Tag Archives: Southwest Airlines

Southwest Airlines’ Bid for Frontier: Did They Really Think It Was Going to Be Easy?

Today is the big day. Or it’s supposed to be the big day.

After all the preliminary table setting over the last several days, today was or is supposed to be the day that Frontier Airlines is actually auctioned off.

But, as I wrote about this week in PBB — I think the assumption that this thing was a done deal for Southwest was a bit premature. In addition, yes, I think that if Republic were to be awarded Frontier — that Frontier could continue to operate and it could be profitable. This is not a case where the bankrupt company is on death’s door. Quite the contrary, Frontier has been posting good operational numbers of late, and they have actually used the bankruptcy process to do what a company is supposed to do while in bankruptcy — they’ve restructured themselves quite nicely.

Therefore, I am not surprised at all that reports last night and this morning say that all is not well on the labor front. Specifically in the negotiations between the Frontier pilots and the Southwest Airlines’ pilots.

Remember that Southwest said going into this that their pilots would have to sign off on a deal with the Frontier pilots or the airline would not go through with the deal.

Not sure if Southwest realized that this, coupled with the fact that the Frontier pilots are taking the position that Frontier does not HAVE to go with Southwest for it to remain a viable business — and you’ve got a pretty strong negotiating position for the pilots at Frontier.

We’ll keep you posted.

Flea Market Open for Business: US Airways, Delta, AirTran and Continental Play “Let’s Make a Deal” With Slots

First, AirTran and Continental announce a slot swap involving slots at Newark, Reagan National and LaGuardia on Tuesday. But the scope of that deal was swamped this morning with news that US Airways and Delta Air Lines have agreed to terms on a much larger deal that involves both a swap of slots, and a few routes thrown in for good measure.

This morning US Airways announced that it will obtain 42 pairs of slots at Reagan National, as well as access to slots in Tokyo (NRT) and Sao Paulo, Brazil (GRU) from Delta Air Lines.

In return, US Airways is giving Delta Air Lines 125 pairs of slots at LaGuardia.

This is a big deal for US Airways. The airline estimates that the deal will create an additional $75 million dollars in revenue per year.

It’s a positive for Delta Air Lines as well, as Delta continues to muscle into the New York market in a major way. This is a huge gain for them.

And no, this does not affect the US Airways’ Shuttle operation in any way.

Meanwhile, yesterday it was reported that AirTran plans to stop flying to and from Newark completely — giving its takeoff and landing slots to Continental Airlines. In exchange, Continental is going give AirTran slots at both Washington Reagan and LaGuardia.

Apparently AirTran will give Continental 10 slots, a single gate and a jetway at Newark. In exchange, Continental will give AirTran four slots at LaGuardia and six slots at Washington Reagan.

So, those are the facts.

What does all this horse trading mean?

It means that the bigger airlines are doing exactly what we said they were going to do. They’re getting creative.

While most headlines over the last few months have continued to talk about the lack of liquidity, “Which airline is most at risk?” — we have continued to make the argument in PlaneBusiness Banter that in this industry — good management teams are going to find a way to survive.

Look at the airlines involved in these two deals announced. Four of the better management teams out there.

We don’t see United, we don’t see a mention of American.

Meanwhile, Republic and Southwest are slugging it out over Frontier. Again, two of the better management teams in the industry.

Oh, and speaking of American – is it just me, or does that Holy Grail of a British Airways – American Airlines anti-trust agreement seem to continue to diminish in importance as the days go by?

I continue to believe that American, by putting all of its eggs in one basket it doesn’t even have in its possession yet, runs a big risk of being odd man out when the music stops.

Southwest Airlines Ups Bid for Frontier to $170 Million

Southwest Airlines is holding a press conference in about 10 minutes to discuss its “sweetened” offer for Frontier Airlines. The airline submitted a binding offer of $170 million.

The airline issued a release in which it said,

“The offer contemplates that Southwest acquire approximately 80 percent of Frontier’s existing Airbus fleet, which translates into about 40 aircraft, plus all of Lynx. Initially, Frontier would operate its Airbus aircraft as it does today, with a planned retirement of the Airbus fleet and transition to Southwest’s Boeing 737s over a period of approximately 24 months. Despite the initial reduction in the fleet, Southwest intends to maintain all existing markets, as well as add new nonstop routes from Denver that are not served by either Southwest or Frontier today.”

