Southwest wants to buy Frontier

In a pretty surprising announcement today, Southwest Airlines has said that they've submitted a proposal to purchase Denver-based Frontier Airlines, which is still under Chapter 11 bankruptcy protection. Southwest will bid for the airline in a bankruptcy auction next month, along with Republic, which said last month that it would bid for Frontier. There aren't too many details out right now, but some interesting information is available over at the Southwest blog. Some excerpts:

What’s in proposal?
What we can say is that we are interested in a substantial investment in Frontier and to operate Frontier as a wholly-owned subsidiary, independently and separately from Southwest Airlines, for a period of time until the carrier could be combined into Southwest.

Is this a response to Republic’s bid?
Frontier has been in bankruptcy since April 2008, and we’ve been considering a bid for some time, independent of any action Republic took with its bid proposal. In the past month, we began an intensive study of the airline and expressed that interest to Frontier.

More details will emerge soon, but this has some big implications for service at Denver, where Southwest has been going up against well-established United and hometown carrier Frontier. One question that I have - what happens to the Airbuses that Frontier operates? Would Southwest keep them for a while, or swap 'em out eventually for Boeings?

As for what this means for the Republic deal, here's an excerpt from a press release issued today:

The Republic investment agreement provides for an auction period, during which Frontier may seek higher or otherwise better competing bids. If Frontier identifies such a bid, it can terminate the Republic investment agreement and accept the other offer. Under the auction procedures approved by the Court, interested bidders must submit an initial proposal by Aug. 3, 2009, and a final proposal by Aug. 10, 2009. Frontier and its advisors, in consultation with the Unsecured Creditors’ Committee appointed in Frontier’s Chapter 11 cases, will conduct an auction, if necessary, on Aug. 11, 2009, to consider all qualified proposals and determine the highest or otherwise best proposal.

photo by Taurus Photographix from Flickr

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Republic buys Frontier and Midwest

I can't think of a time when an airline company has purchased two airlines in as many days, but that's what has happened, now that Republic Airways Holdings has agreed to not only purchase Denver-based Frontier Airlines, but also long-struggling Midwest Airlines. If it wants to pull off the hat trick, then all it needs to do is purchase one more airline.

You might not have heard of Republic before - and that's not surprising, since the airline doesn't fly under that name but under three brands: Chautauqua Airlines, Shuttle America, and Republic Airlines. Still haven't heard of any of those? That's because they're the ones who do some of the flying for the regional airline brands, like United Express, Delta Connection, US Airways Express, AmericanConnection, and Continental Express. Republic Airways has been pretty successful, because of the increase in regional airline flying and the fact that their labor costs are relatively low (flight crews aren't as senior, meaning they aren't paid as much).

Under the terms of the first deal, Frontier, which has been stuck in Chapter 11 bankruptcy for more than a year, would walk out of bankruptcy court as a fully-owned subsidiary of Republic, but keep flying under its own name. Of course, the deal's not final yet - if another company places a higher bid for Frontier next month at a bankruptcy auction, or if the bankruptcy court turns the deal down, then the takeover wouldn't be completed.

Why did Republic go after Frontier? One scenario claims that Republic, which does some flying under the United Express banner, could turn around and sell Frontier's assets to United Airlines, which competes head-on with Frontier at Denver.

As for Midwest - well, let's just say that the writing's been on the wall for quite some time now. The airline is a sad shell of its former self - remember when they had all of those DC-9s and MD-80s and the nice seats and good food? Last year, Republic loaned Midwest $25 million - a lifeline that helped it stay out of bankruptcy, but one that by no means helped the overall financial situation. The airline fought off a takeover attempt by AirTran last year, but times have since gotten a lot more tough.

The airline was recently sued after falling behind on aircraft payments, and it would have had to have faced the prospect of going up against not only AirTran but now Southwest at its Milwaukee hub, so it's got to be pretty good for Midwest that Republic stepped in. The current plan is to have Midwest continue under its own brand name, just like Frontier, but the 717s will be ditched in favor of Embraer 190s.

photo by E-Mans from Flickr, licensed under the Creative Commons

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Virgin America's top 10 requested cities

photo by Johnny Vulkan

Virgin America recently released a list of the ten cities that are most requested for new VA service. The survey is still up, so if you don't see your preferred route listed below, you can still vote.

1. SFO- Chicago
2. SFO- Honolulu
3. SFO- Miami
4. LAX- Miami
5. SFO- Portland
6. LAX- Chicago
7. SFO- Phoenix
8. JFK- Miami
9. SFO- Denver
10. LAX- Portland

Many of these routes are currently flown only by a few legacy carriers. The San Francisco - Chicago and Los Angeles - Chicago routes, for example, are currently flown only by United and American. JFK - Miami is flown only by American and Delta, and American has a monopoly on the San Francisco - Miami and Los Angeles - Miami routes. Even though Virgin America would certainly be taking a risk by flying into the fortress hubs of legacy carriers (United in Chicago, American in Miami, etc.), their relatively premium product would probably attract quite a few unsatisfied AA and UA customers. Those are the routes (LAX-MIA, SFO-ORD) that would be best for Virgin America to fly, especially as they would avoid head-to-head competition with other low cost carriers (i.e. Frontier on SFO-DEN).

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Frontier files for bankruptcy

photo by Drewski2112

Denver-based Frontier Airlines filed for Chapter 11 bankruptcy protection earlier today, citing a move made by its credit card processor, First Data Corporation, which has started withholding a larger percentage of proceeds from ticket sales.

"To be clear, we filed for very different reasons than those of other recent carriers, and our customers and employees can be confident that we intend to keep on flying and providing outstanding service and products," said Sean Menke, Frontier president and CEO. "Given the recent progress we have made towards strengthening our balance sheet and obtining additional financing, it is truly unfortunate that we have had to take this action."

Frontier's bankruptcy filing stems from what are known in the industry as "holdbacks". A bank that processes an airline's credit card purchases holds onto a certain percentage of the proceeds until the passenger actually flies. As of now, that percentage for Frontier is locked at 45%. But First Data was going to increase that to 50% immediately and to 100% by May 1. By filing for bankruptcy, Frontier can avoid the increase.

Frontier isn't in dire straits like Aloha and Skybus were, but right now, a lot depends on public opinion. Travelers have been hearing about a lot of airline bankruptcies recently, and even if Frontier isn't on the brink of collapse, a bankruptcy filing might scare away customers.

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