Northwest Airlines Boeing 757
There has been a lot in the news about airline mergers and buy outs. Delta & Northwest, United & Continental and most recently AirTran & Southwest. Some in the media throw around “merger” and “takeover” interchangeably, but they are very different. When two airlines come together, there are two types of sale agreements: the merger and the takeover.
I got an email from a reader (thanks Jay) asking about the difference between an airline merger and take over. I am not a financial professional, but I want to try my best to point out the major differences. If you have any more to add, please feel free to leave a comment!
This is when two companies come together blending their assets, staff, facilities, and so on. After a merger, the original companies cease to exist, and a new company arises instead. Sometimes the new entity will take the name and brand from one of the airlines, but sometimes an entirely new brand can be created.
Delta and Northwest merged, leaving the Delta brand. United and Continental merged, which will leave the United brand. In mergers like these, management needs to work hard to come to certain agreements, figure what/who will be cut and how the new airline will operate. Of course, this can be a very complex process for both airlines to undertake.
TAKE OVER / BUY OUT / ACQUISITIONS
In a takeover, a company is purchased by another company. The purchasing company owns all of the target company’s assets including company aircraft, trademarks, routes and so forth. The original company may be entirely swallowed up, or may operate semi-independently under the umbrella of the acquiring company.
In the case of Southwest buying out AirTran, the AirTran brand will disappear and be absorbed by Southwest. It is not a merger and Southwest will own the assets of AirTran and have complete control. This process is easier than a merger, since management at Southwest has the final say, but they need to successfully share their culture with the employees at AirTran and make sure they feel welcome.
Alright, I hope that helps some! Image: fiveholer
I am sure by now you have heard the news that Southwest Airlines is buying AirTran. For me, it was bad timing, since this week has been insane and I haven’t been able to read and absorb this huge news until today. Better late than never right? The benefit, is I get to share some great thoughts from other people as well.
Not that long ago I was questioning if Southwest was eying to buy Sun Country. Ha…I will a little off. Southwest was planning something a little bigger. Yes, the new and bigger Southwest still can’t compare in size with the new Delta and soon to be new United, but Southwest is king of US low cost carriers and this transaction makes them the undisputed champ.
This buy out is huge since AirTran is not a small airline. AirTran has over 8,000 employees and 138 aircraft. To compare Southwest has almost 35,000 employees and 547 aircraft. Southwest is obviously larger, but this will be a huge under taking, since both airlines are quite different.
Here are some of the “big” questions that I keep seeing about the buy out:
* What about the new aircraft type? Southwest previously has only flown Boeing 737’s. AirTran flies both Boeing 737’s and Boeing 717’s. Southwest has stated they will continue to fly the Boeing 717 on shorter routes. Seeing the Southwest livery on a Boeing 717 is quite exciting for most airline nerds and I very much look forward to it.
* Will Southwest start international flying? There has been talk about Southwest flying internationally before this buy out, but they can quickly transition since AirTran already has a few international flights. Southwest confirmed they will be updating their reservation system and move forward with additional international flights.
* Will business class stick around? AirTran has business class, Southwest does not. Southwest will be removing the Business Class seats from the AirTran aircraft and go all economy.
* Is open seating going to stick around? Yes. Like it or not, the open seating will continue to be a unique Southwest trait.
* Southwest won’t start fees will they? No. Southwest is well known for no baggage fees, no ticket changing fees, etc. That will continue to stay the same (at least for now).
* Getting access to Atlanta for Southwest is big right? Very much so. Access to Hartsfield-Jackson Atlanta International Airport (ATL), which is the busiest airport in the world, is a biggie. AirTran build a strong presence at ATL and now Southwest will have instant access to compete directly with Delta.
This just goes to show who the heck knows what Southwest will do in the future. They are now flying to larger airports, going internationally and have multiple aircraft types. It used to be pretty easy to predict what Southwest would do, but now they have gone rogue. I don’t think that is a bad thing and it for sure makes things a bit more interesting.
There has already been so much said about this buy out and I want to share some of the best opinions out there:
* Brett Snyder via his blog CrankyFlier and on BNET has done a great job looking at this merger from a number of different angels:
– First look at the merger
– Frontier and other airlines will benefit from this merger
– 6 Reasons why this merger is a good idea
– 4 Reasons why this merger is a bad idea
* Dan Webb on Things in the Sky has a few quick thoughts on the buy out
* Steven Frischling thoughts on his blog Flying with Fish
* PDF file comparing the two airlines
Sun Country Boeing 737-800 (N807SY) taken at SEA.