Interesting. “Intends to maintain all existing markets.” That means no route rationalization? My guess is it means rationalization through reduction in frequency. But not routes themselves.

Also the question of Lynx and what Southwest would do with it has been determined.

More later. Now I’m trying to do at least three things at once. Oh, and eat lunch. That’s four.

This Week: Frontier Airlines Bankruptcy Auction

This week the big news in Airlineland (at least at this point early in the game) is the pending bankruptcy auction of Frontier Airlines.

Today is the deadline for interested parties to place their bids.

Could we see another “interested party” besides the two we already know about — Republic and Southwest — show up at the last minute?

I doubt it.

One reason is that Aug. 3 was the deadline for informal bids by potential buyers. No more likely prospects entered the fray as of that date. Last week officials of Frontier also said publicly that they had not been approached by any other potential buyers.

If no more live potential buyers show up between now and the end of the day — then what?

Then the auction will begin on Tuesday.

At that point, officials from Frontier, and the airline’s unsecured creditors, (which include Republic let’s not forget) will begin to consider their options.

As most of you know — the Republic deal would see Frontier remain intact — as a separate entity. The Southwest deal (whatever the final numbers prove to be) is predicated on Southwest swallowing Frontier whole. It would take a while, but eventually Frontier would cease to exist as a separate airline.

While we might see some off-the-wall attempt at an offer by some entity today — I doubt we see any kind of new serious offer materialize.

Stay tuned. The real fun begins tomorrow.

One last note: For fans of Frontier’s animal tails, and I am one of the biggest fans of them anywhere, check out this website, LockOn Aviation Photography. They have photographs of all the tails. The photo above is theirs. Thank you guys!

PlaneBusiness Banter Now Posted

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This week’s mega-earnings issue of PlaneBusiness Banter is now posted. I think this one has set a new record at around 100 pages. Hey, I like to give you lots to think about.

This week I look at five airlines that recently reported second quarter earnings in-depth: AirTran; Alaska Air Group; Delta Air Lines; United Airlines; and JetBlue.

We also have earnings summaries now posted for ExpressJet, Republic Holdings, and Hawaiian Airlines on the site for PBB subscribers.

So what did we like or didn’t like about the earnings from this crop of airlines?

It was nice to have three honest-to-god profits to talk about this week. AirTran had an excellent quarter, Alaska was no slouch either, and JetBlue also had a nice quarter — although their profits were not as hefty as those posted by either AirTran or Alaska.

Then there is Delta. The airline continues to slog through some very costly underwater fuel hedges. And of course the airline is being hit hard on the international front as demand has simply gone into hiding for not only Delta but all the U.S. carriers who fly internationally.

And then there is United Airlines. CFO Kathryn Mikells was hammered in the airline’s call about the “L” word — yes, that would be liquidity.

But she retained her poise and kept telling those analysts that they were asking “terrific” questions.

Meanwhile, down in Atlanta, Delta’s Richard Anderson was called out by yours truly for his excessive use of corporate speak. And if I hear the word “synergy” one more time, I’m going to go stark raving mad.

But of course, the big news of last week was the news that Southwest Airlines had made a bid on Frontier Airlines — as part of that airline’s bankruptcy auction process.

Southwest is now burning the midnight oil, doing their due diligence, as final bids need to be in the hands of the court by Aug. 10. (Yes, look at your calendar. That’s next Monday.)

All this and much, much more, including details on the $1 billion cobbled-together financing deal that Air Canada announced this week — The Patron Saint of Failing Airlines Lives! (We are referring of course to GECAS)

All that and more in this week’s issue of PlaneBusiness Banter. Subscribers can access your issue here.

Potential Southwest Airlines/Frontier Airlines Deal: Issue of Denver Profitability

If it’s Monday and this week’s issue of PlaneBusiness Banter is not posted yet — you know the reason. Yep, it’s another monster earnings issue. This week we take a long look at the earnings results and dissect the earnings calls from United Airlines, JetBlue, Alaska Air Group, AirTran and Delta Air Lines.

Talk about a group with a split personality. Three of these airlines posted profits. Two didn’t.

