Go Back  Airline Pilot Central Forums > Airline Pilot Forums > Major
Southwest delays code-share >

Southwest delays code-share

Notices
Major Legacy, National, and LCC

Southwest delays code-share

Old 05-25-2009, 07:08 PM
  #1  
Gets Weekends Off
Thread Starter
 
Joined APC: Aug 2008
Posts: 503
Default Southwest delays code-share

CALGARY - WestJet Airlines Ltd.’s (TSX:WJA) ambitions to expand further into U.S. markets were dealt a setback Monday, after Texas-based discount carrier Southwest Airlines put off implementing a code-share agreement inked last year with the Canadian company.

The arrangement, which would allow the two airlines to sell tickets on one-another’s aircraft and make transferring between the two networks easier for travellers, was to have come into effect in late 2009.

"In response to the current economic environment, Southwest is focusing its immediate attention on several critical objectives, including increasing our revenues," said Southwest executive vice-president Bob Jordan.

"While I am very excited about working to deliver new incremental revenue opportunities for 2009, it will have an impact on our timing for code-share delivery. We remain absolutely committed to our partnership with WestJet, and to code-sharing in general, and will do all we can to minimize the impact on our previously stated code-share plans."

A statement from WestJet and Southwest Monday did not specify when the deal is expected to move forward.

WestJet executive vice-president Hugh Dunleavy said his company understands Southwest’s decision.

"Our continued U.S. expansion is a key strategy for our airline, but code-sharing is only one element of this. Both airlines remain committed to minimizing delays and are focused on generating revenue as quickly as possible," Dunleavy stated.

"We are looking forward to code-sharing with Southwest. We remain committed to our interline and code-sharing initiatives both in the US and globally."

Dunleavy said WestJet has already implemented a distribution agreement and is close to starting a cargo program with Southwest.

WestJet’s tie-in to the Sabre reservation system, which is required for code-sharing, is still on track for the fourth quarter of this year.

As well, similar agreements with European carriers Air France and KLM are still a-go for 2010.

The code-share deal would been a boon for WestJet, which has a similar business model and corporate culture to Southwest, said Rick Erickson, a Calgary-based airline industry analyst.

"It was almost like a match made in heaven. It looked to me all around like a pretty good deal and particularly with WestJet," he said.

"WestJet has suffered for quite a few years precisely with this lack of code-sharing capability.... I think they recognize as the airline has grown all the low-hanging fruit has been picked long, long ago in Canada and for them to really grow their revenue base and particularly to grow it quickly, you have to enter into these kinds of agreements."

But Erickson said there are still plenty of growth opportunities for WestJet elsewhere.

"By no means is this some kind of a stake through the heart of WestJet," he said.

"It’s a setback. It has to be viewed as such. And the timing is not terrific. But WestJet has got a bunch of fairly clever, nimble people and it’s quite likely that they’ll find some other alternatives."

Code-sharing involves selling seats on each other’s planes and sharing the revenues with one airline putting its name or code on a flight operated by the other.

It is considered a low-risk way for airlines to expand their networks without the added cost of more planes and employees. It figures to be a particularly important strategy for Southwest, which is alone among the major U.S. carriers in not belonging to one of three big global alliances or teams of airlines.

WestJet shares closed down 37 cents or three per cent to $12.11 on the Toronto Stock Exchange Monday. On the New York Stock Exchange, Southwest shares fell six cents to US$6.70.
Rabid Seagull is offline  
Old 05-26-2009, 03:18 PM
  #2  
Gets Weekends Off
 
MatthewAMEL's Avatar
 
Joined APC: Jul 2007
Posts: 731
Default

The Southwest "mystery" and my somewhat absurd theory.
4:05 PM Tue, May 26, 2009 | Permalink
Eric Torbenson/Reporter Bio | E-mail | News tips

First, the mild mystery: Why did Dallas' Southwest Airlines Co. stop its code-share work with Westjet up in Canada, claiming that it needed to redeploy resources in other areas?

Airline folks huddled a bit today here at the DMN about that and didn't really get closer to an explanation. Southwest has done code-shares before (ATA Airlines, before its demise) and it's not like re-inventing the wheel here: it's making computers talk with each other so you can sell seats on each other's airplanes. Maybe there were more problems in the integration than they had thought. But somehow an airline with 35,000 employees has to stop a project to re-deploy resources?

The other wildcard is Gary Kelly's mysterious comments at the Annual Meeting last week where he mentioned "revenue enhancements" that they can't talk about but are working on.

