There have been criticisms of how Southwest has played its game in Atlanta compared to how Airtran was working in Atlanta for quite some time.  The obvious comparison that has been made has been departures.

Airtran had a lot of departures out of Atlanta and those have been reduced over time by Southwest as it absorbs Atlanta into its schedule.

Airtran ran its Atlanta operation like a hub and that does mean lots of departures.  If that’s your hub, you want flights going everywhere.  Going everywhere means lots of flights.

Southwest runs focus cities that are connected with many point to point flights.  This means fewer flights.

Southwest knows what it is doing in Atlanta and its transition in Atlanta is about gaining access to business travelers in a market it was shut out from until its purchase of Airtran.  Atlanta will probably gain flights over time at a very moderate pace as Southwest identifies more opportunities.

But Atlanta is not going to be a hub under Southwest.

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Southwest Airlines posted a $224 million profit last week for their 2nd quarter and guess what?

That’s actually down from last year.  Not terribly so but it is down.

By any observation, Southwest is flying with record passenger loads and increasing their revenue regularly.

So why are profits down?

I have a sneaky feeling that Southwest is suffering operationally.  From my own anecdotal observation over the past few years, this airline seems to find it very hard to get an airplane ready to depart on time now.  The planes are flying nearly 100% full on major routes and that presents problems that Southwest, as an airline, isn’t designed to handle well.

I even wonder if Southwest’s staffing for its operations is adequate to the current job.

And I wonder more and more if Southwest is making the AirTran merger become another version of its IT problems.  In other words:  Is this a problem that Southwest isn’t solving?

Speedier integrations into one system allow everyone to start marching to the same drummer faster.  Marching to the same drummer, even if you do it sloppily at first, is better than being in a disconnect.

An airline that takes several years to solve IT problems, merger problems and even labor problems is not an airline that is behaving “agile” and it isn’t setting itself up to succeed.

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No, this isn’t an announcement of Southwest Airlines serving its first international destination.  Puerto Rico, you see, is a United States Territory.  Airtran already serves Puerto Rico (and several international destinations) and this is an announcement of Southwest replacing Airtran service with Puerto Rico with Southwest service.

That said, it should provide some real experience to Southwest in serving an off-shore destination and help them identify weaknesses in preparation for serving true international destinations.  One wonders if Southwest taking advantage of the human capital it has in Airtran for doing international services.

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Southwest Airlines and Airtran mechanics have agreed upon a new deal and found a way to merge seniority satisfactorily. I wrote about this in February when Southwest mechanics derailed the last agreed upon deal.  At that time, how seniority would be handled within the airline in general as well as in Atlanta was the primary issue.

Getting a new deal agreed upon and accepted since then is fast work by all those involved.  I suspect that Southwest was able to alleviate some of the concerns involved with its moves into new aircraft and international flying.  SWA has likely been able to find a way to ensure that all parties maintain some parity in their seniority and their quality of life is preserved.

Not every deal has been made the first time around in union integration in this merger but every deal has been done fairly swiftly compared to most any other merger.

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It’s funny, some people think Southwest showed some LUV for the Airtran 717 fleet when the merger was announced between the two companies.  In fact, Gary Kelly simply said that, at that moment, the 717 was intriguing to SWA and certainly not a harmful aircraft to Southwest’s fleet plans overall.

After the merger, Gary Kelly started talking about how they don’t fit and they don’t want them.

The 717 is a good aircraft and it would fit some of Southwest’s flying quite nicely but . . . it would complicate scheduling and I think that’s what Mr. Kelly doesn’t want.  If Southwest has a 737-700 go technical at an airport, it’s not a problem to drag another 737-500/700/800 up to the gate and hand it over to the pilots and flight crew to use for their needs.  You can’t drag a 717 up to the gate and hand it over to the same pilots.

I think the 717 is leaving and I think it will be gone in 2 to 2 1/2 years.  Holly Hegeman of Plane Business says they are going to Delta and its a done deal.  I say they’re leaving and they’ll find homes somewhere.  Boeing Capital if nowhere else.  Delta probably could and would be interested in them as they are cheap and fit a seat count that Delta had and no longer has in its mainline fleet.  (DC-9-30/40/50 aircraft are leaving the fleet)

The real shame, in my opinion, is that the 717-200 wasn’t expanded into a longer range 717-300/300ER aircraft.  I think that would have breathed real life into that airframe and I think it wouldn’t have hurt the 737 line at all.  But it became an orphan and, as such, it became unattractive to most airlines.  That said, it will remain in the world for at least another decade if not more and it’s got some highly efficient engines that justify its purchase when combined with the used market price for a 717.

