Business Travelers: Meet Southwest Airlines
The announcement late last month that Southwest was acquiring AirTran Airways means that Southwest will grow by 25%, solidifying its status as the fourth-largest airline in the U.S.
Ending the competition with AirTran unfortunately also means Southwest increasingly becomes the only choice for travelers at some airports, such as Baltimore-Washington International, Orlando International and Fort Lauderdale-Hollywood International Airport. On the plus side for those near monopoly-locked travelers, Southwest ties with JetBlue for the best customer service in the sky, and any business traveler can't help but notice the upbeat attitude of their flight crews.
Southwest does offer travelers who want to pay a premium ticket fee the opportunity to be among the first to board. But Business Select can cost several hundred dollars more, and even then, there's no guarantee that a passenger will get the exact seat they want. (Southwest also offers an early check-in option for $10 extra, but passengers still have to wait on line and they are not among the first to board).
Bottom line: Flying Southwest is a scenario that doesn't please many business travelers. They would rather fly United, Delta or American airlines, or yes, even the soon-to-be-absorbed AirTran. Though AirTran is no-frills, travelers have the option of upgrading to business class for a fairly reasonable fee, usually around $100 each way on a cross-country trip. Travelers can also choose to reserve a specific coach seat in advance, paying between an extra fee of $6 or $20, depending on whether they want to sit in the rear of the plane ($6) or the exit row ($20).
Taking the Lion's Share of Baltimore
Passengers in some markets and on some routes will now just have to get used to Southwest whether they like it or not, if the merger is completed as expected around nine months from now.
At BWI, for example, Southwest will control around 90% of the flights to cities such as Milwaukee, Indianapolis, Orlando, Fort Lauderdale and Tampa and around 70% to Boston, New Orleans, West Palm Beach, and Kansas City, according to a report by aviation consultant Boyd Group International. For other key destinations from BWI, Southwest will have a more than 50% market share, the report says.
Boyd Group President Mike Boyd puts it simply: Once the merger is complete, Southwest will completely dominate BWI.
At Orlando International Airport, The Boyd Group analysis found 11 routes where Southwest will control over 70% of the flights. The worst scenario was for Milwaukee-Orlando: Southwest will run 95% of the flights on that route.
But don't worry: Your pockets won't be emptied if Southwest is your only choice. At least that is the opinion of Boyd, who says Southwest won't use its near-monopoly status on some routes to gouge passengers. "It's not in their DNA," he told me. "They charge what they think is necessary to make a profit."
The AirTran acquisition gives Southwest its first access to Atlanta, the last major metropolitan airport that hasn't been part of the airline's route network.
But Southwest's entry into Atlanta, where it will continue AirTran's efforts to compete with giant Delta, won't mean lower fares there. "Southwest is replacing an existing low-fare airline, not introducing low fares to Atlanta," Boyd says.
The are two Atlanta routes, however, that could see reduced fares when Southwest arrives, he says: Ticket prices to and from Salt Lake City and Newark could drop by 25%, assuming Southwest decides to compete with Delta to those cities. Southwest is scheduled to start serving Newark next March.
Why Fares Might Rise
Of course, the issue of fares is all relative. AirTran has among the lowest fares in the business, especially if you buy your ticket far enough in advance. And while Southwest may not raise its existing fares, its fare collected per mile is about 30% more than AirTran on shorter routes and 16% higher on longer routes, noted JP Morgan analyst Jamie Baker in a research note last month.
"As is typically the case with consolidation, we expect costs and fares to be marked to Southwest levels, suggesting improved returns for everyone in markets where AirTran already has a presence," Baker said.
Southwest has made no secret of the fact that it wants to attract more business travelers and get away from its reputation as primarily an airline for leisure passengers. Business travelers are more profitable for airlines because they don't often book as far ahead as leisure customers, giving airlines the opportunity to charge higher for those last minute fares. Now that the Continental United merger and the Delta Northwest marriage before it have reduced the choices for business travelers to just a few airlines, Southwest is likely to benefit, regardless of it's lack of business class amenities.
Indeed, at this point, Southwest's friendly flight crews could start being nasty and it wouldn't deter business travelers. It doesn't take a lot to attract customers when you're one of the only players in town.