For more than three decades, Southwest Airlines has been the star of the airline business, with nonstop growth, an unprecedented string of profits ...
Early 2009, Southwest, however incredibly successful until then, is facing huge financial problems, posting losses worse than the industry average. Not only oil costs increase but also reservations decrease. The whole business model of Southwest is questionned.
NEW YORK — Southwest's decision to buy AirTran will mean more routes and fewer delays and cancellations in small cities but higher fares in the Northeast and perhaps the end of the super-low sale fare.
The acquisition of AirTran by Souhthwest is seen as a threat on low fares for customers, since this event means the end of the competition between two large companies operating in the same areas.
After decades of success, Southwest was in a tricky situtation in 2009, facing cost and expansion challenges. It then decided to buy its main competitor AirTran, a major acquisition adding thousands of employees to Southwest and opening new air routes.
Established in 1967, Southwest Airlines Co. is a major U.S.airline and the world’s largest low-cost carrier. Following by its loyal employees, Southwest differentiates itself successfully by its low-cost strategy among its peers. Over years and years, Southwest maintains successfully profitable by being consistently able to compete on cost-cutting measures and customer service and aligning customer’s expectation for a low cost trip.
But the instable price of fuel has always been a challenge for the airline industry, and it is predicted to continue to rise. Southwest did very well in controlling its cost of fuel by a once-celebrated duel hedges, but with the fuel prices expected to continue to rise over a long term, this advantage will be diminished.
Facing this fuel prices challenge and the raised labor costs, Southwest’s advantage was narrowing comparing to its bigger competitors, who have cut its cost or even downsized in bankruptcy. Although having these cost challenges, Southwest had no plan to retract its low-cost policy which helped the company gain market share and goodwill with passengers.
To tackle its difficulties while maintaining its low-cost policy, Southwest decided to buy AirTran to help its revenue growth. This decision means more routes and fewer delays and cancellations, and it seems to be a good choice under the pressure of the latest “merger fashion” in the airline industry.
The timeline of this merger is as following:
Sept.2010: Announcement of the merger by Southwest.
March 2011: AirTran shareholders approve the sale.
AirTran airport workers and reservations agents vote to unionize, saying they don't want to go through a merger with Southwest without union protections.
May 2011: Southwest CEO Gary Kelly plans to transform AirTran's hub into an operation concentrating on travelers going to and fromAtlanta, rather than on connecting passengers.
November 2011: Southwest discontinues AirTran's flights from Atlanta to Dallas to comply with restrictions in an archaic federal law called the Wright Amendment that applies to Southwest and Dallas Love Field inTexas.
December, 2011: Southwest discloses it is removing XM satellite radio from AirTran flights.
February 2012: Southwest launches its first flights fromAtlanta to several destinations across the USA. It operates a total of 15 daily flights on the five routes.
2012: Southwest plans to gradually transition AirTran to its brand, repaint the AirTran fleet in its livery, combine frequent flier programs and bring AirTran employees into the fold. All that could take two years.
Now Southwest operates AirTran Airways as a wholly-owned subsidiary. It is the nation’s largest carrier in terms of originating domestic passengers boarded and, including AirTran.
Although there are growing complains from its business traveler about the rising prices and the misgivings about the effects of funneling the membership (and mileage points) of the US Airways Dividend Miles program, Southwest still celebrate its 40th consecutive year of profitability on its 2012 annual report by announcing an outstanding record revenue performance. After finish releasing its fourth quarter financial record, it welcomed the 41st consecutive year of profitability.
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