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Southwest Airlines has now been awarded a single operating certificate for itself and the Airtran brand as of Thursday of this week.  This means that Southwest can begin truly blending the operations by turning Airtran aircraft into SWA aircraft, moving crews into Southwest operations and operating SWA or Airtran aircraft on routes as they wish.

So far, Southwest gets a good report card on its integration efforts in that it has seen most labor groups come to a quick agreement on seniority integration and it has achieved this single certificate on time.  Smooth integrations yield the results expected from a merger and this would appear to be working in Southwest’s favor.

Going forward, we’ll see a steady transition with more and more routes being served in SWA colors and more crew and staff transitioning into SWA operations.  I would expect little, if any, drama at this point and that includes the SWA mechanics who threw their small temper tantrum but who have much to lose if they hold off too long and force the seniority integration into binding arbitration.

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The core of Southwest’s reservations systems dates back to a system developed by Braniff International called “Cowboy”.  It is nearly 50 years old and Southwest bought it from Braniff in the 1980’s and just kept patching things onto it.

As a low cost strategy for an airline in the 1980s or 1990s, that made sense.  The problem is that the 1990s started more than 20 years ago. 

Southwest has been severely impacted in code share relationships as well as international flying as a result of their antiquated system.  They began investigation of a replacement system after they began to realize their inability to codeshare in a North American pact between themselves, WestJet and Volaris.  That work was put on hold coinciding with the Airtran merger announcement. 

Now, Southwest has already figured out it can use the Airtran system to facilitate international flying for the interim.  In fact, Southwest has *added* international flights to the Airtran network while removing domestic flights (to be replaced by Southwest flights) at the same time.  As an interim solution, that works.

But over the next 2 years, we’ll see Southwest evaporate Airtran domestically and that may leave a tiny international airline in place (Airtran) to help with international flying.  The problem is, they’re no closer to being able to integrate with Airtran’s reservations system than they are with any other airline.

Cobbling together systems and doing things low cost is fine and even the right thing to do in many ways today.  However, it is *not* the way to handle reservations for an airline that the 10th largest in the world (by traffic) and which has a fleet of nearly 700 aircraft and almost a 100 destinations.  It isn’t the way to handle reservations for an airline that is now consistently *missing* revenue opportunities with partner airlines such as Volaris.  In fact, Southwest was actually kind of good in pioneering codeshares with other quirky airlines and making it work.  Now, not so much.

So why is Southwest willing to invest Billions (with a “B”) on buying new aircraft from Boeing but not into a reservations system that it really needed now and which isn’t really being looked at for anytime in the near future?  

I think there are 2 main reasons.  First, the Airtran merger which is occupying a vast amount of resources and will be doing so for the next 2 years.  Southwest quite rightly recognizes that it has an exceptionally big task to complete in this area and that losing focus could cost them.  They’ll innovate as much as they can in the meantime but that job is just way bigger for way more people in the organization. 

Second, a new reservations system is scary.  Many have tried to build them, very few have ever succeeded.  Much of what exists out there today is fairly antiquated.  American Airlines has reportedly had monumental problems with the new system being designed for it by HP, for instance.   There is a reason why several airlines have migrated from half baked systems to SABRE, for instance.  Two of those have been Virgin America and jetBlue.   I suspect that Southwest looks at that landscape littered with failures and half successes and doesn’t relish the job.  I wouldn’t.

So what’s the solution?  I would try to figure out if the Airtran system could be scaled up to Southwest’s needs.   That’s the Navitaire Open Skies system that many have left.  The alternative is to bite the bullet and build an IT infrastructure around SABRE (or a similar legacy reservations system.)  The options are limited until someone builds a new, modern reservations system that works.  SABRE is one choice but other legacy systems such as Worldspan and Galileo still exist.  

My point is that no one has built a new, ground up system for airlines capable of handling all the needs of a major airline in the world in decades.  All systems are systems conceived of in the late 1960s or early 1970s which have been patched, added to and migrated over the years.   Anything remotely new is inadequate to the scope and scale that these same huge airlines operate from. 

Oddly enough, I think that Southwest would be wise to find a partner in this system.  It’s an airline that prefers it’s own ways, yes, but sharing that risk with other major airlines would be a wise move today, tomorrow and a decade from now.

