Wednesday, September 29, 2010

Southwest-AirTran merger

Southwest Airlines has historically followed a strategy of gradual expansion to new markets.  Now they have thrown out the old playbook and radically increased their potential market share by buying AirTran.  This will create a number of challenges:
  • Southwest has specialized in city-to-city flights and has avoided the hub and spoke system employed by the major carriers.  Most of AirTran's operations are based in Atlanta with many passengers transferring from one plane to another.  How to merge the two business models?
  • Airline mergers are usually messy businesses, especially as unionized employees jockey for position on seniority.  Southwest's business model relies heavily on high employee engagement.  How will they keep everyone aligned with the mission and vision?
  • Southwest currently flies only one type of plane, the Boeing 737.  Airtran uses 717s as well as 737s.  How can the two types of planes be meshed into an integrated system that relies on fast turnaround time on the ground and employee familiarity with only one type of aircraft?
The upside for Southwest is greater access to some major markets: Atlanta, New York and Washington DC.  A greater presence for Southwest in those markets is also good news for consumers. 

One final thought: after approving the United-Continental merger, surely the Antitrust Division of the U.S. Department of Justice will not block this merger on the grounds that it would limit competition?

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