The rumors surrounding Sun Country’s buy-out have been circulating for quite sometime. I have heard that Delta, AirTran or Southwest might be good candidates for a take over. Out of those three, Southwest seems the most likely.
I spoke with representatives from all three rumored buyers and they each had their own unique way of telling me, “no comment.” That was totally expected, since either they honestly have no interest or this is a hot topic and one of them is not ready to let the cat out of the bag. I have spent the last few days trying to get a hold of someone at Sun Country, but with no success. Either this is a topic they want to avoid or they aren’t so keen talking to bloggers.
Sun Country is based at Minneapolis-Saint Paul International Airport (MSP), which Southwest has recently started to fly into. This being a new market, presumably Southwest would want to be able to grow rapidly. With the recent merger of Delta and Northwest (which was based at MSP), there could be Northwest loyalists who aren’t wanting to start flying Delta and looking for a new airline to LUV.
There is also fleet similarities between Sun Country and Southwest. Sun Country flies Boeing 737-700 and -800’s, while Southwest is just steps away from starting to fly the larger -800 among other versions of the 737. Southwest has been looking at flying internationally and taking over Sun Country would allow them to quickly start. Since Southwest is installing satellite based ROW 44 internet, they would have an advantage over other low cost carriers that fly internationally.
Sun Country recently came out of bankruptcy by creating a viable business plan. Although the airline publicly states they feel confident with their future, this would be a good time for another airline to take them over. Sun Country has announced they will be purchasing new aircraft, expanding routes and hiring 100 new employees. That confidence is good for Sun Country’s future and should make them a better value for possible buyers.
Southwest might also want Sun Country to make their books look better. Since Sun Country flies mostly to leisure travel destinations from the very cold MSP, the first quarter is their best. However, the first quarter is Southwest’s weakest. Combining the two is like completing a financial puzzle.
So most things look like a great match. However, there are always two sides to a story and I spoke with Steven Frischling, who writes the blog Flying With Fish, and he sees some issue with this match up. First, purchasing Sun Country wouldn’t mean that Southwest would be getting their aircraft, “While many look at Sun Country’s fleet as compatible with Southwest Airlines, especially with Southwest announcing that they are exploring the 737-800, Sun Country does not own its fleet. All of its 737-700s & -800s appear to be leased. So a purchase of Sun Country would not include aircraft,” he explained.
He also points out that one of the major reasons airlines will buy out another airline is to get slots at a particular airport. However, slots are not that difficult to get at MSP and Southwest wouldn’t need to buy an airline to increase flights. “Sometimes buying an airline for landing slots, fleet, routes or gates makes sense,” Frischling stated. “While Southwest Airlines is changing how it does business, Sun Country offers Southwest Airlines nothing. The airline is not even a competitor.”
So, this might only be a rumor and nothing will come of it, but it is always fun to think about. The old Southwest probably wouldn’t have any interest in Sun Country, but things have been changing over at the Dallas based airline. Will the new Southwest look to take over Sun Country and expand internationally? I don’t know, but I wouldn’t be surprised if they did.
MORE OPINIONS: Image: Drewski2112
* Ben Mutzabaugh with USA Today
* Terry Maxton with Airline Biz Blog
AirTran Boeing 717 taking off while Midwest sits in the background
Dan Webb over at Things in the Sky take a look at AirTran and Frontier deciding to end their mutual relationship. Yesterday Webb looked at AirTran announcing they would give you 32 A+ credits (that will get you two round trip tickets) if you donated 50,000 Midwest miles (also good for two round trip tickets) to charity.
This creates a problem. Last year Republic Airlines bought Midwest and Frontier. Recently they announced they would change the name to “Frontier Airlines.” AirTran and Frontier had an agreement to share customers (not a codeshare however) since 2006. AirTran is playing hardball (I think it is pretty genius) to get Midwest customers, yet were still trying to play nice with Frontier.
Webb guessed this probably couldn’t last for long and he was right. Today he posted that AirTran and Frontier have announced the ending to their partnership. Both airlines are competing in Milwaukee and AirTran is trying to steal customers from Midwest during Frontier’s brand transition just didn’t sit well with Frontier (surprise, surprise right?).
It seems AirTran is making a pretty smart move here. Loyal Midwest customers are now looking where they want to place their loyalties. If you remove your miles from the equation, now you have a new Frontier which will be taking a while to create brand consistency (ie: will your flight have DirecTV? Internet? On an Airbus or Regional Jet?), where AirTran has the consistency of having Wi-Fi and XFM radio on all flights.
Either way, the people of Milwaukee should reap the benefit of two airlines competing for their business. Game on! Image: md11forver
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