Last week’s issue apparently clocked in a little under what I had estimated — at 74 pages someone wrote me. This week’s is probably closer to 85. Happy reading. We will be posted later today.

Meanwhile, there is no question that the big story here in the U.S. domestic airline market today continues to be the bankruptcy bid by Southwest Airlines for Frontier Airlines.

There are way too many angles to cover here in terms of this attempt by Southwest to grab Frontier, and I’ll be talking about some of those in this week’s PBB.

However, there is one big falsehood that I want to dispel that a number of you have written to me about, and which, for whatever reason, seems to have been picked up by an analyst at Gimme Credit.

The questions concern a quote that was used in a Ft. Worth Star-Telegram story concerning the move.

In this story that ran Thursday, reporter Andrea Ahles quotes “Wall Street” Gimme Credit analyst Craig Hutson as saying, “Southwest entered Denver again in January 2006, and it has been among its most successful markets.”

I do not believe this is the case. Far from it. Frontier Airlines has given Southwest fits. I think it’s clear that Southwest thought they were going to go into Denver and kill Frontier. Didn’t happen.

I’m not sure who this guy is, or what his background is, but according to the Wall Street analyst who I think knows Southwest Airlines‘ the best from stem to stern — this is not the case. That analyst is Gary Chase with Barclays Capital, formerly Lehman Brothers.

There is no question that if you listen to the airline talk about Denver on its earnings calls, you would get the impression that everything is just rosy-posey in the Mile High city.

But as Gary Chase reaffirmed in his research note on the proposed deal Friday,

Our analysis suggests that Southwest is losing a significant amount of money in Denver while Frontier has been profitable year to date. Frontier has made substantial cost progress during its bankruptcy proceedings and currently enjoys a significant revenue advantage to Southwest in Denver markets. That combination defines the contrast between what we believe is money making at Frontier and a loss position for Southwest.

And no, this is not the first time Gary has written similar comments. He has tracked their presence in Denver for many years. And other markets as well.

Tidbits from Southwest Airlines Call Concerning Frontier Deal

The press conference with Southwest Airlines just ended.

Handling the call for the airline was Ron Ricks, Executive VP of Corporate Services and Corporate Secretary and Bob Jordan, Executive VP, Strategy and Planning.

The airline says their idea at this point at time is to initially operate Frontier Airlines as a separate entity until a certain point in time. But the eventual goal, they say, is to merge Frontier into Southwest in a “reasonable” amount of time.

The binding bid is due into the bankruptcy court no later than Aug. 10.

Quote of the conference: “When United flies certain banks out of there [Denver] it’s like a solar eclipse there are so many flights.”

That was Ron Ricks talking about why he did not think there was going to be a problem with any “competition” issues involving the deal, were it to go through.

The next ten days the airline will be working on their due diligence, in regard to a final bid. This preliminary bid allows them access to Frontier Airline’s information.

Comments about the possible length of a transition period? As long as two years, but nothing is set at this point.

Mary Schlangenstein from Bloomberg asked on the call if the airline was ready for a “fight” with Republic over Frontier. Ron Ricks was pretty straight up that “Southwest’s bid is going to be superior in every respect.”

He left no question that the airline intends to fight as hard as it can, that it feels it can provide a better offer than Republic, and that it intends to win.

Overlap of markets between the two airlines now — about 27.

For those with enquiring minds, there are about 12 markets or so that Frontier flies into that Southwest does not, including a number of markets in Mexico.

Dan Reed with USA Today asked if the airline was going to sell the Frontier Lynx operation. Ron said the airline is going to use the due diligence period to determine more about Lynx and other aspects of the Frontier operation. No decision has been made as of yet. This is something that will be determined in the next ten days.

Eric Torbensen from the Dallas Morning News asked if one of the reasons behind the deal was not to more or less remove a competitor that could come out of bankruptcy leaner and more competitive.

Ron said no. This was about growth, a “jumpstart” as he put it.

“This was an opportunity to get back in a growth mode,” Ron said. “This was an opportunity that presented itself. We are just trying to react to the timelines set up by the bankruptcy court.”

“If you look at Denver prior to our entry, I think there is a lot of evidence that we are the ones that brought low fares to Denver,” said Bob Jordan.

