Airline mergers could lead to fare “creep”

by Tom Johansmeyer on

The Southwest/AirTran merger isn’t expected to push fares much higher. The disappearance of seats that comes with airline consolidation would make you think that prices are about to rise, as the fundamental commodity of the airline industry becomes increasingly scarce. But, we’re not close to that point yet, notes USA Today:

“We’re not at the tipping point,” says George Hobica, founder of Airfarewatchdog.com. “I don’t think fares will be impacted much until we have three legacy carriers and one discount carrier remaining.”

The number of seats, however, is shrinking across the airline industry. Since September 2007, the number of domestic seats available has fallen 10 percent.

According to Hobica, look for fares to “creep upward,” but not at a rate that will horrify customers, a position supported by Frank Werner, associate professor of finance at Fordham University. He tells USA Today: “Generally, airline mergers remove competition from the skies, leading to higher prices. This will happen in markets where the combined Southwest/AirTran will not have a dominant market share.”

[photo by SkilliShots via Flickr]

BREAKING NEWS: Southwest Airlines will buy AirTran for $1.4 billion

by McLean Robbins on

Southwest Airlines (NYSE: LUV) announced today that it has entered into a definitive agreement to acquire all of the outstanding common stock of AirTran Holdings, Inc. (NYSE: AAI), the parent company of AirTran Airways (AirTran), for a combination of cash and Southwest Airlines’ common stock.

“Today is an exciting day for our Employees, our Customers, the communities we serve, and our Shareholders,” said Gary C. Kelly, Chairman, President, and CEO of Southwest Airlines. “As we approach our 40th Anniversary of providing exceptional Customer Service at everyday low fares, the acquisition of AirTran represents a unique opportunity to grow Southwest Airlines’ presence in key markets we don’t yet serve and takes a significant step towards positioning us for future growth.

“It offers Customers more low-fare destinations as we extend our network and diversify into new markets, including significant opportunities to and from Atlanta, the busiest airport in the U.S. and the largest domestic market we do not serve, as well as Washington, D.C. via Ronald Reagan National Airport. The acquisition also allows us to expand our presence in key markets, like New York LaGuardia, Boston Logan, and Baltimore/Washington. It presents us the opportunity to extend our service to many smaller domestic cities that we don’t serve today, and provides access to key near-international leisure markets in the Caribbean and Mexico. Finally, this accelerates our goal to boost profits and achieve our financial targets,” he continued.

The agreement has been unanimously approved by the boards of directors of each company, and closing is subject to the approval of AirTran stockholders, receipt of certain regulatory clearances, and fulfillment of customary closing conditions.

Based on an economic analysis by Campbell-Hill Aviation Group, LLP, retained by the airline to conduct market analysis, Southwest Airlines’ more expansive low-fare service at Atlanta, alone, has the potential to stimulate over two million new passengers and over $200 million in consumer savings, annually. These savings would be created from the new low-fare competition that Southwest Airlines would be able to provide as a result of the acquisition, expanding the well-known “Southwest Effect'” of reducing fares and stimulating new passenger traffic wherever it flies.

Bob Fornaro, AirTran Airways’ Chairman, President and CEO said, “This agreement is great news for our Crew Members, our shareholders, our customers and the communities we serve. Joining Southwest Airlines will give us opportunities to grow, both professionally as individuals and as a group, in ways that simply would not be possible without this agreement. This agreement with Southwest is a testament to the success and hard work of the more than 8,000 AirTran Crew Members who have built this airline. I am tremendously proud of the things we have accomplished together and look forward to continuing that great work during this next exciting chapter of our history.”Under the agreement, each share of AirTran common stock will be exchanged for $3.75 in cash and 0.321 shares of Southwest Airlines’ common stock, subject to certain adjustments, based on Southwest Airlines’ share price prior to closing. Including the existing AirTran net indebtedness and capitalized aircraft operating leases, the transaction value is approximately $3.4 billion. At Southwest Airlines’ closing stock price of $12.28 on September 24, 2010, the transaction values AirTran common stock at $7.69 per share, or approximately $1.4 billion in the aggregate, including AirTran’s outstanding convertible notes. This represents a premium of 69 percent over the September 24, 2010 closing price of AirTran stock.

