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PART II: Southwest Bids for Frontier Airlines

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Follow-up Q&A with Ron Ricks, Executive Vice President Corporate Services and Corporate Secretary 

Yesterday, Southwest Airlines confirmed that it is preparing a bid to acquire Denver-based Frontier Airlines, which will be sold at auction in bankruptcy court next month.  I was able to speak with Ron Ricks, our Executive Vice President Corporate Services and Corporate Secretary, again this afternoon and ask him some of the questions that were raised yesterday following the announcement. (I apologize for the delay, folks.) 

 

1.  This is clearly a very emotional issue, and some Frontier employees have expressed fear and concerns about our bid.  What will happen to Frontier employees? Why should they welcome this news?
   
We understand the sensitivities and emotion surrounding this issue.  These are uncertain times for all of us, and change is always hard.  Frontier is a beloved airline, but they have been in bankruptcy protection since April 2008. And, the combination of simply awful economic conditions and high jet fuel prices remain, creating a great threat to the airline industry as a whole, especially to those that are not financially prepared. Southwest is prepared, and our current financial strength, liquidity, access to credit, and cash reserves demonstrate that. An acquisition of Frontier by Southwest will infuse much needed financial stability, and allow Frontier to emerge from bankruptcy.

As we’ve said, Frontier would continue to operate independently and separately for a period of time with its existing Airbus aircraft and personnel.  Over time, however, Frontier employees would be hired into Southwest as needed to support our fleet growth and expanded operations. 

I hope that Frontier Employees can take some comfort in the fact that Southwest has a 38-year track record of excellent Employee relations, treating people with respect, excellent union relationships, and industry leading pay. 

 

2.  We’ve said that we believe this move would increase competition in Denver.  Can you explain how Southwest’s acquisition of Frontier will enhance competition?
 
Southwest has a 38-year history of reducing fares and stimulating new traffic, particularly in markets where we compete against large airlines (like United) in major cities (like Denver).  How, you ask?  Consider this.  Today, Southwest is the third largest airline in Denver, carrying only 14 percent of Denver passengers.  United, by far Denver’s largest airline, carries   about 50 percent of Denver’s passengers.  The combination of Southwest and Frontier in Denver will still be smaller than United (about one-third of flights to United’s 50%) but will immediately position Southwest as a larger and more effective low-fare alternative to United.  The acquisition would allow us to significantly expand travel options and low fares for millions of passengers travelling to, from, or through Denver.

It is also worth noting that Southwest has historically priced its fares independent of the number of airlines it is competing against, because Southwest also competes with ground transportation (rail, bus, car) and takes that competition into account in setting its fares.  

 

3.  What will happen to the smaller routes like Aspen that Frontier currently flies?
 
Following an acquisition, Frontier would continue to serve those routes just like it does today, at least during the transition period, before Frontier’s service could be fully combined into Southwest.  We are still evaluating all the routes that Frontier flies and have not made any final decisions.  Of course, one of the interesting aspects of Frontier is the Lynx operation.  Lynx serves a number of smaller markets in Colorado and other states.  As part of the due diligence work with Frontier over the next week, Southwest will learn more about Lynx in order to develop a plan as part of our bid.
 

 

4.  What about routes that Southwest and Frontier both serve – will that capacity be reduced?
 
In Denver today, there are a number of markets that both Southwest and Frontier serve: there are markets that each carrier serves that the other does not; and there are cities served by Frontier that are not on the Southwest routemap at all, such as Atlanta. Additionally, there are many markets without nonstop service from Denver, and literally dozens of markets that are served by only one carrier – United.

As part of the due diligence, we will take a look at all of these routes, and certainly some adjustments may be made.  Capacity may be reduced in some markets but increased in others.  Our goal is to offer the best combination of flights and fares for our Denver Customers.

The important point to remember here is that this acquisition would allow Southwest to greatly expand its Denver service on an overall basis, and thereby offer a greater level of low-fare competition against United and more flight options for Denver.   It is our plan to bring more, not less, competition and low fares to Denver through an acquisition of Frontier. 

 

5.  Is Southwest planning to enter into routes currently only served by United?
 
We have not made any final decisions, but Southwest is evaluating those United monopoly routes.  Bottomline, routes served by only one carrier, in this case United, offer a great opportunity for us to bring more service and lower fares to the market.

Southwest’s entry into Denver in January 2006 forced other airlines to lower their fares significantly.  For example, after Southwest entered Denver, United reduced its fares 30 percent or more between Denver and Albuquerque, Kansas City, Phoenix and Salt Lake City.  United dropped its fares by double-digit margins in numerous other Denver markets as well.  At the same time, passenger traffic rose by 30 percent in those same markets, as travelers took advantage of lower fares and more flight options, not just from Southwest, but from the other airlines responding to Southwest as well.

