When news broke that Southwest and AirTran would be merging, I opined that the long-term ramifications would not be beneficial to consumers. I stand by that analysis and it seems that Delta’s CEO Richard Anderson agrees. At Delta’s third-quarter earnings call last week, Anderson played down the potential of a "Southwest Effect" at ATL, stating:
"AirTran had first class, they had assigned seats, and Southwest has no first class, no assigned seats, doesn’t sell through global distribution systems—a very different product than what AirTran offered in the market. It’s very distinguishable. If you want international service, if you want high frequency all around the world, a club, business class, first class, don’t have to stand in a line to get on airplanes when you’re a business traveler—that’s the product Delta offers."
Of course any good leader is going to look at the positive side of things, but I don’t thing Anderson is bloviating. In fact, I think he makes a great point. Southwest is great for many people and it’s BusinessSelect perks and A-List "elite" status have won over some business travel.
But as the failed Song and Ted experiments demonstrated, many are still willing to pay for extra perks like first class that Southwest will never offer. Furthermore, Delta will still dominate its Atlanta fortress hub and Southwest’s attempt to undercut pricing may turn out to Delta’s advantage. Delta will match the low-fares and wait out Southwest, as they seems to have done at SLC, then fares will go right back up again.
Even financial analysts seem to agree:
JP Morgan aviation analyst Jamie Baker outlined a similar sentiment, reporting that Southwest’s costs are about 14 percent higher than AirTran’s and, despite its low-fare reputation, Southwest’s short-haul yields are 30 percent above AirTran’s, with long-haul 16 percent higher.
In the end, Delta is going to come out ahead as Southwest is forced to raise its prices. The only losers will be consumers accustomed to cheap fares, who will soon have to look harder for a good deal than they did when AirTran was still around.
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