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Southwest is doing something interesting with Airtran.  They are not only absorbing the airline, they’re using it as a proxy for getting heavily involved with international flying to the markets that should be very interesting to Southwest in the first place. 

The latest announcements are for routes to Cancun from Denver and Austin on Airtran equipment.  The knowledge base is there for flights to Mexico and the Caribbean from Airtran staff and Southwest has the strong bases in cities that Airtran has hardly flown to.  This is a powerful combination and it should work very, very well for Southwest.

It does bring to my mind a few questions.  Does this mean Southwest will adopt Airtrans’ reservations system?  Or does it mean that it is finally working hard to build its infrastracture for a newer, better reservations system?  Southwest needs this more than it needs an early delivery of the 737MAX.

I also wonder if Southwest won’t begin entering into Canada in the next two years.  There are a lot of very expensive routes to Canadian cities that could be very ripe for Southwest to enter into.   Chicago to Toronto comes to mind as just one excellent route (Currently, the best prices are WestJet codeshares on American Eagle and that tells the whole story right there.)

So far, I like how Southwest is using their acquisition for international travel and it may well end up being one of the truly great benefits to come from the merger.

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Quite a few cities are getting surprised by who is going to retain Southwest Airlines service and who isn’t.  The analysis by most is that it’s all about whether or not the city is big enough to retain service by Southwest’s standards and while that’s true on the surface, there is more to the story.

It’s about who’s running the airport and who is running the city.  If the city has an airport board and director who knows how to make a business case to an airine, Southwest will listen.  If those people know how to supply valid data to Southwest, the airline will listen.

It’s also about what city is willing to partner up with Southwest and even encourage local business to use Southwest for mainline service. 

But even then, Southwest is smart enough to look at what it can change in the existing airline model for a city.  A great example is Wichita, KS.  Southwest knows that it can provide service to other Southwest cities that make far more sense for travelers from Wichita than the current Airtran service from Wichita to Atlanta. 

Yes, it’s about the money but it is also about who wants to get or keep Southwest service and make the business case.  A good airport board and airport business director can make all the difference.

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Southwest Airlines has decided to change its seating on its Boeing aircraft to a thinner, lighter seat that permits an additional 6 seats on its airplanes.  Now, instead of 137 seats on its 737-700, they will have 143 seats.  I’m sure the “upgrade” will occur on its soon to arrive 737-800 aircraft as well. 

It’s a reasonable move on the part of SWA.  First, most trips on SWA are less than 2 hours in length which means even a slightly less comfortable seat is OK and probably doesn’t impact the customer much at all.  And we don’t know that the seats are less comfortable.  The truth is, the modern seating being offered for airliners looks uncomfortable but usually ends up retaining the same comfort levels.  This new seat doesn’t require SWA to reduce its seat pitch and that’s a good thing from my perspective.

The additional 6 seats potentially offer more profit for Southwest and it could use more profit.  While they continue to be the most consistently profitable airline, their costs are now in line with legacy airlines (mostly) and adding more profit to each full flight helps offset those costs.  Based on my own flights with Southwest, those 6 extra seats will contribute heavily to their bottom line as it has become rare for me to see a flight less than completely full.  In addition, Southwest’s load factors have soared over the past few years when they have traditionally been substantially less than legacy airlines.  Again, more seats helps here.

Southwest is also making its moves to integrate the Airtran system into the SWA system.  We’re now seeing Southwest announcing flights into Airtran cities on routes that are either the same or nearly the same as what Airtran had.  There are no surprises so far and I do think that Southwest is moving methodically along in its plans now that it has seniority agreements in place for both pilots and flight attendants from Airtran.  Southwest says it will take several years to integrate.  I think that Southwest will build steam quickly and end up integrating the substantial bulk of the two airlines faster than expected.  All indications point to Southwest growing quickly comfortable with the Airtran system and as they do grow more comfortable, decision making will happen more rapidly.

I also notice that Southwest is already getting aggressive on flying to Mexico using Airtan.  They’ve applied to serve new routes from several cities in the US and its notable that these routes do not seem to link up with Volaris routes in Mexico so far.  In other words, it appears that Southwest is keeping Volaris on board with existing services but exploring direct travel into Mexico via Airtran.  This isn’t out of character for Southwest, they like to experiment when opportunities arise to do so with little risk.

