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Home » Southwest Airlines » Southwest Airlines May Acquire A Competitor, But Which One?
Southwest Airlines

Southwest Airlines May Acquire A Competitor, But Which One?

Kyle Stewart Posted onMarch 24, 2024March 24, 2024 16 Comments
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Rumors are swirling that Southwest may acquire another carrier to cope with Boeing 737 delivery issues. But which one? 


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Boeing’s 737-MAX 7 Delivery Issues Extend

Boeing’s drama is far from over, and airlines are taking matters into their own hands. United removed the 737 MAX-10 from its fleet plans in 2025 as the carrier lost faith that the manufacturer would be able to get the aircraft certified. The same concern is extending to a less discussed variant, the 737-MAX 7, for which Southwest anticipated receiving this year.

As of January 30th, Southwest was prepared to “roll with the punches” and wait until as late as 2026/2027 for the small, fuel efficient aircraft.

“Asked if there would still be room for the MAX 7 in the Southwest fleet if delivery was delayed to 2026 or 2027, he said: “Yeah, I think there is. … We really need that 7. We want it.” – Reuters

But increased scrutiny over Boeing’s operation by the FAA may and an announcement that the plane maker wants to make an adjustment to a key component has put certification in doubt for even that extended timeline.

“But Boeing said in January that it needs to redesign the Max 7’s engine anti-ice system, pushing back certification – already long delayed – another year.” – Flight Global

Southwest Airlines Pilots Preparing For Unannounced Merger, Acquisition

It seems that Southwest executives have changed their tune in less than eight weeks. In fairness to those executives, a lot has changed in that period which warrants cause for greater concern.

“Southwest chief executive Bob Jordan also criticised Boeing, saying it “needs to become a better company”.

“Murray says Southwest’s sole reliance on 737s brings “a level of risk” to the company, adding that recent events have left “many questioning if [the 737 Max 7] will ever be certified”.

““We watched our [seat capacity] grow and load factors decline due to a supply/demand imbalance caused by flying too large an airplane in certain markets,” Murray says. “We may have now reached the point where we are no longer able to place the right-sized aircraft into the correct network segment.” – Flight Global

Comments that the airline would have to “reassess business decisions” has the given the Southwest Airlines Pilots Association (SWAPA) doubts about waiting in perpetuity for the 737 MAX 7. The Southwest pilot union hired law firms on the heels of these statements to protect the labor group on seniority lists and for the business side of a deal to acquire another airline. Airline executives have stated outright that a switch to Airbus products would take years if it ever moved away from a 100% Boeing product and have not made any statements in official capacities that it is considering a merger or acquisition.

However, replacing 737 MAX 7s on lower demand, high-frequency, high-turn routes with larger 737 MAX 8s may have been a shortcut to future growth that hasn’t worked out for the carrier as it expected it might. That might have Southwest shopping for a solution by buying one.

Possible Targets

For a Southwest Airlines merger to be successful, one would have to believe that Boeing equipment and specifically smaller Boeing 737-700s would have to be part of the puzzle. Its last acquisition, AirTran Airways had a mixed fleet of Boeing 717s and 737-700s, of which the former were sold entirely to Delta and the latter were a catalyst for growth for Southwest.

This indicates that a mixed fleet acquisition target wouldn’t be a non-starter, it just doesn’t mean that Southwest will start flying A319s either. Not that Southwest would cut a check for an existing carrier, it would likely finance some or all of the deal, and exchange stock, but if it wanted to, Southwest had more than $11 bn cash on hand at the end of the last quarter. For the purposes of this exercise, I am looking at options below that number as a ceiling. Many of these carrier have debt that exceeds their market cap and a premium would have to be applied as well, it’s simply to provide some context.

