on making the bid for Frontier successful at this time.

With regards to Honlolulu...NOPE! WN will not ETOPS equip their aircraft, and take the costs and other items that it will require to fly to Hawaii.

Mexico--Southwest says they will examine how Frontier is being successful in Mexico, and continue to serve Mexico! Yay!!!! If WN acquires F9, we can all enjoy peanuts on our way to Cancun! :)

Canada--They said that they will continue to serve as many markets as Frontier will serve today, so it can be assumed that they will continue to serve the US' neighbor to the north!

With regards to WN's codeshare agreements with Volaris and WestJet, this should not affect them at all.

Hopefully you enjoyed reading my summary and opinions about the Southwest Airlines conference call today!

Image from the Facebook group: "The last Frontier, Southwest Airlines becoming a whole different animal"

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