The question was asked, “How much capacity can you add with this deal?” Bob responded that it would be roughly about 10% — over time.

A question was asked as to whether their bid is being encouraged by those at Frontier and creditors of the airline. Bob Jordan said that the bankruptcy attorneys “verified through the process that our offer would be welcome.”

Ron made the point that there are “dozens and dozens of non-stop monopoly markets out of Denver today that we feel would benefit from competition.”

David Jonas from Promedia brought up the point that CEO Gary Kelly said in the earnings call just last week when asked about Denver, and whether the airline would be interested in assets there, that he said, “The right fit had not been found yet” or words to that effect.

So, as David said, had something happened between then and now?

[David, we know that nothing happened between then and now…]

As expected, Bob said he didn’t remember the remark, and Ron didn’t want to go any further with it. But the comment was made that well, Gary probably did not want to say anything because of confidentiality issues.

I think it would be safe to say that Gary just didn’t want to talk about it.

The question was asked if the airline had bank financing for the deal. The answer was yes.

“A pocket of opportunity in a sea of pain,” is how Ron Ricks typified the deal, when asked if the move to get bigger, given the current economic situation, and given Gary Kelly’s comments just last week in the airline’s earnings call, was not contradictory.

Lisa Stark from ABC asked if there was anything that might keep them from making a final binding bid. Ron said that because they already know a lot about Frontier — they doubted it. But in the next ten days, the work is going to be intense as the airline reviews contracts, etc., as part of the due diligence process.

Bob said, “We’re in this to win.”

What Southwest Airlines Is Telling Their Employees About the Deal For Frontier Airlines

One of our PlaneBusiness Banter subscribers just passed along this information to us. It was communicated to employees via a Southwest Airlines’ Today@SWA email.

The airline has a press conference scheduled for 2 p.m. CT to talk about the airline’s bid.

Southwest Submits Nonbinding Proposal to Acquire Frontier Airlines

On Thursday, July 30, Southwest Airlines submitted a nonbinding proposal to acquire Frontier Airlines in accordance with the bidding procedures in the bankruptcy court. We view this as an exciting opportunity for the Employees and Customers of both Southwest and Frontier. It represents an opportunity for Southwest to grow our Denver Customers; grow our revenues; and grow our profits. We must caution, however, that this is merely a preliminary step in the bidding process.

We must submit a binding proposal by August 10. If there is more than one qualified investor, and at this time Republic Airways has also submitted a bid, an auction will be held beginning August 11. Frontier will determine, in consultation with the unsecured creditors committee, which bid to accept and present to the bankruptcy court for approval.

Although our plans may vary as we work our way through this process, we wanted to share with you our present plan as we envision it. Frontier would continue to operate independently and separately for a period of time with its Airbus aircraft and personnel. We do not intend to integrate the Airbus into our Boeing 737 fleet. As we are able to retire Airbus aircraft, we will add Boeing 737 aircraft. Over time, Frontier employees would be hired into Southwest as needed to support our fleet growth and expanded operations. There are many details to be worked through, but we are confident that the effort will be worthwhile. We are also confident that our bid, if successful, will boost low-fare competition and benefit consumers in Denver and other cities our expanded network will serve.

Even if our bid is accepted and approved by the bankruptcy court, our closing on this transaction will be subject to several contingencies. These will include the negotiation of acceptable labor agreements dealing with the interim period of separate operation and seniority; and the appropriate regulatory review. Absent the negotiation of these labor agreements, we will not go forward with this transaction. However, we are confident that the benefits of such a transaction for Employees of both Southwest and Frontier will become self-evident and that we will be able to obtain such agreements.

Food Fight: Southwest Airlines Going After Frontier Airlines in Bankruptcy Court

Just never know what the day’s news is going to bring. Especially in this environment.

Today, news of a fight for Frontier Airlines.

Southwest Airlines announced today that it has filed a bid of $113.6 million for Frontier Airlines. Republic Holdings, as most of you are aware, has already submitted a bid of $108.8 million. That proposal has already been approved by the U.S. Bankruptcy Court for the Southern District of New York.

However — just because the bankruptcy court approved that offer — Frontier still had the right to seek a higher bid. And apparently that is what it did. Actually I don’t think Frontier solicited anything. I’m pretty sure Southwest is the one who made the call.