I do think that Southwest needs to decide how it wants to do foreign travel.  Will it be with partners or will it do it on itself?  Now that it has the international expertise of Airtran in its back pocket, I think they may be more interested in doing this themselves.  It is notable to me that despite the “codeshare” its doing with Volaris, Southwest hasn’t really worked too hard to expand it or promote it on a national basis.  That makes me wonder if both parties are less than satisfied with the relationship so far.

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It has been announced by the Wichita, Kansas chamber of commerce that Southwest Airlines has indicated to them that Wichita, KS would retain service.  Currently, Wichita has flights connecting it to Atlanta via Airtran and it will likely retain those flights through most, if not all, of 2012.  The flights will be converted to Southwest service by 2013.

There was quite a bit of speculation that Southwest would remove Wichita from the schedule like it has several other smaller cities.  I wasn’t convinced as Wichita fit kind of well into the existing Southwest system which has significant flights to Kansas City, Denver, Oklahomta City and Dallas which are all at least somewhat economically tied to Wichita.  Certainly more so than Atlanta is.

In addition, flying to Atlanta didn’t necessarily provide connection opportunities to those cities that are economically tied to Wichita.  Southwest can provide those connections and that has real value for Wichita and Southwest.  For instance, let’s say Southwest does provide service and starts flying from Wichita to Kansas City instead of Atlanta.  From that gateway city, people of Wichita can access the entire Southwest system (including Atlanta and Florida) without feeling like they’re criss-crossing the country to do so. 

I expect that Southwest will connect Wichita to either Kansas City, Denver or Oklahoma City.   Kansas City and Oklahoma City are very short stage lengths and Denver is right in the sweet spot for Southwest typical route length.

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Over the past 12 months, FlyingColors has doubled its readership and has seen nearly 1000 blog entries reached with enough words written to equal a book with over 1700 pages.  But enough about me, let’s look at the last year in the airline world.

North America:

Southwest Airlines did its deal with Airtran and bought itself an Atlanta base of operations and some very valuable landing slots at Northeastern airports.  As if that wasn’t enough, it made a firm deal on a bunch of 737MAX aircraft and agreed to take on even more 737-800 aircraft for its routes.  However, the airline wasn’t without some trouble:  Airtran pilots tried real hard to step on their on feet in a seniority deal with Southwest Airline pilots.

American Airlines struggled (more) and lost more than a Billion dollars (again).  Instead of making any real progress with its labor force, it decided to file bankruptcy but not before having made a historic order for aircraft from both Airbus and Boeing for the A320 and 737 series aircraft (with both A320, A320NEO, 737 and 737MAX in the mix).  2011 also saw long term CEO Gerard Arpey depart the company (to work with former Continental CEO Larry Kellner) and AA President Tom Horton took over.

Virgin America has horned in on American’s routes, Frontier has struggled more and more under Republic Airways leadership and US Airways still doesn’t have pilots or flight attendants integrated onto one seniority list.  JetBlue decided to fly more to the Caribbean, entrench itself even more at JFK airport and blew it during an October snowstorm (again).    United and Delta made money.  Quite a bit actually.

I think we’ll see Frontier either spun off rapidly in 2012 or the rapid decline of the airline necessitating bankruptcy of Republic Airways.  I don’t see a real strong suitor for Frontier except, perhaps, JetBlue but since Frontier isn’t based at JFK airport, I do wonder at JetBlue interest in an airline like Frontier.

I think we’ll see Alaska Airlines find even more odd partners for its success and still manage to cozy up close to Delta while doing it.  Southwest will start painting Airtran aircraft in its colors and operating even more great deals to more places from Atlanta but I also think that if any slots at JFK, LGA, EWR, IAD or DCA come available for purchase, Southwest will bid the cost of a Boeing and lose again.

I think it’s possible that Virgin America will make money in 2012 and I think it is really possible that we’ll all be pleasantly surprised by that.  The determining factor?  Cost of fuel. 

United will order a nice chunk of aircraft and I’ll bet that it will be an order similar in mix to the American Airlines order from both Airbus and Boeing.  However, I do not think it will be similar in size.  I think it will be a partial fleet replacement with lots of options for incremental change in the fleet.

