Southwest’s failed Frontier bid a win for Las Vegas

By Richard N. Velotta

Friday, Aug. 28, 2009 | 3 a.m.

To many, Southwest Airlines’ failure to acquire Denver-based Frontier Airlines out of bankruptcy was shocking.

How could Southwest, the darling of the aviation industry and one of Las Vegas’ most important conduits to tourists nationwide, fail when its competition was a company that runs commuter airlines?

The media coverage on Southwest’s $170 million bid for Frontier was widespread, and people in cities across the country served by Frontier were already filling out applications for Southwest Rapid Rewards cards anticipating they were going to get coveted service.

A number of analysts were speculating about how Southwest was going to get a foothold in Atlanta at the nation’s busiest airport, while others wondered if Southwest’s flight crews were brushing up on their Spanish for when they took over Frontier’s routes to Mexico and Costa Rica.

Southwest, which flies an all-Boeing fleet of 737 jets, had a buyer for Frontier’s all-Airbus fleet of A319s and A320s. Virgin America, which also flies Airbus jets, indicated it would be glad to take them off Southwest’s hands.

But it didn’t happen.

Indianapolis-based Republic Airways Group, which recently acquired Midwest Airlines and operates Republic Airlines, Shuttle America, Lynx Aviation and Chautaqua Airlines, bid only $108.8 million for Frontier and won the auction. Republic will likely keep the Frontier brand and operate the carrier as it has been run. After all, Frontier has been profitable and only went into bankruptcy when a credit card processing company, spooked by Wall Street rumors, changed the terms of its cash-holding deal with the airline.

In the big picture, Southwest’s loss may not be a bad thing for Las Vegas.

Had Southwest acquired Frontier it likely would have poured many resources into its Denver station. Some analysts even suggested Southwest’s Denver operation would have grown larger than McCarran’s, which is the largest in Southwest’s system.

If that would have happened, it was possible that Southwest would have pulled flights from some of its larger markets — Las Vegas, Phoenix, Chicago — in the gradual replacement of Frontier with Southwest equipment.

So how could powerful Southwest lose a deal to Republic? The answer is in Southwest’s employee culture.

Southwest CEO Gary Kelly conditioned the airline’s deal to acquire Frontier on Southwest’s pilot union reaching agreement with its counterpart at Frontier.

The Southwest Airlines Pilots Association and the Frontier Airlines Pilot Association reportedly worked right up to the deadline trying to resolve the touchy issue of seniority integration. But they couldn’t do it. That’s not surprising — seniority integration was contentious in the America West-US Airways merger as well as the Delta-Northwest marriage.

Some have argued that a deal was doomed to fail because Southwest pilots wanted all of Frontier’s pilots to come in at the bottom of the seniority list. Their argument was that because Southwest was the acquiring company they didn’t want any of their own to be at the bottom of the list if any layoffs were to occur. Southwest pilots were protecting their own.

When the pilots unions couldn’t get on the same page on seniority, there was pressure on Kelly to scratch that requirement from the deal so that the company could at least make the acquisition and then deal with the seniority issue later. But to his credit, Kelly said any deal that was going to damage the airline’s culture wasn’t worth pursuing and the company issued a nicely worded news release congratulating Republic for winning the bid.

So what happens now?

Frontier comes out of bankruptcy with new ownership. Republic’s Lynx Aviation is a commuter partner with Frontier, so the integration of those companies will assure a smooth operation of flights in the Rocky Mountain region.

People in Denver are rejoicing Republic winning the bid because they won’t lose their hometown airline.

Southwest, meanwhile, pursues its own other interests, which will include cranking up its recently begun service to Boston’s Logan International Airport. Southwest will be in a dogfight for market share there given that discounters JetBlue, AirTran and Spirit Airlines already are entrenched there.

Southwest also recently unveiled a fare sale that many experts say is offering deeper discounts than most expected. Discounted flights are offered from Sept. 9 through Jan. 7, qualifying it as a holiday sale (tickets have to be purchased by Sept. 3.)

But noted airfare watcher Tom Parsons, CEO of Bestfares.com, blogged that Southwest was having a “Bah Humbug” sale because so many dates around Christmas and Thanksgiving are blacked out.

Parsons gave the sale a B grade, noting the airline had even better sales earlier in the year. He added that American, Continental, Delta, Northwest, United and US Airways have matched the Southwest fares.

It’s likely Southwest isn’t done trying to expand through acquisition. Kelly told The Wall Street Journal, “Even Tiger Woods doesn’t win every tournament.”

US Airways-Delta slot swap

Loyal US Airways and Delta Air Lines business travelers to New York’s LaGuardia Airport and Ronald Reagan National Airport may need to reexamine their scheduling after the two carriers announced a slot swap.

Both airports have flight restrictions that limit direct trips to airports outside a certain perimeter. In the deal announced last week, US Airways will give additional LaGuardia slots to Delta in exchange for additional slots at National. US Airways will reduce its commuter flying into New York, but should pick up more Washington business.

Delta is getting 125 takeoff and landing slots at LaGuardia while US Airways takes 84 at National.

US Airways, the second-busiest carrier at McCarran, figures the deal would result in $75 million in annual revenue, including the layoff of 300 New York employees when the switch occurs next year.

The move bolsters US Airways dominance at National, where it already is the busiest operator. Delta creates a bigger presence at LaGuardia to complement its efforts to be a big player in New York where it already has a major presence at John F. Kennedy International Airport.

Analysts are calling it a win for both airlines.

Grand Canyon blog

There’s a new blog to answer questions about the Grand Canyon sponsored by Destination Grand Canyon, a company that works with the Hualapai Indian Tribe to market attractions at Grand Canyon West, which include the Skywalk attraction.

Allison Raskansky, president and CEO of Destination Grand Canyon, hopes the blog will answer tourists’ questions about visiting the Grand Canyon and how Grand Canyon West is an easier trip from Las Vegas than the north and south rims.

One question I asked: What is the status of the 17-mile dirt road between Pearce Ferry Road, near Dolan Springs, Ariz., and Hualapai land? It’s the roughest part of the route between Las Vegas and Grand Canyon West. The answer: It’s still not paved, but there has been progress. About four miles from Pearce Ferry Road have been completed and stimulus money is available for Mohave County to finish the job and turn the bone-rattling trip into something more tolerable in addition to making it passable after the occasional flash flood.

And don’t ask about whether the tribe has changed its policy about allowing tourists to take their cameras on the Skywalk, a horseshoe-shaped glass walkway that extends over the rim and is 400 feet above the canyon floor.

It hasn’t.

Chamber honors

Kudos to Las Vegas Chamber of Commerce account executives Vance Adams and Chris Wilson, who recently received top honors from the American Chamber of Commerce Executives.

Adams was the first-place national winner for the number of total chamber memberships sold while Wilson generated the most new-member-sales revenue in a year. Both have career sales in excess of $1 million.

It’s quite an accomplishment given the state of the economy.

Richard N. Velotta covers tourism, technology and small business for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4061 or at [email protected].