Under terms of the Frontier bankruptcy auction, bidders can submit offers until Aug. 3 and a final proposal has to be submited by Aug. 10.

The auction is scheduled for Aug. 11.

Is it just me, or are memories of the fight over ATA creeping into your consciousness as well?

Well, we certainly now have something more to talk about than earnings.

Good Morning Earthlings: US Airways Looking to Remove E-190s, Southwest Airlines Continues to Do the Revenue Two-Step; Liquidity Is THE Story For the Quarter

Holly here. Reporting from the airline earnings bunker where I have been toiling since last week.

This week’s PlaneBusiness Banter will be posted later today. It’s one of those monster issues. Next week’s issue will be just as packed, as we finish up from the group that reported last week. Just way too many earnings reports compressed in too short a period of time last week. Whew.

Having said that, it was an interesting group of calls last week. Just a couple of tidbits from what we heard.

One, US Airways, which has flirted with the idea of grounding its Embraer 190 fleet in the past — in an effort to cut capacity further at the airline — sounds like it is now looking at the possibility in a much more serious way. Because of the airline’s contract with its pilots — the airline is constrained in terms of how much flying it can remove. But it could remove the 25 Embraer 190 fleet in one fell swoop — thus cutting their capacity by 2.5%. It’s really the only option the airline has left if it wants to cut capacity further and in listening to the airline’s call last week, it sounds like the airline is very close to pulling the trigger on the move.

Two, I’m getting pretty tired of hearing the folks at Southwest Airlines keep talking about all these revenue initiatives they are going to do in the …future. Third quarter, fourth quarter. First quarter 2010. Who knows.

I am assuming the reason the airline keeps talking about all these things we are going to see — someday — is because the airline does not have the technological backbone in place to do them ..NOW.

Meanwhile the airline still does not charge for passenger bags. And revenues generated from their Business Select program continue to be under original forecast.

I think there is way too much money being left on the table here.

Three, the whole question of liquidity and who has it and who doesn’t permeated the calls last week.

Jamie Baker and Mark Streeter, analysts at JP Morgan Chase found themselves right in the middle of the fray after they published a note on where they saw United, American Airlines, and US Airways in the “Dance of the Cash Constrained.”

Hoping to clear up any confusion they had caused with their note, they issued another note later in the week in which they wrote:

Did We Not Make Ourselves Clear? – We are surprised by the volume of incoming calls from people who believe that our view is that LCC [US Airways] somehow disappears.

As noted earlier this week, “assuming LCC or UAUA die off, as we believe some do, is a mistake, in our opinion.” What we do take issue with is US Airways’ ability to raise incremental capital should industry fundamentals deteriorate further or even remain stuck here in neutral. There has been very little dialogue, as near as we can tell, as to the potential that 2010 demand may prove as bad as 2009’s. Alternatively, bump up your RASM and fuel by similar amounts and one’s industry models probably won’t show any meaningful improvement. It is against this backdrop that we continue to believe that borrowing power (as well as the need for incremental borrowing) at AMR & UAUA significantly exceeds that of LCC. Put another way, AMR needs to borrow a lot of money, and we think it has plenty of ways to do so. United needs to borrow less, and we think it also has a few bullets left to fire in the capital-raising gun. However, our view on LCC is that while its near-term needs are arguably low, its capital-raising options appear largely nonexistent if demand trends simply bump along from here or in fact worsen. We therefore believe that some form of Washington-mandated combination might potentially occur. Nothing this earnings season changed our view in this regard, nor our opinion that risk/reward in LCC shares remains weak assuming most scenarios short of quick recovery (though LCC’s peer-leading 54% decline since May 6th obviously tempers our negativity).

I’d suggest you tread very softly when discussing liquidity with US Airways‘ CEO Doug Parker however. Doug went on another one of his “liquidity rants” in the airline’s call last week. Deja vu all over again. It was just last year at about the same time that analysts were saying US Airways didn’t have enough cash to get through the winter. Then they pulled off that slick $1 billion financing deal out of nowhere.

As someone observed about this industry — don’t underestimate the ability of an airline to find cash.

No matter how bad the business environment.