Southwest Airlines' pending acquisition of AirTran Airways places the fierce price competitor firmly in
Delta Air Lines' Atlanta turf, but Delta executives didn't seem too concerned
about the potential threat the nation's largest "low-cost carrier"
poses. If anything, Delta executives speaking during the carrier's
third-quarter earnings call this week seemed emboldened by a chance to grab
more business traffic and see market fares lifted at its largest hub.
Though CEO Richard Anderson
acknowledged that Delta likely has "more competitive exposure than any other
carrier" to the Southwest-AirTran merger, he said he was confident about
Delta's prospects, particularly for the business customer.
"AirTran had first
class, they had assigned seats, and Southwest has no first class, no assigned
seats, doesn’t sell through global distribution systems—a very different
product than what AirTran offered in the market," Anderson said.
"It's very distinguishable. If you want international service, if you want
high frequency all around the world, a club, business class, first class, don't
have to stand in a line to get on airplanes when you're a business
traveler—that's the product Delta offers."
Regardless of the so-called
"Southwest Effect," through which fares in a market go down and
demand goes up when Southwest enters, Anderson said Southwest's acquisition of
AirTran would likely bring fares upward.
"As a general rule,
when you replace a low-cost provider with a high-cost provider, which is what
we're doing in this instance, it improves the economic environment," Anderson
said. Suggesting an increase in fares once the carriers are combined, Anderson
noted, "As is typically the case with consolidation, we expect costs and
fares to be marked to Southwest levels."
Anderson is hardly the first
to suggest an increase in AirTran fares, should it ultimately be consumed by
Southwest.
JP Morgan aviation analyst
Jamie Baker outlined a similar sentiment, reporting that Southwest's costs are
about 14 percent higher than AirTran's and, despite its low-fare reputation,
Southwest's short-haul yields are 30 percent above AirTran's, with long-haul 16
percent higher.
"If you do the math on
revenue and costs and look at the load factor that’s operated on the AirTran
system today," Anderson said, "the only way to make that merger have
the synergies that it's broadcast to have is by increasing fares and
revenue."
Delta said it already has
been able to fend off Southwest in another hub market.
"If you look at our
performance in Salt Lake City over the last 12 moths, I think Southwest has shrunk
about 10 or 11 percent and we've stayed flat to growing slightly,"
Anderson said.
Meanwhile, AirTran on Friday
announced a third-quarter net profit of $36.3 million, up from $10.4 million in
the third quarter of 2009.