Cowboy75
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Southwest merger could hit US Airways
A $1.4 billion merger between Southwest Airlines and AirTran Holdings could put upward pressure on fares, eliminate jobs and spells trouble for US Airways Group, which has been left out of recent mergers.
Dallas-based Southwest (NYSE:LUV) said this morning it is acquiring Orlando, Fla.-based AirTran (NYSE:AAI).
Robert Mittelstaedt, dean of Arizona State University’s W.P. Carey School of Business, said the merger gives Southwest access to markets where it doesn’t fly, including Atlanta, Mexico and the Caribbean.
“The biggest reason I can see that Southwest wants AirTran is the Atlanta hub,” Mittelstaedt said. Atlanta is the busiest airport in the world and the market is home several major companies including Home Depot, Coca-Cola and UPS. Rich Ettenson, an international business professor at the Thunderbird School of Global Management, said Southwest’s entry into Atlanta will increase competition in that market and reduce fares. “The move should increase fare competition in the Atlanta market, but may have the opposite effect in markets where Southwest and AirTran compete,” said Ettenson.That could put upward pressure on fares in markets such as Florida, Milwaukee and Chicago and the East Coast. Tempe-based US Airways (NYSE:LCC) also has a number of flights into Florida and the East Coast. “It is basically a land grab which adds heft to the Southwest network,” said Ettenson. The Southwest-AirTran merger comes on the heels of corporate marriages of Delta Air Lines and Northwest Airlines as well as United Airlines and Continental Airlines. US Airways unsuccessfully pursued merger with Delta and United. Mittelstaedt said the AirTran deal is about Southwest keeping up with airline industry consolidations. “That means as the industry consolidates, Southwest has to enter the hubs they have tried to avoid in the past to get access to passengers, so this is a smart strategic move. Additionally, AirTran has some Mexico and Caribbean routes that will take Southwest outside the U.S. for the first time, so all this makes sense,” said the ASU business dean. US Airways spokesman Jim Olson said the Southwest-AirTran marriage is good for the overall airline industry, but declined comment beyond that. “It’s good for the industry,” Olson said.
US Airways CEO Doug Parker has said for a number of years the airline sector has too many carriers with too many seats chasing too few passengers. Airline industry experts say, on first glance, the Southwest move is bad news for US Airways. “US Airways may feel the pinch of competition on routes where Southwest was not a key competitor. This cannot be viewed as good news for US Airways,” Ettenson said. ASU economist Tim James said the recent mergers leave US Airways stuck in between new mega airlines with international and business routes and smaller, low-cost carriers. James said American Airlines is out there as a potential partner for US Air. But American has shied away from merger talks, instead forging partnerships with British Airways and JetBlue Airways that are more of the codeshare variety than all-out mergers.
James expects the SWA-AirTran merger to result in higher fares. “It eliminates competition on particular routes,” James said of the mergers. Simply, there will be fewer airlines operating resulting in less service to particular markets thus increasing prices. Phoenix is a major hub for Southwest and US Airways. AirTran has a small presence here. Kate Hanni, director of the Flyersrights.org consumer group, also expects fares to increase with consolidation resulting in less competition. She also worries Southwest’s entry into Atlanta will create on-time and delay problems for Southwest. Atlanta Hartsfield Airport is challenged by delays because of its high-traffic volume. “Atlanta is the biggest choke point in the U.S. Enormous flight delays happen in Atlanta and this will likely hamper Southwest Airlines rather stellar record for on time performance,” Hanni said. James and Hanni also agree that as the number of airlines dwindle amid mergers, there will be fewer airline jobs with decreased demand for mechanics, reservation agents and workers up and down the industry.
Robert Mittelstaedt, dean of Arizona State University’s W.P. Carey School of Business, said the merger gives Southwest access to markets where it doesn’t fly, including Atlanta, Mexico and the Caribbean.
“The biggest reason I can see that Southwest wants AirTran is the Atlanta hub,” Mittelstaedt said. Atlanta is the busiest airport in the world and the market is home several major companies including Home Depot, Coca-Cola and UPS. Rich Ettenson, an international business professor at the Thunderbird School of Global Management, said Southwest’s entry into Atlanta will increase competition in that market and reduce fares. “The move should increase fare competition in the Atlanta market, but may have the opposite effect in markets where Southwest and AirTran compete,” said Ettenson.That could put upward pressure on fares in markets such as Florida, Milwaukee and Chicago and the East Coast. Tempe-based US Airways (NYSE:LCC) also has a number of flights into Florida and the East Coast. “It is basically a land grab which adds heft to the Southwest network,” said Ettenson. The Southwest-AirTran merger comes on the heels of corporate marriages of Delta Air Lines and Northwest Airlines as well as United Airlines and Continental Airlines. US Airways unsuccessfully pursued merger with Delta and United. Mittelstaedt said the AirTran deal is about Southwest keeping up with airline industry consolidations. “That means as the industry consolidates, Southwest has to enter the hubs they have tried to avoid in the past to get access to passengers, so this is a smart strategic move. Additionally, AirTran has some Mexico and Caribbean routes that will take Southwest outside the U.S. for the first time, so all this makes sense,” said the ASU business dean. US Airways spokesman Jim Olson said the Southwest-AirTran marriage is good for the overall airline industry, but declined comment beyond that. “It’s good for the industry,” Olson said.
US Airways CEO Doug Parker has said for a number of years the airline sector has too many carriers with too many seats chasing too few passengers. Airline industry experts say, on first glance, the Southwest move is bad news for US Airways. “US Airways may feel the pinch of competition on routes where Southwest was not a key competitor. This cannot be viewed as good news for US Airways,” Ettenson said. ASU economist Tim James said the recent mergers leave US Airways stuck in between new mega airlines with international and business routes and smaller, low-cost carriers. James said American Airlines is out there as a potential partner for US Air. But American has shied away from merger talks, instead forging partnerships with British Airways and JetBlue Airways that are more of the codeshare variety than all-out mergers.
James expects the SWA-AirTran merger to result in higher fares. “It eliminates competition on particular routes,” James said of the mergers. Simply, there will be fewer airlines operating resulting in less service to particular markets thus increasing prices. Phoenix is a major hub for Southwest and US Airways. AirTran has a small presence here. Kate Hanni, director of the Flyersrights.org consumer group, also expects fares to increase with consolidation resulting in less competition. She also worries Southwest’s entry into Atlanta will create on-time and delay problems for Southwest. Atlanta Hartsfield Airport is challenged by delays because of its high-traffic volume. “Atlanta is the biggest choke point in the U.S. Enormous flight delays happen in Atlanta and this will likely hamper Southwest Airlines rather stellar record for on time performance,” Hanni said. James and Hanni also agree that as the number of airlines dwindle amid mergers, there will be fewer airline jobs with decreased demand for mechanics, reservation agents and workers up and down the industry.
