Southwest To Frontier: Not So Fast

Southwest made a counter-bid for Denver-based Frontier Airlines. Regional airline Republic (which operates regional jets on behalf of United, Delta, USAirways and others) made a bid for Frontier back in June which we previously commented on.
With this move, Southwest is playing spoiler in a quest for control of the Denver market which it re-entered with gusto in January of 2006. Since then, Southwest has consistently added frequencies and new markets from Denver.

Southwest says it will operate Frontier as a separate subsidiary (for a time) with full integration possible at some future date. This is similar to how Southwest approached Morris Air and American Trans Air (ATA) in previous growth spurts. Morris Air worked out well, ATA, in the final assessment (post liquidation probably did as well with Southwest picking up slots at LGA and gates at MDW.

With Southwest operating Frontier as a separate subsidiary, one can be sure who will be pulling the strings. Most importantly, Southwest will have control over Frontier's pricing and route planning. Should the sale go through, expect Frontier to rapidly exit markets where they currently compete with Southwest such as DEN-LAX, DEN-SFO, DEN-MDW etc. A code-share relationship will undoubtedly be quickly implemented to drive cross-sales and connecting traffic. Cross loyalty program participation is also a sure thing. And, one would bet that the Frontier/AirTran frequent flyer and cross-booking (on each other's websites) relationship would end quickly.

But don't expect Frontier's shiny new Airbus aircraft (with those fun animals!) to be repainted into Southwest's livery anytime soon. Rather, Southwest could gradually reduce Frontier's flying as they accept additional 737s (which they have to put somewhere.) This would create a gradual switch-over from Frontier to Southwest and ensure Southwest had places to put all the 737s they have on order.

In one quick, and relatively cheap purchase, Southwest will eliminate a key competitor in a major market, leaving them to focus on competing with United. And how hard can that be given the current state of UAUA? Brilliant move, WN!

These insights are excerpted with permission from Tom Botts' Hudson Crossing blog.