Wednesday, September 29, 2010

Southwest Airlines/AirTran Airways marriage little threat to Delta per J.P. Morgan

Southwest Airlines' $1.4 billion acquisition of AirTran Airways will, if consummated, give it access to Atlanta for the first time, but the deal does not significantly threaten Delta Air Lines' mega-hub, J.P. Morgan analyst Jamie Baker stated in a report released this week.

While acknowledging that SWA may choose to add service "between some portion of its 37 unique cities [not already served by AirTran] and ATL," Baker said that DL generates "approximately $200 million in annual revenue in these local markets," which is just 10% of the $2 billion of local Atlanta demand and less than 1% of Delta's total system revenues, which exceeded $28 billion last year. He noted that SWA's entry into ATL would have no affect on DL flow traffic and international demand there.

Furthermore, SWA's costs "are roughly 14% higher than AirTran's" and SWA already prices its product higher, Baker said, suggesting "that incumbents in existing AirTran markets may actually benefit from AirTran's rebranding to Southwest." However, the deal may put pressure on other LCCs, such as JetBlue Airways, Spirit and Virgin America, he said.

(Perry Flint - ATWOnline News)

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