I think Delta will continue to make a big pile of money with very little controversy surrounding it except that I think Delta will look for and execute a plan to encroach on more Legacy and SuperLegacy airline routes as it has announced its intention to do so from La Guardia Airport.   I also think that Delta will decide its not afraid of Southwest and it will decide to give Southwest a taste of bullying it hasn’t experienced before.   Particularly in Atlanta.  It’s not just an opportunity for Southwest to succeed in Atlanta but it is also an opportunity for Delta to capture lost customers.

I think we’ll see capacity restraint for another year and higher air fares than seen in a long, long time.  I do not expect to see another new airline show up and I think we may well see one true LCC depart the picture if things get particularly rough with respect to fuel prices or competition.  Milwaukee will become the regional airport it was intended to be instead of a bloody battleground between LCC airlines.

Tomorrow:  The rest of the world

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Earlier this week, it was announced that Southwest/Airtran was *adding* routes from San Antonio to Mexico City and Cancun. Airtran will be the “airline” that services those routes.

Yes, Airtran will grow into some routes.

Fares aren’t announced until regulatory approval is gained. I do wonder if Southwest plans to use the Airtran entity for international expansion. But I wonder about a lot of things when it comes to Southwest lately. Like when are they going to introduce a reservations system that doesn’t require a handcrank?

Those routes are curious to me. Southwest already has its codeshare into Mexico with Volaris but that connection is focused on the West Coast area and it offers flights from the US to Guadalajara with connections onward.

The Mexico City and Cancun flights are smarter flights. Particularly smart from San Antonio. And don’t be one bit surprised to see one added to Monterrey in the near future.

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Airtran has had Skywest flying 6 routes for it out of Milwaukee and one of Southwest’s first moves is to dissolve that codeshare and start flying routes on its own.  New routes will include flights to Des Moines, Akron-Canton and St. Louis. 

As you can imagine, SWA pilots are thrilled.  This goes to a central principle with Southwest, namely flying its own routes and flying routes that are profitable on their own. 

I’ve found no information on what equipment will be used but my guess is that we’ll see 717s and 737-500s re-deployed as Southwest rationalizes services out of cities that both SWA and Airtran serve.  The best candidate for those new routes are 717s as they have the right capacity and they’re all in reach with a 717. 

The merger will allow SWA to find those new routes that many cities have been clamoring for.  For the first time, Southwest has real depth when it comes to finding the route aircraft for the right route.  Look for more routes developing both in the Rust Belt, Midwest and the South as time goes by.  All three areas are places where SWA has had good luck and with the route overlap that exists in focus cities such as Milwaukee and Baltimore as well as in Florida, I think we’ll see a number of new routes and re-deployments of aircraft as time goes by.

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Southwest CEO Gary Kelly spoke about using Baltimore’s airport (Baltimore Washington International – BWI) as a “hub” for international flights some time in the future.  He described it as being a number one consideration during conversations about Southwest going international.

Before anything else, don’t go presuming that Southwest is about to buy trans-Atlantic aircraft and start low cost services to Europe.  They aren’t as there is way too much on their plates right now.  However, it is another logical area to grow into once they are done digesting Airtran in about 3 years and provided the market exists at that time.

Quite a few might question using Baltimore but it does make sense.  It is relatively uncongested and offers the ability to not just draw those in Baltimore to its flights but also from the Washington D.C. and Philadelphia areas as well.  In addition, it connects nicely to all of the cities that Southwest services in the eastern half of the United States.  Furthermore, it is likely that any LCC airline taking on such a venture need not be tied to a major international airport such as JFK or Philadelphia or Washington Dulles.  In fact, they would probably want to avoid such airports because the cost of congestion is far higher than the cost of attracting people to some place like Baltimore.

Potential customers for this kind of airline service won’t be business oriented.  These will be leisure passengers looking for a great deal.  You won’t see business class on these airplanes but I do think you’ll see assigned seating.  (Assigned seating is almost a must for a widebody aircraft, IMHO.)

What kind of aircraft?  It won’t be 757s and I don’t *think* it will be 767s.  Although, it is interesting to contemplate the economics of an all economy 767-300ER new build aircraft for trans-Atlantic flights.  Many have thought that the 767 will remain competitive on such routes vs the 787 and that might be true.  787s?  Maybe but I think Southwest might have missed the train when it comes to advantageous pricing on that aircraft and I don’t think SWA will find used 787s on the marketplace anytime soon.