My totally un-sourced, not-to-be traded upon but not totally outlandish theory after the click:

Southwest Airlines is trying to buy Airtran Airways.

Or maybe at least thinking about it. Here's my theory: First, Gary Kelly & Co. have all but lost Wall Street, which is rather unimpressed with Southwest's rising labor costs and have lumped Southwest along with all the other airlines when in the past they treated it as a unique creature that deserved special treatment. That was when Southwest was growing quickly and charming folks; now it's shrinking and looks like a lot of other airlines in terms of its challenges. When I started writing about Southwest back in 2002, shares were touching $20. They're $7 now. Since employees are the largest shareholder group at Southwest, their morale would really improve along with the share price.

Airtran's top 15 airports are all also Southwest Airports, or are at least about to be Southwest airports once Southwest launches LaGuardia, Boston and Milwaukee service. The actual route overlap isn't nearly so great as Southwest doesn't serve Atlanta, Airtran's major hub, but I think that's increasing. More and more, Airtran and Southwest will match wits on pricing.

And I really think Southwest's pricing folks would like to price their product without having to worry how Airtran is pricing its product, as Airtran -- depending on how you're doing the math -- has equivalent or lower unit costs than Southwest on some cases and can really lower yields on routes they fly and still make money. The math behind any successful airline merger is 1+1= something less than 2 because less capacity plus more pricing power equals more profits. Buy Airtran, and Southwest can gain more pricing power in markets they already fly such as Orlando, Philly, Baltimore and especially Milwaukee, where Airtran is bulking up its fleet. And winning a huge market share in Atlanta? That'd be a very attractive addition to a network that already has lots of big cities in it and where Southwest is adding more big cities. You increase your national network, the more appeal you have to business fliers, and that's where the margin remains in the difficult airline business.

Southwest has the cash on hand to make such a bold play and recently took steps to pay off its bank credit line and raise more cash. Airtran's market cap is about $650 million. It flies Boeing planes that aren't exact matches of Southwest but are pretty close, plus it flies a fleet of 717s that might work very nicely on thin routes for Southwest (say, Love Field routes to Midland or other smaller Texas cities). I asked Gary Kelly back in 2007 about why he just doesn't buy AirTran and he said they'd probably buy somebody down the road but that the investing community doesn't make decisions for his airline. If you Google Southwest buys Airtran, that's actually all you get in terms of results - my question to Gary and his answer. Which is why it's still a pretty absurd theory - I don't see it out there in many discussions.

Airtran shares have popped up in the last few weeks from a 52-week low, but are still well below where they stood in the last peak of airline shares. Not sure how eager its board would be to getting bought out; Airtran is mighty proud of the low-cost carrier they've built and they're fierce rivals of Southwest. But they've got just under $400 million of cash on hand and storm clouds are coming in the form of potential oil spikes that, coupled with the current underwhelming demand market, could really damage a carrier of that size in a hurry. Southwest has $2 billion in the bank and the ability to securitize many of its planes for billions more - it's the only big airline out there with investment-grade ratings and it's played a very cash-conservative strategy for a long time.

Of course, there are plenty of reasons why this wouldn't be such a hot idea. Integrating airlines is, in fact, a form of delicate rocket science with potentially explosive impacts if done poorly. It's a high-wire act and often disastrous in terms of labor relations, which Southwest cares a lot about. It's hard to say how Wall Street would react to such a deal - I'd argue that any attention would be welcome. The plane fleets don't mesh perfectly (but compare that to Northwest-Delta), the price might be too high no matter what Southwest wants to pay because, as Gary Kelly said last week, "cash is going to be king" going forward.

For this armchair reporter, frankly, Southwest needs to take some big risks to once again capture Wall Street's attention and grab investors interests once again. It needs some way to differentiate itself from the pack, and not having baggage fees hasn't been that strategy so far. Your comments appreciated. It may be a terrible idea for Southwest to think about trying to swallow one of its competitors. But it's clear that Kelly & Co. want some sort of game-changer.
MatthewAMEL is offline  
Related Topics
Thread
Thread Starter
Forum
Replies
Last Post
TonyWilliams
Regional
34
03-30-2009 08:14 PM
BoeingTanker
Major
51
02-22-2009 12:42 PM
Pielut
Major
27
01-23-2009 01:17 PM
HuronIP
Major
57
11-20-2008 09:18 AM
flythemed
Cargo
3
10-09-2008 12:33 PM

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are On


Thread Tools
Search this Thread
Your Privacy Choices