  • Sun Country
    • This doesn’t immediately solve the 737-MAX 7 issue as its (54) jet fleet is entirely comprised of 737-800s, 12 of which are cargo and operate as Prime Air (Amazon) and one charter aircraft in an all-business class configuration of 76 seats.  Another (5) 737-900ERs are due this year from Oman Air but none have yet arrived. That said, its market cap is just $736MM which even at a premium would be a cheap way to top up the Southwest fleet and remove a leisure market competitor in Minneapolis.
  • Allegiant
    • This is likely a non-starter as the current fleet of 126 aircraft are all Airbus. But it does have (24) 737-MAX 7 and (26) 737-MAX 200s on order of which it has already received the first. I can’t imagine this happening, but if Southwest were going to add Airbus at some point, this would be a quick way to do it. By the end of next year, (14) A320s were set for retirement. Current market cap is $1.32bn. The problems with an Allegiant acquisition are myriad and fleet is only part of that equation. Its top 5 airports are all in heavy Southwest markets but at secondary facilities. For example, Orlando (Sanford), Las Vegas, St. Petersburg/Clearwater for Tampa, Phoenix/Mesa, and Punta Gorda for Fort Myers. Southwest is huge at Orlando (MCO), Las Vegas, Tampa (TPA), Phoenix Sky Harbor (PHX), and reasonably large at Fort Myers (Regional Southwest – RSW.) It would be difficult to combine operations as such.
  • Frontier Airlines
    • For many of the same reasons as Allegiant, Frontier is an unlikely acquisition but could make sense if the carrier is going to move into Airbus at some point anyway, and avoid the risk of an any single manufacturer. Its large presence at Denver would help, Las Vegas too, but this would be strictly to expand with any similar sized plane and not necessarily a cultural merger. It has 135 Airbus A320 family aircraft and 203 on order, it will retire 29 of these between now and 2026. Market cap is $1.55bn as of publication.
  • West Jet
    • Southwest at one point codeshared with the Canadian discounter but buying a foreign competitor would be a regulatory struggle and Southwest would have to ditch 52 planes including (7) Dreamliners but it wouldn’t be hard to find homes for those. Current market cap $1.5bn USD.
  • Spirit
    • Without repeating the discussion around an Airbus fleet – if Southwest is going to do it at some point, Spirit is actually a great target. They have more aircraft coming onboard than in the fleet all of which will offer MAX level efficiency. With few exceptions, Spirit flies to large airports that Southwest either occupies or has recently migrated to like Chicago O’Hare, Miami, Houston Bush, and Dallas/Fort Worth. Southwest initially occupied secondary airports including hubs in the alternate each of those markets but has transitioned to adding flights to each of the majors as its market and customer base evolves. Spirit is relatively cheap at the moment with a market cap of $515MM
  • JetBlue
    • Facing financial hardship and performance issues, JetBlue could be an acquisition target as well with all of the same fleet challenges as Frontier, Spirit, and Allegiant. Market cap is $2.4bn at the moment.
  • Hawaiian
    • Alaska has a bid in for the carrier which has stated it is open to other bids as well. For market position it could make sense as Southwest has expanded to Hawaii and has done well, but there are just too many fleet mismatches to overcome.
  • Alaska
    • The best fit from a cultural and equipment perspective is Alaska with a market cap at $4.99bn. There are obvious challenges with this tie-up including a new membership in oneworld, the pending acquisition of Hawaiian, and if it’s 737-700s Southwest wants, of 314 aircraft, Alaska owns just 11. However, both are somewhat Mavericks, have been proudly all-Boeing aside from Alaska’s Virgin America acquisition and Horizon Embraers (84.) From a network perspective, it’s a good match too.

Regulatory Concerns

The biggest problem for any Southwest purchase is going to be DOJ approval. JetBlue’s Spirit acquisition was blocked by the DOJ because the two weren’t seen as serving the same market and thus, a unique independent, ultra low cost option for consumers would disappear. The question is how Southwest would be perceived. The nation’s largest domestic carrier and 6th by reported revenue (some state carriers do not release financial data) doesn’t belong to an alliance, doesn’t serve continents outside of North America – it doesn’t even fly to Canada – has all the hallmarks of a low cost carrier.

But Southwest is rarely the cheapest in the market even after adding in the ancillary charges for baggage, and drinks on other carriers. It’s a low cost carrier in name only and while the term “low cost carrier” was always meant to refer to the operational cost and not consumer charges, the two were synonymous for some time and still true for most in the category throughout the world.

What also remains to be seen is whether the Biden DOJ will allow *any* airline mergers at all. The JetBlue-Spirit case could have been blocked for a very valid reason in that Spirit is more critical to its market and should be preserved. However, the same DOJ blocked JetBlue’s Northeast Alliance with American Airlines while allowing Alaska to join/remain in the oneworld Alliance. Alaska and American Airlines codeshare and align to a much greater level including elite reciprocal benefits.

Additionally, the timeline for any approvals could be a very long time by which the 737-MAX 7 issue could be resolved anyway.

Conclusion

Boeing’s issues are affecting airlines that are dependent on deliveries, especially those who are brand captive. The airline industry is small and Southwest has few options for airlines to buy especially when looking at the unique Southwest offering. The regulatory environment will be far different than the mega mergers of years gone by like when Delta-Northwest combined forces, or United-Continental. But the union’s move and comments from Boeing executives shouldn’t be taken lightly. The carrier is likely evaluating options and which may include Airbus and may include buying something they otherwise would not. That said, no options are a perfect fit and only time will tell if Southwest decides to drastically alter the carrier as it is today.

What do you think? 

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About Author

Kyle Stewart

Kyle is a freelance travel writer with contributions to Time, the Washington Post, MSNBC, Yahoo!, Reuters, Huffington Post, MapHappy, Live And Lets Fly and many other media outlets. He is also co-founder of Scottandthomas.com, a travel agency that delivers "Travel Personalized." He focuses on using miles and points to provide a premium experience for his wife and daughter. Email: sherpa@thetripsherpa.com

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16 Comments

  1. Dave Edwards Reply
    March 24, 2024 at 10:49 am

    You hit on the key point, the current DOJ. I believe no airline is going to waste the time and money on merger fees in the current environment. Any airline looking to expand via merger will wait until after November to make any announcement and if the election doesn’t go in a pro business way, the next 4 years will be quiet on the merger front.

  2. derek Reply
    March 24, 2024 at 11:23 am

    Kyle writes “JetBlue’s Spirit acquisition was blocked by the DOJ because the two weren’t seen as serving the same market and thus, a unique independent, ultra low cost option for consumers would disappear”

    So DOJ and Joe B. uses the excuse….