Based on current operations, the combined organization would have nearly 43,000 Employees and serve more than 100 million Customers annually from more than 100 different airports in the U.S. and near-international destinations.

Until closing, Southwest Airlines and AirTran will continue to operate as independent companies. Southwest Airlines plans to integrate AirTran into the Southwest Airlines Brand by transitioning the AirTran fleet to the Southwest Airlines livery, developing a consistent Customer Experience, and consolidating corporate functions into its Dallas headquarters. The carriers’ frequent-flyer programs will be combined over time, as well.

The company has launched a website, www.lowfaresfarther.com, to detail more information about the acquisition.

Airlines continued to cut jobs – 25 months in a row

by Tom Johansmeyer on

There’s a reason why airlines have positioned themselves for a solid performance in 2010: in addition to charging all those extra fees, they have been cutting positions (and thus expenses). In July alone, the industry in the United States trimmed 2.3 percent of its workforce relative to July 2009. That made 25 consecutive months of net job losses in the domestic airline sector.

According to the Department of Transportation‘s Bureau of Transportation Statistics, 378,100 people were employed full-time by the airline industry in the United States in July 2010, a decline of 8,700 from July 2009. Five of the six network carriers cut positions, with Delta adding headcount only because of its Northwest acquisition. Only two low-cost carries reported net cuts for this period (Southwest and AirTran).

According to the Associated Press, maintenance and ticket agent positions are getting hit most:

While the number of in-flight airline employees like pilots and flight attendants is regulated by the Federal Aviation Administration, the bulk of airline employees-maintenance crews, reservations and ticket agents-work on the ground and aren’t subject to federal minimums. Airlines are operating with less staff to save money, but they’re also outsourcing maintenance and other work to other countries where labor is cheaper.

[photo by aflcio via Flickr]

Airlines provide change fee relief because of Hurricane Earl

by Tom Johansmeyer on

As Hurricane Earl works its way up the east coast, airlines are letting passengers take one item off their lists of concerns. Delta has announced that passengers affected by the storm can make one-time changes to their plans without incurring any fees. This applies to flights scheduled for today and tomorrow and covers more than 20 airports in the eastern United States, including the New York area, Washington, Boston and Baltimore.

AirTran Airways has gotten in on this concept, as well, with passengers hitting a number of airports, including San Juan, Puerto Rico, being able to change their plans without paying extra. It only works for flights taking off by Saturday.

[Photo by NASA Goddard Photo and Video via Flickr]

AirTran tries to make money like an internet company

by Tom Johansmeyer on

If they can’t make money taking passengers from one place to another, maybe airlines can harness the power of eyeballs … you know, the way the web does. If you get enough people passing by a particular spot — physical or virtual — it’s possible to toss up a few ads and make some money. This is what AirTran has in mind. The airline is putting ads on the bottoms of seat-back tray tables. So, for takeoff and landing, at least, when this device is in its upright and locked position, passengers will be treated to prolonged exposure to the desires of advertisers.

AirTran plans to execute this across 138 planes within the next few weeks — it’s easy to pull the trigger when you stand to make some money by doing very little. The first ad partner, Mother Nature Network, is offering fliers the opportunity to win a cruise on Royal Caribbean. Future advertisers are expected to be travel-related, as well. The ads will be 2 ½ inches by 9 inches and will be easy to swap out, thanks to the plastic in which they will be encased. As planes are brought in for overnight service, they’ll be set up for the ads.

There is precedent for this move. For several years, US Airways has put ads on tray tops, but the rollout has been limited to only a few planes. Likewise, the cash from in-flight advertising isn’t all that high. US Airways pulls in $10 million a year from this, but it includes napkins, cups and some of the products carried onboard, not just the ads. Outside the United States, this practice is pretty common. Several airlines run ads to bring in a little extra money. Of course, Ryanair is among them, throwing ads on its overhead bins, tray tables and the outsides of the planes.

Will onboard advertising save the airline industry? It’s doubtful. The five largest airlines in the United States lost an aggregate $3.2 billion through the first nine months of 2009. They’ve tried combating this with extra fees and extremely aggressive cost-cutting, but nothing has really been successful. After all, a company just can’t cut its way to growth. The new advertising revenue could help, and it’s a revenue stream that will persist (and possibly grow) after the recession has receded.