31 July 2009

Southwest Airlines Plans to Bid for Frontier

Southwest Airlines Sports Illustrated Jet Landing In Phoenix
Southwest Airlines said on Thursday that it was preparing a bid, valued at a minimum of $113.6 million, for its low-fare rival Frontier Airlines, which sought bankruptcy protection in April 2008.
The Southwest bid potentially tops a $108.8 million offer for Frontier made by Republic Airways in late June, and which was given tentative court approval on July 13. Frontier confirmed that it had been notified of Southwest’s initial, non-binding bid.

Frontier Airlines In Denver

Under that plan, Frontier, which is based in Denver, was set to become a subsidiary of Republic, an airline holding company that owns Chautauqua Airlines, Republic Airlines and Shuttle America.

But Frontier was allowed to seek competing bids, and could terminate its agreement with Republic if it received a higher offer. The deadline for bids is Aug. 10, and an auction for the airline’s assets could be held in United States Bankruptcy Court in New York the following day.

If it is successful, Southwest plans to make a “substantial investment” in Frontier and operate it as a separate subsidiary, until the airline can be folded into Southwest, Ron Ricks, a Southwest executive vice president, said in a statement.

The airline did not say whether its offer would be in cash or if any financing would be involved. Mr. Ricks said Southwest is studying Lynx, a regional airline that is a subsidiary of Frontier, but did not know whether it would also try to acquire that carrier.

Like Southwest, Frontier is a low-fare airline that has been highly regarded within the industry for its customer service. But Frontier filed for bankruptcy last year after a dispute with its credit-card processor, although it has continued to operate since then.

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

Frontier has 5,000 employees and 51 aircraft, while Southwest has 35,000 employees and more than 500 aircraft. One conflict between the carriers could be that Frontier’s fleet relies on aircraft made by Airbus, while Southwest only flies the Boeing 737.

Nonetheless, the purchase of Frontier by Southwest would greatly increase its operations in Denver, where Frontier ranks as the second largest airline, behind United, which uses Denver as a hub. United, however, would still remain in the lead, according to data from the Bureau of Transportation Statistics.

If Southwest is successful, it would mark the second time in two years that it has purchased the assets of a bankrupt rival. Last year, Southwest took over the assets of ATA Airlines, which ceased flying, a move that gave Southwest access to gates at LaGuardia Airport. Southwest began serving LaGuardia on June 28.

In 2004, Southwest and ATA set up a code-sharing agreement and Southwest acquired ATA’s gates at Midway Airport in Chicago.

Go to Southwest Airlines’ Press Release »

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