We have a long history of successfully competing against large airlines in other major cities – for example in Chicago, where Southwest has long battled American and United; in Philadelphia, against a much larger US Airways; and in Salt Lake City, where we compete vigorously against the once-dominant Delta airlines.  In these cases, and many others, Southwest has dramatically lowered the cost of air travel by forcing the bigger airlines to reduce their fares and offer more flight options to consumers.  In doing so, Southwest has given millions of Americans new opportunities for affordable travel. 

This is the essence of the "Southwest Effect," as the U.S. Department of Transportation dubbed it – fares go down and traffic goes up when Southwest enters new markets.  As a result, consumers win.  We look forward to doing the same, for the benefit of consumers in Denver and throughout the country, if our acquisition of Frontier airlines is approved. 

 

6.  Why wouldn’t we keep Frontier’s Airbus planes?
  
Again, Frontier would operate its Airbus aircraft as they do today until we could retire the Airbus fleet and transition to Boeing 737s. We take great pride in our all Boeing 737 fleet.  The 737 has a well-established reputation for performance and reliability.  And, operating one aircraft model allows for better training, maintenance, and operational efficiencies.

 

7.  There are a lot of things about the Frontier brand that Denver Customers really enjoy – like seatback TV’s.  What is going to happen to those amenities?

There are, of course, some service differences between the two carriers. Frontier offers assigned seating for example, while Southwest is proud of our popular open seating environment. Frontier charges for the first two checked bags (in Economy), while Southwest does not.  As part of our due diligence work we look forward to learning about our differences, and looking for ways to continue to improve Southwest’s service offering.  What won’t change is our legendary Customer Service.

 

8.  Frontier is the hometown carrier in Denver – how will the community be affected by the acquisition? 
 
We are very aware that Frontier is beloved in its hometown, just as Southwest is admired and respected in many of the communities we serve and where we have large number of Employees.  As a Company, we want to earn that same level of appreciation in Denver.  We have more than 400 Employees that currently call Denver home – many of whom are Colorado natives – and are already an active part of the community. 

The truth is, we strive to be the hometown carrier in every city we serve. From charitable giving to community involvement to sponsorships, our Employees and our Company are part of the fabric of the community.  Southwest was founded on a sense of family, and that extends to our Employees, Customers, and the community.

Regardless of whether Southwest is successful with respect to our bid, Frontier is being auctioned pursuant to an order of the bankruptcy court.  Thus, the only thing any of us can know with certainty is that Frontier would undergo change of some kind and to some degree.  The future, with or without Southwest, cannot be certain.  But, with Southwest, the largest carrier of passengers in America and the most consistently successful airline in commercial aviation history, Denver and Frontier’s employees will have a strong and dedicated partner.

 

9.  Given the tough economy and volatile energy prices, Southwest has had its own financial challenges is the past year.  Why is Southwest in a position to buy Frontier?
 
Southwest has always prepared in good times to weather the bad times, and to be able to take advantage of opportunities when they present themselves. Our financial strength, strong balance sheet, liquidity, and access to capital allow us to both weather the current economic storm and take advantage of an opportunity to grow in Denver by acquiring Frontier.

Since opening in January 2006, Denver has been our fastest growing city – ever!  We are proud of our Denver operation, and the results that we have achieved in such a short period of time.  We are extremely and equally proud of the service options and new low fares we have brought to the market.

Again, regardless of whether Southwest is successful with our bid, Frontier is being auctioned in bankruptcy court.  The only thing we know for sure is that Frontier will undergo some kind of change.  But, with Southwest, the most consistently successful airline in commercial aviation history, Denver and Frontier’s employees will have a strong and dedicated partner.

 