    Serves different markets, acquisition denied.
    Serves same market, acquisition denied.

    That’s like 1950’s racism where Black’s denied and then a reason dreamed up. Uncle Joe B. don’t act like a racist.

  3. David Reply
    March 24, 2024 at 11:31 am

    Surely the answer is Breeze so it can get its hands on a fleet of A220s with more coming on stream? That fits the same gap that the 7M7 does. WN could then potentially be the launch for the forthcoming A220-500.

  4. Cory Cesar Reply
    March 24, 2024 at 11:46 am

    Was Avelo (yet) mentioned anywhere in this discussion?

  5. KyleEP Reply
    March 24, 2024 at 11:53 am

    I agree with Cory. Avelo would be a great Target. Breeze perhaps too despite fleet differences but would give WN a smaller fleet type that fits in the 737 Max 7 regime.

    • Kyle Stewart Reply
      March 24, 2024 at 3:09 pm

      @KyleEP – You’re not wrong that Avelo could bring some necessary lift and has the right equipment. That said, at just 16 aircraft, I kind of wonder if the legal costs of trying to buy them would outweigh the sale price. As for Breeze, if you’re going to add Airbus anyway, you’re not going to spend that much more for Spirit but get a ton more lift.

  6. Exit Row Seat Reply
    March 24, 2024 at 1:05 pm

    What about Lynx Air of Canada? Just declared bankruptcy. Nine MAX 8 in inventory, 17 on order. Also has 20 + MAX 200 on order. Boeing may be up to converting the 200 to MAX 7 or 8 due to certification issues. Cheap was to pick up Boeing airframes and slots for pennies on the dollar. WN may just expand into Canada as well.

    “O’ Canada……….”

    • Kyle Stewart Reply
      March 24, 2024 at 3:06 pm

      @Exit Row Seat – Lynx is a great thought too and it could be just an asset sale, thus a merger isn’t and regulatory concerns are less of a problem.

  7. KlimaBXsst Reply
    March 24, 2024 at 3:13 pm

    This is just a proactive WN response in the event an unnamed carriers Spirited but failed merger, leads to a rapid acquisition attempt by another airline if things go South rapidly and a Whole Different Animal steps in.

    While I also suspect it is interesting to WN but entirely MAD as in (mutually assured destruction) …WN is not entirely happy with Hawaiian’s merger partner, and though they would love to have a Northwest presence… WN has the sense to know any such tie up would result in a ONEWORLD response thus leaving WN left with ensuing comp of an enhanced F9 NK or even a B6+HA tie up, among others such as Breeze, Avelo, and “Some Country” and a dwindling likelihood of many further regulatory merger approvals to mitigate its still near Pacific weaknesses.

  8. Pistol13 Reply
    March 24, 2024 at 4:20 pm

    WS is far from a discounter. They are as expensive as AC in the markets they serve. Also, WS has DHC-Q400’s in the feet. Their pilots are also the highest paid in Canada.

  9. Greg Reply
    March 25, 2024 at 10:58 am

    Southwest Alaska would eliminate critical premium cabin competition – not a favorable outcome

  10. tsnamm Reply
    March 25, 2024 at 11:50 am

    I didn’t see anyone they can buy that will help them much with their 737 MAX issue. Anyone with a fleet large enough, are all A320 operators. Unless SW is considering operating something besides Boeing? Why purchase 100’s of A320’s that you don’t like and have to replace them all with 737’s you can’t get now? Let alone their Passenger service IT platform… I don’t see how any options really move them forward. Unless they were going to operate separately, which basically does nothing for their flexibility.

  11. LadyOlives Reply
    March 25, 2024 at 8:17 pm

    JetBlue will be acquired by American Airlines.

  12. Exit Row Seat Reply
    March 26, 2024 at 11:24 am

    In an earlier post, I suggested Lynx of Canada was a possible acquisition by Southwest.
    Well, based on another web site, looks like Flair Airlines of Canada is currently in deep trouble. Can’t even process it own tickets at the moment. I bet Southwest is waiting in the wings to scoop up the 18 MAX 8 and two 800 series B737. Cheap way to gain compatible airframes and maybe expand into Canada as in the Lynx posting:

    ♫♫”O Canada!
    Our home and native land! “♫♫

  13. Greg Reply
    March 26, 2024 at 10:25 pm

    It’s sun country, and spirit is going to file bankruptcy, and JetBlue is fixing ex ceos mix ups. They are not going to buy Avelo. Avelo is not a public company.

  14. Matt Crofts Reply
    May 22, 2024 at 8:03 pm

    Biden Administration preaches Billionaires and Big Corporations are destroying Americans! Then Biden blocks a Spirit JetBlue merger that would have brought prices down ,by forcing the legacy mega carriers to lower prices, saving millions of Americans money. Now when Spirit goes bankrupt it allows the mega carriers to raise prices even more! This Administration is the worst thing to happen to America since 9/11. He is destroying the middle class one family at a time while protecting big business. He can’t go away soon enough!

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