Southwest Jumps Into Bidding for Frontier Airlines

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Southwest Jumps Into Bidding for Frontier Airlines

Postby Sentinel Chicken on Thu Jul 30, 2009 8:39 pm

Southwest Jumps Into Bidding for Frontier Airlines


Southwest Airlines Co. on Thursday jumped into a bankruptcy-court auction for Frontier Airline Holdings Inc., potentially thwarting a rival bid with a $113.6 million offer for the smaller carrier.

If successful, the move would make Dallas-based Southwest the second-largest carrier by number of passengers in Denver, a highly-competitive market where Southwest has been third, behind UAL Corp.'s United Airlines and Frontier.

An acquisition, however, would raise questions about Southwest's ability to stick to its low-cost business model. Southwest operates an extensive point-to-point network while Frontier runs a hub-and-spoke system. A deal would force Southwest, the country's largest low-fare carrier, to operate and maintain two different types of aircraft -- if only for a time -- and give the airline its first international destinations.

At the very least, Southwest's offer, which is nonbinding, could spark a bidding war for Frontier. Any combination would be subject to Justice Department review, which could take several months.

Southwest's surprise move came a month after Republic Airways Holdings Inc., the Indianapolis-based holding company for three regional airlines, offered $108.75 million for Frontier. Republic is the single biggest creditor of Frontier, which in April 2008, filed for bankruptcy-court protection. It claims about half of the $28.75 million that Frontier owes unsecured creditors.

Republic is providing $40 million in debtor-in-possession financing to Frontier. Its offer has been approved by the bankruptcy court, pending higher and better offers.

Ron Ricks, Southwest's executive vice president for corporate services, said Thursday the Frontier auction presents "an opportunity to get back into a growth mode." Like other carriers, Southwest has been hit hard by plummeting demand for travel.

Southwest said its goal is to better compete against United Airlines, which controls about 50% of the Denver market. Combined with Frontier, which flies to 59 destinations in the U.S., Mexico and Costa Rica, the carrier would control about a third of the flights in the area, it said.

Southwest would initially operate Frontier as a stand alone carrier, but eventually absorb the airline and do away with its 51 aircraft, all variants of the Airbus A320, it said. Southwest would replace them with the Boeing 737s that it has long operated as its only aircraft type.

Republic declined to say how it would respond to the Southwest offer. In remarks Thursday, before Southwest disclosed its offer, Bryan Bedford, Republic's chairman and chief executive, said there has been "a significant amount of interest in Frontier's reorganization process."

Frontier suitors must present preliminary bids by Monday. Final bids are due a week later.
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Re: Southwest Jumps Into Bidding for Frontier Airlines

Postby Sentinel Chicken on Thu Jul 30, 2009 8:42 pm

Thursday, July 30, 2009, 4:10pm CDT
Analyst calls Southwest's bid for Frontier Airlines a 'great move'
San Antonio Business Journal - by Kerri Panchuk

Southwest Airlines Co.'s planned bid for bankrupt Frontier Airlines is getting good early reviews, even though the two airlines would have to reconcile their fleets of Boeing and Airbus planes.

Roger King, an airline analyst with CreditSights, told the Dallas Business Journal on Thursday that Dallas-based Southwest's bid would be a "great move from a strategy standpoint." King said it's time-consuming and costly for airlines to add cities and grow market share by adding flights over a period of time.

He categorized Southwest's announcement that it will place a $113.6 million bid for Denver-based Frontier as an attempt for Southwest to "gain more capacity at Denver quickly."

Southwest (NYSE: LUV) is preparing to purchase Frontier Airlines as part of a U.S. Bankruptcy Court proceeding in which airlines are being given the opportunity to submit nonbinding bid proposals to acquire the troubled carrier.

Frontier will be sold at auction next month. Other airline competitors are vying for the airline as well. Republic Airways filed a bid for Frontier on June 22 totaling $108.8 million.

The court’s bidding deadline is Aug. 10.

“We are excited about the opportunity to submit a bid,” said Gary Kelly, Southwest’s chairman of the board, president, and CEO. “We see a strong fit between our company cultures, a mutual commitment to high quality customer service, and similar entrepreneurial roots.”

Southwest said the purchase of Frontier Airlines would expand the company’s network, grow capacity about 10 percent, possibly add jobs and boost competition in areas, including Denver.

The downside to Southwest's planned bid, said King, the analyst, is the degree of difficulty in combining the two airlines' operations when Southwest flies a fleet of 737s and Frontier operates a fleet of 50-plus Airbus aircraft. "It's not impossible, or challenging," he said, "It's just inefficient."

The different planes require different seating charts, and the airlines use different reservation processes, King said.

On Thursday afternoon, Ron Ricks, Southwest's executive vice president for corporate services and corporate secretary, and Bob Jordan, the company's executive vice president of strategy, held a conference call with reporters. During that call, Ricks and Jordan said that if Southwest buys Frontier, the Denver airline initially would operate as it does today, but eventually would be integrated and re-branded as part of Southwest Airlines.

The two confirmed that the airline eventually would retire Frontier's Airbus fleet and pull in additional 737s.

The Southwest executives said the move would allow Southwest to gain strategic positioning in the Denver market, where United Airlines Inc. is the dominant carrier. Jordan said United has 50 percent of the Denver market, while Southwest and Frontier combined would capture a third of the Denver market.

Panchuk writes for the Dallas Business Journal, an affiliated publication to the San Antonio Business Journal.
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