Much of the news about Southwest’s $113 million bid for Frontier has focused on Frontier’s all-Airbus fleet (while Southwest has famously stuck with the 737), and how these two airlines could merge together. To put in my two cents, here’s why I think think this is a great move:
– Southwest has more than $2 billion in cash and short-term investments. The purchase price for Frontier is nothing.
– Southwest more than doubles their presence in Denver (they have 113 departures a day and Frontier has 168). Yes, there is significant overlap in route maps. But for that price alone it’s probably worth buying out the competition. (The quick math on that: 113 daily departures * 100 seats each * extra $7 in revenue from eliminating competition allowing them to drive up fares * 365 days = $28 million. Not too shabby).
– They smell blood in Denver. Although Southwest acts like the nice guys, they are brutal competitors. They saw a weak US Airways in Philadelphia, so they pumped up service there and basically drove US Airways out. Same in Pittsburgh. And eliminated ATA at Midway. And they entered Denver when Frontier & United weren’t looking so hot. They see a weakening United and they know there’s an opportunity to take over Denver from them, while eliminating a competitor in the process. Genius.
– They get some slots in Washington DC and LaGuardia.
– The Airbus issue doesn’t matter. They’ll keep those planes flying out of Denver and treat Frontier as a separate operation until they can replace the aircraft. I don’t think anyone’s concerned about that.
So, they get to build a stronghold in Denver, eliminate the competition, pound on a weakened United, and gain a few slots out East. All-in-all a great way to spend $113 million.