George Berkheimer
Southwest Airlines solidified its presence at BWI Thurgood Marshall Airport on May 2 with the finalization of its purchase of AirTran Airways.
As part of the deal, which is valued at about $1 billion, each share of AirTran stock will be exchanged for $3.75 in cash and 0.321 shares of Southwest Airlines’ common stock. Considering Southwest’s assumption of AirTran’s debt, the overall transaction is valued at $3.2 billion.
According to the latest annual statistics released by the Maryland Aviation Administration (MAA), Southwest accounted for 53.5% of the airport’s passenger market share in 2010, while AirTran, BWI’s second leading carrier, increased its share to 16.2%. For the time being, Southwest now commands about 70% of BWI’s air traffic.
Following its acquisition of AirTran Airways, Southwest now commands nearly 70% of the air traffic at BWI Thurgood Marshall Airport. Photo credit: BWI Thurgood Marshall Airport.
There will be some shakeout as redundant service and overlapping routes are streamlined, and it will take several years until AirTran is fully integrated into Southwest’s livery.
The merger is expected to have positive consequences for BWI Marshall, expanding its importance as a hub as Southwest focuses its growth on entering new markets.
“The acquisition of AirTran represents a unique opportunity to extend our network into key markets we don’t yet serve, such as Atlanta and Washington, D.C.,” said Gary Kelly, CEO, chairman and president of Southwest Airlines. “[W]e also celebrate the promise of expanding our presence at New York LaGuardia, Boston Logan, Milwaukee and Baltimore/Washington, as well as extending our service to many smaller domestic cities that we don’t serve today.”
Southwest, which also began service to Charleston and Greenville-Spartanburg, S.C., earlier this year and plans to initiate service to Newark in June, is set to integrate the key customer service policies of each carrier and provide the ability for customers to connect across the networks starting in the fall or early next year. In the near term, Kelly said, customers can expect to interact with each carrier as they always have.
Growth Strategy
Ed Faberman, executive director of the Air Carrier Association of America, regarded the timing of the merger as highly favorable.
“The fact is that it’s difficult to expand in this economic environment no matter how successful you have been,” Faberman said.
Even though it’s not a small airline, Southwest has been at a disadvantage competing against much larger carriers that have been continually growing and have major international alliances in place, he said.
“[Southwest] has not had the East Coast presence they’ve always wanted to have,” Faberman said. “They now have a very large North-South presence that could get them in front of a lot of travelers that might not have used them before.”
While AirTran’s international flights are limited to Mexico and the Caribbean, “the deal certainly opens up international service for Southwest,” said BWI Marshall spokesman Jonathan Dean. “They will gain immediate international experience [in expanding into overseas markets], which is an important feature that AirTran possesses.”
BWI remains a key market in the mid-Atlantic region for Southwest, Dean said. “As the airline expands and grows, BWI should benefit and strengthen its position as a result.”
In effect, Faberman noted that many smaller markets that didn’t have access before soon will have the ability to connect to the nation’s major markets through the BWI hub.
Favorable Timing
Given the economy and soaring fuel costs, Southwest officials are satisfied with the timing of the merger.
“Southwest not only brings profitability and financial strength to make this deal feasible, but it also positions the combined companies with an industry-leading investment grade balance sheet to weather the energy price storm,” Kelly said. “In addition, it currently positions Southwest to offer improved job security, compensation and benefits to AirTran crew members who join the Southwest family.”
Analysts have been upbeat about the deal as well, although they acknowledge that the consequences aren’t all positive.
The most obvious consequence will be a drop in the frequency of flights between certain destinations as redundant routes are eliminated.
“I definitely think some routes will see fare increases, especially on less frequently-flown routes such as BWI to Orlando,” said George Hobica, founder of airfarewatchdog.com, an online consumer advocacy web site. “Southwest’s $39 fare from BWI to Boston is also artificially low. In the past, four airlines were competing on the same route. Now there’s one less carrier.”
Business travelers also may consider Southwest’s open seating policy and lack of a business class an inconvenience, and may chafe at having to accept a less-generous frequent flier program.
On the other hand, Hobica said business travelers could find those inconveniences mitigated by the fact that Southwest does not charge fees for luggage or last-minute itinerary changes. Nor does it require Saturday night stays to qualify for low round-trip airfares on certain routes.
“I don’t think we’ll see a lot of gouging or stalking from Southwest,” he said. “Larger carriers such as Delta and United tend to prey on the business traveler.”
Value of Partnership
With its steady growth, Southwest’s success has translated to the continued success of BWI Marshall.
According to a recent Maryland Aviation Administration press release, the carrier saw an 11.5% increase in passengers in March, compared with March 2010. As of the same time, BWI Marshall had set monthly passenger records in 10 of the previous 11 months, while passenger traffic had grown for 13 straight months.
“The performance of BWI Marshall is important because of the role it plays in our economy,” said Gov. Martin O’Malley, in the same release. “It serves as Maryland’s gateway to the world, attracts and retains business, and supports more than 10,000 direct jobs.”
Paul Wiedefeld, executive director of BWI Marshall, expects more economic generation during the coming months. “The record levels of passenger traffic that we saw last year have continued in the early part of 2011,” he said. “We expect a busy summer.”
Faberman is among those who expect Southwest to continue sweetening BWI’s market position in the mid-Atlantic region.
“I don’t see Asia or Europe as a destination for them anytime soon,” he said. “But domestically, Southwest is going to be fully competitive. This merger gives Southwest and AirTran a presence neither ever would have had on [its] own.”
