While the airlines have been going through merger mania in recent years, the announcement that low-fare carrier Southwest Airlines is acquiring AirTran is a something of a game-changer in the industry.
Peter spoke with Chris McGinnis, director of Travel Skills Group, about how this move will affect certain airports, what could happen to airfare, and the all-important issue of frequent-flier programs.
Peter Greenberg: First, the Continental-United Airlines merger closed, and then there was the bombshell announcement of the Southwest-Air Tran deal which, by the way, I didn’t see coming. Nobody saw that one coming.
It’s not a merger or a partnership; Southwest is buying AirTran. AirTran is literally going to disappear just like Southwest bought Morris Air, and Muse Air, and whoever else they got. What do you make of all this?
Chris McGinnis: I have to say I did see it coming, I swear. I interviewed Gary Kelly last year at NBTA and asked him when he was moving into Atlanta, and he had a very coy response. A very kind of a corporate thing that didn’t really say yes, didn’t really say no. I’ve long thought it would be a perfect marriage because the airlines were so similar. AirTran basically modeled itself after Southwest. It has a huge 737 fleet, and also some old 717s. It was just perfect and there was a big hole in Southwest’s route map, so it made complete sense to me. I have been waiting for it for quite a while, but I was surprised with the timing. It’s a big relief and big news, particularly for people in Atlanta because you’ve got the world’s largest and busiest airport with what’s currently the largest airline—Delta, and now Southwest, which is the largest low-fare carrier. So it is a big battle with lots to watch. I can’t wait.
PG: Let’s talk about the concept of low fare because if you start doing a city-by-city, fare-by-fare comparison on the routes and cities where Southwest competes with the legacy carriers, guess what you find out? In many cases they aren’t the low-fare carrier. In many cases they’re as expensive, if not more expensive, than their competitors.
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CM: But the fares are still much lower overall on those routes where Southwest does compete. So even though on certain flights they may be a little higher, overall they’re much cheaper. I’ve been watching Delta and AirTran duke it out in Atlanta for years. Everywhere that AirTran flew or flies, Delta would match them. Especially on the first class or business class with a product that I really liked on AirTran: you could fly from Atlanta out to the West Coast—to Los Angeles, or San Francisco, or Seattle—for about $1,000 round-trip. It’s a pretty good deal for a big seat up front. Delta, prior to AirTran doing that, was charging $2,000-$3,000 for that. And I’m sure that when Southwest comes in and pulls those business-class seats out, those fares are going to go back up to $2,000 or $3,000 to cross the country on Delta.
PG: That’s right because that’s the other thing, AirTran does have that first-class section. Southwest is not going to do that, are they?
CM: They’ve said no to that, unfortunately. I run a newsletter called The Ticket for travelers in Atlanta, and that’s the number-one thing that people are screaming about right now. Everybody likes the business-class seat because it is less expensive, but they also like the opportunity to upgrade. Even though they may not always get the upgrade, the fact that it is there and a possibility is a big draw to AirTran.
PG: So we know that the first class is going to go when Southwest takes over AirTran, but what about checked bags? AirTran does charge for checked bags.
CM: They do, so that is going to go away. It is going to be very interesting to watch what Delta does. Probably their biggest market, Atlanta, is competing with Southwest which has no bag fee. Currently Delta will waive that bag fee if you charge your ticket on certain American Express cards, but I have a feeling that if they’re going up against Southwest in Atlanta you may see a repeal, or some sort of creative way that Delta can allow passengers to get around that fee. When you’re talking about a $120 difference in a round-trip fare when you’re checking two bags, Southwest is going to have a big, big lead over Delta in terms of people looking at that price differential.
PG: Sure, and if you’re a family of four, you’re almost at $500.
PG: Now let’s go to one other aspect of Southwest, and that is, they have this sort of cattle car boarding. They’ve sort of modified it with numbers now where you get to stand on line like you’re in a fire drill in junior high school. AirTran doesn’t do it that way, so how’s that going to merge in?
CM: I think that’s going to be the hardest part for people who are typically AirTran fliers and switch over to Southwest, where there is no such thing as an assigned seat. You can’t get your seat ahead of time. I think this affects business travelers more than anyone else because they do like those assigned seats, but the good news is they have something called early-bird boarding. You pay $10 each way, and that will get you into Group A in the boarding process. That means you will get an aisle or a window seat pretty close to the front of the plane, and you’ll get your carry-on onboard, if you’re willing to pay that fee.
PG: Speaking of fees, the airlines are charging you to even change a flight on the same day to the same city. They wanted to charge me $150 the other day to take a flight four hours earlier to the same city. Southwest doesn’t have change fees, but AirTran does—they charge that $75 fee.
CM: With AirTran, if it is the same day of travel they would let you go to the airport and standby without a fee. But if you made your reservation three months in advance, and then all of a sudden you decided you wanted to leave a day earlier, or a day later, and you wanted to actually change the reservation, and get a space on that flight, you had to pay a $75 change for that flight. AirTran is cheap; the $75 is half of what all the major carriers charge to make that change. I think the majors and AirTran allow you to make that change for free on the day of travel, or sometimes for $25 to $50.
PG: If you take a look at some of the airports that are going to be really affected by this: obviously LaGuardia, Newark and, of course, Atlanta because Southwest is not in Atlanta. This is going to be a real shootout at the O.K. Corral, isn’t it?
CM: It is very interesting too. You have to wonder if Southwest is ever going to change its name because it is turning into a big East Coast carrier. You’re looking at Atlanta, Washington D.C.’s Reagan National. This is a huge change for the Washington D.C. market to have Southwest in there.
PG: Yes, because Southwest has always been in Baltimore.
CM: Right, so now they’re going to be in the heart of the action. Everybody wants to fly into National, not Baltimore. And then they’re into LaGuardia, and they’re also into Newark. You know one interesting thing that I wrote about in The Ticket was that recently AirTran got out of the Atlanta-Newark market, and they moved all of their operations to LaGuardia. Well as soon as they did that, it was just Delta and Continental in that market, a mid-week round-trip fare went from about $200 to $800 round-trip, with Delta and Continental there.
CM: But now Southwest says they’re going to start service into Newark. I would imagine they’re going to be running some planes from Newark down to Atlanta, and you’ll see that fare come right back down to the $200 or $300 range for a mid-week fare. But they were really sticking it to business travelers there. Those people that don’t want to stay over a Saturday night really pay through the nose.
PG: Last, but not least, what is going to happen to the frequent-flier programs between Southwest and AirTran?
CM: The good thing about that is that both of those programs are not mileage based. Most of the major carriers you earn miles based on how many miles you’ve flown. But both AirTran and Southwest offer a program that is based on flight credits, so you get a credit per flight. That’s going to make the merging of those two programs pretty easy. I think it’s probably a little bit better news for Southwest fliers because they have long wanted to be able to go to some kind of exotic destination that Southwest never went to. With the merging with AirTran they’re going to be able to use their rapid rewards points, and go to places like Punta Cana, and the Dominican Republic, or San Juan.
PG: All right, we’ll stay on top of this. It is going to be interesting to see not only who comes to the dance, but who stays at the dance.
By Peter Greenberg for Peter Greenberg Worldwide Radio.
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