Southwest Airlines' pending acquisition of AirTran Airways
places the fierce price competitor firmly in Delta Air Lines' Atlanta turf, but
Delta executives don'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 last month seemed
emboldened by a chance to grab more business traffic and see market fares
lifted at its largest hub.
Though Delta CEO Richard Anderson acknowledged that his
carrier 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 business customers.
"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," according to Anderson. Suggesting
an increase in fares once the carriers are combined, he 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."
Anderson said Delta already has fended 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," he said.
Meanwhile, AirTran last month announced a third-quarter net
profit of $36.3 million, up from $10.4 million in the third quarter of 2009.
Southwest Starts
Setting Newark Schedule
Southwest next March will launch service from Newark Liberty
International Airport to Chicago Midway and St. Louis, with eight daily nonstops
and two daily nonstops, respectively, the carrier said last month.
Southwest in August agreed to enter Newark by leasing 36 slots from Continental Airlines, a move that alleviated U.S. Department of
Justice concerns about Continental's since-completed merger with United
Airlines. Southwest could offer as many as 18 daily roundtrips from Newark, and
the carrier said it planned to announce additional service before year-end.
Southwest also said it plans to charge $5 for inflight
Internet access, regardless of length of haul or which device passengers use to
access the service. Using Row 44 technology, Southwest has installed the
service on 32 aircraft, with another 28 slated for installations this year. The
carrier intends to offer the service across its entire fleet by the end of
2012.
David Jonas
contributed to this report, which appears in the Nov. 8 issue of Business
Travel News.