Court rejects Southwest Airlines’ bid for Frontier

By Richard N. Velotta (contact)

Published Thursday, Aug. 13, 2009 | 4:38 p.m.

Updated Thursday, Aug. 13, 2009 | 5:26 p.m.

Southwest Airlines, McCarran International Airport’s busiest carrier, won’t be buying Denver-based Frontier Airlines.

In a press release issued today by Dallas-based Southwest, the company said the U.S. Bankruptcy Court for the Southern District of New York rejected Southwest’s $170 million bid, giving Republic Airways Holdings the right to acquire Frontier.

Republic, which operates commuter airlines and said it would run Frontier independently, offered $108.8 million in its bid, but the court ruled Southwest’s bid unacceptable because it failed to meet a court-imposed deadline with its final offer.

“We said all along that we would only move forward on this deal if it proved to be the right decision for our employees and financially prudent for our company,” Southwest CEO Gary Kelly said in the release. “We have a mission to preserve and protect our culture and the best interests of our employees, customers and shareholders. This was a great opportunity that required us to act fast.

“A lot of people worked very hard with every intention of making this work,” Kelly said. “We were fortunate to be in a position to examine the acquisition to see if it was the right decision for Southwest Airlines. We chose not to amend our bid to remove the labor requirement, a key reason our bid was not selected. Our congratulations to Republic Airways and Frontier Airlines.”

At issue was the failure of the unions for Southwest’s and Frontier’s pilots to develop a seniority integration plan. Southwest management has said it would not proceed with the acquisition unless the pilot unions agreed on such a plan.

Disagreements between union employee groups in Delta Air Lines’ acquisition of Northwest and America West Airlines’ purchase of US Airways have led to lengthy disputes that Southwest managers didn’t want to face.

The Southwest Airlines Pilot Association reportedly sought that Frontier pilots integrating into the Southwest workforce be ranked below all Southwest pilots. The union also sought that Frontier pilots joining the Southwest workforce enter at Southwest’s first-officer pay grades.

Southwest offers an average of 230 flights a day to and from Las Vegas compared with six a day for Frontier. Southwest said it would integrate many of Frontier’s routes into the Southwest system over two years and sell or return to leasing companies Frontier’s fleet of Airbus twin-engine jets. Southwest’s fleet is comprised of similarly sized Boeing 737 jets.

As a result of Southwest’s failure to acquire Frontier, Las Vegas is expected to remain the busiest destination on Southwest’s route map. An acquisition of Frontier likely would have made Denver a busier station than McCarran.

“Southwest remains committed to serving the Denver market,” Kelly said. “We began serving Denver in 2006 with just 13 flights and have grown to offer 112 nonstop daily flights today. We are very pleased with the response we have seen to our service and growth in Denver and we will continue to compete vigorously in the market.”

United Airlines remains the dominant carrier in the Denver market and many Denver residents were wary of the Southwest bid since it ultimately would have led to hometown Frontier’s demise.