103 Comments

  1. F9 is gone folks, yep, gone. This is no fault of WN nor Republic Airlines, in fact, United by far has the most traffic out of Denver…hmmmm…..F9 should consider it a honor to have the opportunity of employment by WN. WN has incredible loyalty because the people come first, in fact they are at this time trying to figure a way to keep people employed rather then out on the streets. Oh, by the way, again, F9 IS IN BANKRUPTCY!!! WN could just watch them falter, let them fall and then pick up where they left off, offering no opportunity of employment – because, their resumes would fall to the bottom of the gigantic pile….just one more resume of the many resumes of experienced pilots looking for a coveted position at WN. Come on folks, shake your head – you would be lucky to have the opportunity to fly for WN – if you don’t think so, please do everyone a favor and DON’T seek employment with the wonderful folks at WN!!! I take it a lot of the negative comments are coming from F9 folks….who else cares?
    As for great inflight service, yes, F9 has TV’s but that’s about all, nobody has FREE meals anymore, just pretzels, peanuts & a drink – yes, WN gives you a snack pack on longer flights – yes, for free….& hmm…NO charge for your first and second bag……hmmm, quite a concept….
    Assigned seats – if you can’t board a plane and find a seat without having to have someone show you where to sit your bum, you need serious help!!! This way of boarding is more efficient not to mention less confusing – I can’t tell you how many time I have gone to my “assigned” seat and found someone else in it!
    Anyways, to all you whiners…maybe you can find an airline that will feed you some cheese to go with all your whining….hopefully at no charge…

  2. I am from RNO – where WN holds around a 40-50% market share. I personally flew WN last week and I have nothing but the utmost respect for the ladies and gentlemen that run Southwest.

    Let’s look at the other airlines that are currently in or have left Reno recently.

    American… bought out Reno Air, closed the Reno hub and countless jobs were lost. In the meantime, their connections now to places that used to be non-stop on Reno Air (QQ) are a joke. Las Vegas? Ha! Portland? Ha! Seattle? Ha! San Jose (another QQ hub)? Ha!
    The only connections left on this dinosaur are to DFW and ORD; both of which I will avoid the plague!

    ExpressJet: They didn’t last very long… I think the experience with the jet up in Minnesota should be “enough said” about these guys

    Continental: I don’t want to waste my breath on how horrid this airline is. The IAH connection is a joke… and news flash, it’s going away!

    Delta / Northwest: I hope you like Salt Lake City and Minneapolis, cause that’s all you get! Their fares are also higher than a kite.

    United: Denver and San Fran… their fares are higher than ever!

    Aloha: Nice while they lasted

    US Airways: If they were as bad as I remember them, yikes! I’m suprised American West bought these guys out…

    Frontier: It was nice while you lasted, but your fares were too steep when WN was almost 200 bucks cheaper!

    Basically, that leaves us with Southwest. Southwest is one of the few bright spots at RNO. I can get anywhere in the region inexpensively and without delay with their multiple flights out. Yes, connections can be a pain sometimes, but with the legacy carriers pulling out (and they have made this choice voluntarily – look at the AA buyout of QQ) Southwest is one of our few hopes.

    I had some issues with WN at LGA on the 30th… our flight was supposed to land at 7 PM on the 29th but didn’t arrive until 3 AM on the 30th. WN had a voucher for the inconvenience the next day because there were some issues with the gate because they could not open a second gate to get us off our plane. I also got pretty ill on the flight back. Not only was I rescheduled, but got a cheaper flight back!

    Now, that’s the Southwest Spirit!

    F9 employees, I understand your feelings of frustration. I worked for a school here that went through a merger and nothing seemed to be clearly communicated by management on either side of the aisle. I think that WN is doing the best they can given the restrictions of the BK process. I hope that you are able to find jobs either in the larger WN or elsewhere in the industry.

  3. Dear Antagonists -

    You can be upset that Frontier may possibly go away, but blaming Southwest for their current and/or future demise is ridiculous. Southwest didn’t cause their company to falter – poor management & an alleged problem with a credit card service sounds like the real reason that Frontier is in bankrupcy. If you want to dig a little deeper, you might want to point the finger at the banking institutions that sold an inordinate amount of bad loans to financially unstable people, triggering the downfall of the economy and the loss of millions of jobs world wide. Less people working = Fewer people flying = Less revenue for airlines, and so forth. Take a swipe at government and your elected officials while you’re at it, as they mindlessly allowed such a castrophe to mount while looking the other way.

    Southwest Airlines is not W A L M A R T – a giant corporation that puts Mom & Pop Shops out of business – as one person alluded… however Southwest is a good example of how a business should be run: responsibly with low risk, efficiently in terms of money and staffing, and by a choice group of Employees that subscribe to the same belief system. It is true – and you probably guessed – that I work for Southwest, however I would admire this Company if I had never had an opportunity to sip on the proverbial beverage that is the punch line (bad pun intended) for so many that fail to understand a good thing.

    I don’t know if this is an option, but maybe the people that truly love flying Frontier and the City of Denver could take up a massive collection to save their hometown airline. It may be too late per the court guidelines, but that would be one way to give Frontier yet another chance of survival. Either way, I wish the best to everyone involved… and I mean that from the bottom of my heart.