It looks like Southwest Airlines may have fallen into a growth trap: "Among all other influences, the desire to grow has perhaps the most perverse effect on strategy" - M.E. Porter
Southwest competes on cost, and this cost position hinges in large part on the rapid turnaround of aircraft. Rapid turnaround lowers Southwest's equipment and labor costs; its aircraft, pilots, and flight attendants are "doing work" for longer periods of time each day (rather than sitting idle on the ground).
A variety of activities contribute to Southwest's ability to rapidly turnaround aircraft, but some of the key activities include:
- Southwest's culture, where everyone pitches in to turnaround aircraft
- Using a single type of aircraft (737s), enabling simplified service and maintenance
- The point to point route structure, avoiding the issue of synching the schedules of hub and spoke aircraft
- Operating at less congested airports to avoid traffic delays
From my vantage point, it seems the AirTran acquisition threatens each of these activities:
- Integrating AirTran's distinct culture with Southwest's
- Expanding beyond 737s to operate 717s
- Divergence from the point to point structure to a hub and spoke
- Entry into congested airports, such as Hartsfield-Jackson (ATL), which was ranked #20 in 2010 for on-time departure performance by the Bureau of Transportation Statistics
In short, this acquisition is problematic from a strategic standpoint and appears to threaten the basis of Southwest's cost advantage.
Another cost saving measure that Southwest appears to use is to access the "worst" terminals via the "worst" gates. What I mean by that is their flights consistently service older terminals, gates that are further away from the security checkpoint or are otherwise less desirable. I presume that this means they save considerably on their airport access fees. I personally don't mind walking a bit further to the gate, so this kind of cost savings doesn't bother me a bit. I do wonder what the distribution of AirTran's gates looks like, though.
At least at ATL, Airtran has pretty much all of C terminal. Mind you there are 30ish i think gates split 15 on each side so it's not THAT far to walk from train to one end of the terminal.
The choice of terminal is irrelevant because it just means a shorter or longer train ride from ticketing/baggage claim. Unless you're connecting with other airlines, you usually don't have much to worry about.
Who says that they're going to a hub-and-spoke model? That would hardly make sense. They've acquired a bunch of gates at ATL, which is great for Southwest. That doesn't mean that they're going to "hub" there in the traditional sense.
I believe AirTran uses a hub and spoke model. It would be very difficult to unwind this from an operational standpoint. ATL is a key airport, but it's quite congested and thus may delay Southwest's turnaround of aircraft.
Southwest has been ultra-competitive for many reasons, the biggest probably being its fuel hedging program. But it's only a matter of time before this competitive advantage asymptotically approaches zero, so it needs new strategies to maintain its advantage.
As a frequent flier and raving fan of Southwest, I've wondered what would change when they once again paid the same price for fuel as the legacy carriers. Today I stopped worrying. This acquisition ought to buy Southwest at least 10 more years as #1.
I'm also a frequent flier of Air Tran. AFAIC, except for Jet Blue, no other carrier is in the same class as Southwest and Air Tran. I have little doubt they will figure out how to make this work.
For the past 2-3 years or so, its fuel hedging has actually had a net negative effect on profit, as their hedged prices were higher than market price for Jet A.
LAX: 13M + 4.5M (adding Riverside, San Bernardino, Ontario for charity's sake)
San Diego: 3M
DFW: 6.5M
SEA: 3.4M
BOS: 4.6M
DC: 5.5M
Orlando: 2M
LAS: 2M
FTL: 5.5M (counting Miami)
That's 73.3 million people, so adding in the few we underestimated (eg you can drive to SFO from San Jose if you feel like it) then 1/4 is actually pretty good.
I haven't looked into JetBlue or Virgin America, but a big part of why I use Southwest over others simply due to their frequent flier program. I take a flight from SF to LA about once a month, meaning I can spend as little as $1,300 to rack up enough credits to get a free round trip, which I use on flights to the east coast that would have cost me $400.
Two really important bits of backstory to this, if you don't follow the US airlines: Southwest is famous for flying a single plane type (the 737) and for a Greyhound Bus-type route map that differs starkly from the hub/spoke model served by ATL --- the largest "hub" in the US market.
True, but if you analyze Southwest's network, it's way more hub and spoke than most people think. They are the largest carrier at many of their top airports, and a high percentage of their flights go through one of those top hubs.
Sure, it's not like AirTran at ATL, but I think you'll find an ATL hub not nearly as inconsistent with Southwest's current network than at first glance.
I'm not sure if its worth reading too much into the acquisition, from a "this is going to change Southwest's business model" standpoint. Personally, I suspect that just getting access to ATL is worth the price for Southwest.
I agree. However, they do fly a few different variations of the 737. They are in the process of replacing their 300s with the newer 700 series and they also have a few 500 series which are slightly smaller (122 passengers vs 137 in the 300/700). They have also recently been evaluating adding the 800 series (a stretched version of the 700 series) to their fleet.
I want to agree with you (and I think the hype is usually way more than the actual change), but Southwest is almost 40 years old and they've never made an acquisition of this size nor have they ever before had another type of plane in their fleet.
I think they want you to believe this is plain vanilla M&A growth to get access to ATL and the east coast, but in reality, it will be the biggest challenge they've ever faced to integrate AirTran (fun to watch!).
That being said, I bet they wished AirTran was an all 737 airline. But they just don't have a choice, they can't retire 86 717s on the spot -- they'll be forced to fly them for at least several years.
