Republic Airways Beats Southwest In Bid To Buy Frontier

When Frontier Airlines this fall exits bankruptcy, it will do so under its own brand owned by Republic Airways Holdings—a sharp contrast from Southwest Airlines' failed plan to merge Frontier's operations under the Southwest flag.

Republic this month emerged victorious in its bid to purchase Frontier from bankruptcy, beating out Southwest, which, even though it raised Republic's offer, was unable to reconcile differences between its and Frontier's pilot groups.

Frontier president and CEO Sean Menke said the carrier can "maintain normal operations as a subsidiary of Republic."

A U.S. bankruptcy court this month blessed Republic's plan to purchase 100 percent of Frontier's stock for $108.75 million and waive a $150 million unsecured claim.

While Southwest previously had raised Republic's bid with an offer of $170 million, the carrier detailed "several contingencies to be resolved for a deal to go through." Among them, Southwest would not proceed unless the pilot unions from the two carriers could reach a mutual agreement, which never transpired.

"We said all along that we would only move forward on this deal if it proved to be the right decision for our employees and financially prudent for our company," Southwest chairman, president and CEO Gary Kelly said in a statement.

Indianapolis-based Republic operates three regional carriers—Chautauqua Airlines, Republic Airlines and Shuttle America—and late last month completed its acquisition of Midwest Airlines from private equity firm TPG Capital for $6 million in cash and a $25 million, five-year note. Frontier would serve as a wholly owned subsidiary alongside its other carriers, Republic said when announcing its bid in June.

Republic chairman, president and CEO Bryan Bedford in a statement said, "Now, we have to turn our attention to the important work of integrating two great brands: Frontier and Midwest Airlines, which enjoy strong loyalty in Denver and Milwaukee."

"Southwest remains committed to serving the Denver market with our low fares and excellent customer service," Kelly said. "We began serving Denver in 2006 with just 13 flights and have grown to offer 112 nonstop daily flights today. We are very pleased with the response we have seen to our service and growth in Denver, and we will continue to compete vigorously in the market."

Analysts said a merger with Frontier would have given Southwest a leg up in the Denver market. In examining the revenue environment, aviation analyst Darryl Jenkins, founder of The Airline Zone, said, "United has a very big revenue premium over both Frontier and Southwest."

Boyd Group International president Michael Boyd said Frontier has been "hammering Southwest" in Denver. "In directly competitive markets, Frontier generally had higher load factors, greater market share and commanded higher average fares than Southwest."

Jenkins said of Southwest, "Currently, they're losing money in Denver."