Airbus A330s almost seem interesting until you consider just how many people you would have in a high density, all economy aircraft like that.  It feels like too many and the same is true for the 777-200 (but I think you could almost make a business case for early build 777-200 “A” models that are starting to be retired by airlines such as United.)   The fact is that the 767-300 or 787-8 fits the size category almost perfectly and size will drive this choice. 

So will dispatch reliability because someone like Southwest needs an aircraft they can push into high utilization for such routes.  Not only would trans-Atlantic service require good load factors but it also requires frequency that uses that aircraft on 2 to 3 segments a day.  It’s doable and it is doable with the 767.

But at the end of the day, it’s all speculative right now and I do not expect SWA to announce anything like this at all until at least 3 years have passed.  In the meantime, they’ll gain experience operating Airtran’s international flights and learn how to deal with foreign travel.  They can buy and/or engineer new IT infrastructure that will meet the needs of such flights.  In short, don’t go planning a family vacation to London quite yet.

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Southwest and Airtran are now one airline legally although both will continue to operate separately in varying degrees during their transition to one operation.  Once change that will come sooner than later and one that will disappoint me at that is Airtran leaving DFW airport.  Southwest isn’t permitted to fly from both airlines because of a clause in the law(s) governing operations from Love Field Airport. 

It disappoints me because Airtran was my “Southwest Alternative” when it came to flying to destinations on the East Coast.  It  was faster and easier to fly Airtran via Atlanta to many of those destinations and it was just as inexpensive.  Now, those flights will have to be on Southwest which is hamstrung with the Wright Amendment law(s). 

I’ll also be disappointed to see Airtran’s business class go away.  It was a great value to upgrade to and offered what was most important (to me) which was better seating.   It’s not about the food or being addressed by my name or a mint, it’s about being more comfortable for what was a great price.

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At first glance, integrating Airtran’s fleet into Southwest’s operations would appear to be easy and straight forward.  In fact, it isn’t.  Airtran operates a different floor plan and a two class cabin.  All of this affects things like weight and balance of the aircraft as well as using the floor plan on Southwest flights.

So Southwest will begin slowly converting Airtran fleet over to the Southwest model one by one.  Southwest will add these aircraft and, over time, take over Airtran routes.  Airtran will slowly reduce in size by fleet and route at the same time until both are on the same single operating certificate and the aircraft are homogenized into the fleet. 

Expect this to take longer than a year.  Even converting the 737-700s is fairly straight forward but now Southwest has to decide upon how it will configure the Airtran 717 aircraft for all coach seating before it begins that integration.  Since Southwest generally executes these kind of changes when aircraft already require service and maintenance, the two airline operations could co-exist for a longer than usual period of time until this work is complete.

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With the various mergers and consolidation that we’ve seen over the past 3 years, there is quite a bit of speculation as to who is next in the merger game in the United States.   The truth is, with the exception of some very small players, I see no opportunities.

Sun Country is actively looking for a purchaser and I think it will find one but it won’t be for Sun Country’s business nearly as much for Sun Country’s Minneapolis / St. Paul gate space and, perhaps, a few routes.  Two candidates as buyers come to mind in this area:  Southwest and Frontier.  Both should find the opportunities in MSP attractive and Southwest is liable to also be attracted to the staff and equipment Sun Country is flying.  Sun Country flies the 737-700 and -800 and getting their hands on the -800 of which there are 10 available could help SWA get a jump start on an aircraft it needs.

Frontier has a little bit less incentive for MSP.  The aircraft fleet doesn’t match and they already have hubs and/or focus cities bracketing MSP in Denver, Kansas City and Milwaukee.  But getting to compete against Delta in MSP where it is by far the dominant airline could be attractive to Frontier. 

As far as other airlines go, I just don’t see it for now.  Airtran will be going away this year.  JetBlue is doing OK and while I think it could stand to grow, nothing is available and an attractive fit in areas where it could grow.  There is the ever so slight chance that JetBlue could make a bid for Frontier but Frontier’s new management hasn’t had very long to make a go of it with that brand and it doesn’t seem like they would want to be consumed.

Alaska Airlines is very profitable and doing very well with its multiple relationships with various legacy and international airlines.  They could be attractive to purchase but I think they would seriously resist overtures unless the economics just made their shareholders rich. 

American Airlines has too many labor problems and is busy coordinating with its OneWorld partners at this time.  This is an airline whose house is not in order and whose leadership is not really interested in acquisitions and who is not very visionary to begin with.   Without new and radically different leadership, I presently see AA maintaining the status quo.