Several years on smaller routes, yes. But ultimately, they will not bother type rating any new pilots on the 717, move as many over to the 737 as possible (not forgetting the 65 extra 737's that Southwest will be getting from the deal) and the 717 will die it's own death.
Whether Southwest choose to then go for another smaller (90 - 100 seat) option is the really interesting question. Possibly if Boeing decided to step into the A318 market, then it could be a go - type ratings could be transfered down to the smaller jets, and commonality would keep costs down.
Looking at the fleets, the article does not mention the fact that AirTran has 65 Orders for 737-700's (the type that Southwest uses),
http://en.wikipedia.org/wiki/AirTran_Airways#Current_Fleet and is looking at options to replace its current 717 fleet....
As well as landing slots, increased build slots at Boeing are always very welcome.
I feel about Southwest the same way many around here feel about Dropbox; such a great service that gives me exactly what I want.
It will be interesting to see how Airtran employees are integrated into Southwest's fold. For some reason I love being cattle-prodded onto a Southwest flight, with the stewardesses giving us fun reminders to be timely. I think the phrase last time was "find a cush for your tush"
Slightly offtopic, but does anyone dislike Southwest? I have spent my entire life flying Continental out of EWR because they were basically the only option and I had a pile of FF miles, but now I'm near 2 Southwest hubs and I'm thinking of making the switch since I'm almost out of Continental miles. It seems very different but I've read a lot of positive things about Southwest.
I don't know anyone who actively dislikes Southwest, but I do know people who dislike certain policies:
- Open seating instead of assigned seating. First on the plane = first pick of seats, and you board the plane in order of when you checked in (online or at the counter.) I personally like this, but some people don't.
- Limited amenities. Bring your own entertainment.
- Singing flight attendants. On some flights, the crew giving the safety briefing will "spruce it up" by singing or doing it as dramatic poetry or something. I think it's fun, but some people find it grating.
In Texas, SWA is a favorite of many, many business travelers, not least because of the casual on-board atmosphere and the funny (as in humorous) and good-natured flight attendants. Friday-afternoon flights can be almost like a party.
It's a different experience, even from the other discount carriers. If you can get your head around it, SWA is easy to love: straightforward pricing and scheduling, no-frills and no-hassle.
The thing that sets most people off is the lack of assigned seating, but in the past year or so that's been mooted by the "buy your way into group AA" option.
I usually choose other airlines, because often the Southwest flights to whe I want to go have too many stops. I like a few things about them though. First, they help keep the other airlines prices down. Second, when I do fly them and have a stop or a plane change, I'm back up in the air again in no time.
The number of hops on a SW flight to a non-major destination has gotten me down, as well as (at least a few years ago) the lack of transparency on the website/tickets about how many hops you might end up on.
I've found that they have done just that at PHL. It wasn't easy to knock US off balance a few years ago and that's exactly what happened - on time, generally more friendly and they didn't manage to lose your luggage. During IRROPS (poor weather, mechanical problem, etc), its a lot easier to sub a 737 for a 737 than have to find a way to cram an A320's worth of people on an E170 or two.
Granted, the dynamics of PHL are a little different from the NYC airports, but Southwest seems to be effectively penetrating BOS.
One of the things many people love about Southwest is their generally relaxed, friendly, and informal atmosphere. Is AirTran similar? Do they tell jokes during the safety demonstration too? If not, do you think they'll start?
I find this merger interesting, having flown very little on Southwest but quite a lot on AirTran due to Atlanta being a major destination for me. I'm curious to see what changes they bring, however this comes as I find myself more and more frequently paying extra for JetBlue and other carriers that provide a bit more than baseline services.
I've got the opposite perspective, I fly Southwest almost exclusively (for domestic anyways), mostly though their big hub at Midway, I'm hoping for me this just means more or the same, but to more destinations.
I've never liked southwest, I flew with them once, and it was generally a bad experience. On the other hand I have always LOVED Air Tran. $50 upgrade to business class, with wifi, and free xm radio. This combination made for one great flight. Loosing that, looses me.
Their rewards systems is one of the most generous around as well. Four points for a business class upgrade, and lots of easy ways to ear points. If you don't have the points, business class upgrades are far more reasonable than other airlines. Between that and the WiFi on all flights, I'm going to be really sad to see them go.
if you are younger than 23, you can book a one-way ticket on airtran for like $69 on the day of the flight. you have to fly standby, and you can't take any luggage, but it's an awesome program that i had taken advantage of.
Southwest competes on cost, and this cost position hinges in large part on the rapid turnaround of aircraft. Rapid turnaround lowers Southwest's equipment and labor costs; its aircraft, pilots, and flight attendants are "doing work" for longer periods of time each day (rather than sitting idle on the ground).
A variety of activities contribute to Southwest's ability to rapidly turnaround aircraft, but some of the key activities include:
- Southwest's culture, where everyone pitches in to turnaround aircraft
- Using a single type of aircraft (737s), enabling simplified service and maintenance
- The point to point route structure, avoiding the issue of synching the schedules of hub and spoke aircraft
- Operating at less congested airports to avoid traffic delays
From my vantage point, it seems the AirTran acquisition threatens each of these activities:
- Integrating AirTran's distinct culture with Southwest's
- Expanding beyond 737s to operate 717s
- Divergence from the point to point structure to a hub and spoke
- Entry into congested airports, such as Hartsfield-Jackson (ATL), which was ranked #20 in 2010 for on-time departure performance by the Bureau of Transportation Statistics
In short, this acquisition is problematic from a strategic standpoint and appears to threaten the basis of Southwest's cost advantage.