US Airways is pretty profitable and has their act together in many ways operationally speaking.  They, too, have labor problems but somehow management manages to sit back and let labor fight among themselves while earning profits.  This is another airline that could stand to grow and the most attractive place to grow would be internationally.  The bad news is that they don’t have any long haul aircraft on order except the A350 and that isn’t due for quite some time.  What’s worse, there is no internationally strong airline for them to target for another purchase.   Obtaining long haul aircraft isn’t financially easy to do presently due to constrained credit markets and the popularity of their choice in long haul equipment (the A330.) 

In addition, in light of the uncertainty that fuel prices and the economy present, I think that any growth that airlines choose to do will be slow, methodical and very cautious.  It will be organic and through upsizing aircraft rather than many new routes. 

The merger game of this decade is still undecided.  Certainly Delta appears to have done well although their profits still seem very dependent on fuel prices.  But United is far from complete and they’re already experiencing more problems than Delta ever did.  Southwest and Airtran are working hard to consummate their relationship but Southwest has stumbled as much as they have succeeded in the past 2 years.  There is nothing to say that SWA will execute their merger with Airtran smoothly so far.   We hope they will but we don’t know they will.

Look for it to be quiet in the merger and acquisition game for the next 12 to 24 months absent the possibility of a few small acquisitions.  I expect well see the alliances spark up a bit more in the near future, however.

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Southwest has gotten a transition plan for its absorbtion of Airtran approved the FAA it would appear they are on track to close their merger later this spring.  The transition plan calls for both Southwest and Airtran to be operating on one certificate early in 2012. 

In addition, Southwest has gotten a transition agreement into place with its pilots’ union which establishes the procedural framework for integrating Airtran pilots into Southwest’s structure.  This does not mean that we yet know how Airtran pilots will be actually integrated into the Southwest seniority list.  The silence on that issue is probably an indicator that progress is being made.  Unions don’t usually start firing public shots at each other unless they feel like progress is being blocked. 

I expect we’ll see more announcements on the merger in the next few weeks and certainly after Airtran holds its vote on March 23.

On another front, Southwest’s Gary Kelly has said that Southwest plans to grow further in Milwaukee.  Like Airtran and Frontier, Southwest sees Milwaukee as a real opportunity and by taking over Airtran, it should have plenty of space and opportunity to continue its growth.  I expect that we’ll see Southwest continue its battle against Frontier in this city as well Denver where both have grown  but more at the expense of United than each other.  Southwest is now carrying more passengers out of Denver than Frontier. 

Finally, Southwest should start flying from the NYC area’s Newark Liberty International Airport.  Southwest gained important slots from ContiUnited as a function of their merger and they’ve now got approval from the airport to begin flying from 3 gates to 2 destinations (Midway and St. Louis). 

With toeholds in both La Guardia and Newark Airport as well as Long Island’s Islip airport, I expect that we’ll see Southwest look for other opportunities to grow each new airport’s flights.  La Guardia, I expect, will be the slower growth airport as slots are extremely valuable there and several airlines are vying to be New York City’s airline of choice.  

One wonders if service to Islip will continue in the face of this NYC area growth and I expect the answer is that the flights will stay as long as they remain profitable and there are no other better profit opportunities elsewhere.  In the near term, I expect they’ll stay.  Islip is nowhere close to NYC and Southwest has been serving primarily East Coast destinations from Islip with Chicago Midway being the one exception to that.  Chicago may perhaps be dropped but I expect that if Southwest has found it valuable to serve the airport today, it will find it to be profitable to do so in the future.  Currently, Southwest’s competition is US Airways at Islip.

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Milwaukee has had 14 consecutive months of record traffic and if you ever doubted whether or not airline competition in a market is good, you should get over that.

Airtran, Frontier and Southwest have all been battling it out there and it has been good for passengers and businesses alike.  Yes, there is such a thing as too much competition but in this case we’ll see Southwest rationalize with Airtran and Milwaukee will continue to benefit from two airlines who want their business.

Markets with healthy traffic are always marked by health competition.  Witness what it is like in NYC, Los Angeles, Chicago and even Atlanta.  Now consider what it is like in places like DFW, Cleveland, Houston and Cincinatti. 

I’ve no objection to airlines earning a profit and you shouldn’t either.  But strong competition keeps airlines lean and well managed.  It’s notable that American Airlines probably experiences the least competition overall among the SuperLegacy airlines and is also the least healthy.

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