Rumors are swirling that Southwest Airlines may solve its lingering Boeing 737 MAX problem by acquiring another airline. I just don’t see it happening.
The theory goes something like this. Southwest has over 100 737 MAX on order, with growth plans built around that aircraft. As the 737 MAX problems continue and Southwest is forced to cancel an increasing number of flights (as more deliveries are deferred), the financial implications grow.
With no end in sight to the grounding and other airlines like Delta (which has none) and United (which has a more agile fleet) stepping into fill the void, Southwest is losing market share. Problematically for Southwest, the eventual re-certification of the 737 MAX may not re-balance the current trajectory. Thus, Southwest will merge or acquire another carrier in order to stem the flow to its competition. With a complementary narrowbody feet, Alaska Airlines and JetBlue are best positioned to absorb or be absorbed by Southwest.
Fearing this, Stifel, a major investment banking firm, downgraded Southwest yesterday with the following warning:
An acquisition by Southwest motivated by a desire to diversify away from the Max creates significant risks in the near term for LUV…
If Boeing announces further MAX return-of-service delays and/or a 737 MAX rate cut, that would increase risk to Southwest of a multi-year constraint on its capacity.
At some point, that risk becomes strategically unacceptable to Southwest. We believe we’re getting closer to that point and could arrive there if reports about a MAX production cut materialize.
Southwest Merger Is Not Realistic
The idea that Southwest would merge with JetBlue or Alaska is fanciful at best and delusional at worst. At nearly every level, the business models of JetBlue and Alaska are different than Southwest’s. From a single cabin of service to free checked baggage to no redeyes to an aversion to aircraft diversity, Southwest is a lone star airline that dances to the beat of a different drum. Its style and company profile do not present any viable merger candidates in the United States.
CONCLUSION
If you want to talk mergers, let’s talk about Alaska and JetBlue…now there is a merger that seems possible. But Southwest and Alaska or JetBlue? I simply cannot see it happening.
Do you see any possibility of merger between Southwest and Alaska or JetBlue?
image: Southwest
Southwest has performed multiple mergers in the past, most recently with AirTran, whose service model wasn’t that much different from Alaska’s- regional carrier having to be an LCC because Delta was a big force in one of their markets, competitive with Southwest elsewhere, had a first class cabin. It’s not necessarily an amazing strategy (Alaska has the same basic problem with future growth and the MAX), but it’s arguably more viable than two airlines merging that would yield a dumbbell shaped network that doesn’t have a hub or a focus city more than five miles from a coastline- Southwest, unlike Alaska and Jet Blue, actually doesn’t treat “flyover country” like a joke and a spoke (and Alaska at Love Field is a joke).
I think Southwest and AirTran had a much closer business model than Alaska or JetBlue, but AirTran quickly became Southwest. 717s…gone. First class…gone. Most international service…gone.
I cannot see that happening with Alaska’s route network, lounge network, fleet, and onboard cabin.
Most international service gone? Southwest grew tremendously internationally after acquiring AirTran.
Sure it could. Alaska’s fleet has a lot more in common with Southwest (mostly 737) than Jet Blue (all-Airbus). Alaska’s network complements Southwest in the Pacific Northwest and California more than Jet Blue’s tiny little hub in Long Beach + hubs on the other coast. The lounges are something NEITHER Jet Blue and Southwest do. Alaska’s F model (standard domestic F) is totally different from Jet Blue’s (transcon lie flats and all-Y just like Southwest), and t FF programs are also totally different (if anything Rapid Rewards is closer to Mosaic), so I don’t see why that’s a barrier for one but not the other. Southwest serves Mexico, Hawaii and Central America now, just like Alaska. So I don’t get how Southwest is incompatible but Jet Blue is.
Ask Doug Parker how much fun it was running a network with zero between Phoenix and Charlotte if you think hubs on coasts and zero between them work. Pretty sure he is on the record as saying it didn’t work well. And US Airways had much less in the way of contested hubs than an Alaska/Jet Blue hybrid would- they would literally have a bigger competitor in EVERY hub or focus city outside of Anchorage (lol).
All told I suspect Alaska or Jet Blue would ask for a good premium on their value. Not sure anyone would or should pay it. Unless you like paying more and getting less, asking for less competitive airlines is a bad idea…
Alaska is the exact opposite of Southwest. It will never happen.
“Rumors are swirling?” From whom?
WN has no interest in either one. WN did make a serious run at Frontier years ago. That would be a more reasonably sized candidate than AS or B6. Not that any merger would go fast enough to help WN’s MAX problem.
Did you watch CNBC yesterday?
Mourning becomes the Max
Sw should merger with AA….technically spakimg AA has same mentality as SW, no service and everything is cheaper………
“Not sure why any one should or would pay for it…”
Alaska Airlines continuously ranks number 1 in customer satisfaction, despite the criticism of their first class (you don’t absolutely need to lay flat during a 4 1/2 hour flight).
It’s comical to read people discredit Alaska’s success; they have proven to be the competitive underdogs, especially by purchasing Virgin America, a company that was also a 180 from the traditional carrier. Anything is possible in the airline industry.
Alaska and JetBlue would be a stronger force, as would American and Southwest.
Agree. From an operational perspective, it seems that Alaska would make more sense since they have a lot more Boeing aircraft. From a network perspective, though, Alaska doesn’t make a ton of sense since Southwest is pretty well-established on the West Coast and probably does not have a lot of interest in operating Alaska’s large EAS intra-Alaska routes. Acquiring JetBlue makes sense in terms of acquiring a foothold back in New York, but they operate an all Embraer/Airbus fleet, which clashes with their current model. So neither is a great fit beyond merely acquiring aircraft. Seems like an awfully expensive way to solve what their management should hope is a shorter-term issue.
no merger has been botched quite like the AirTran one, giving away BOTH market share at ATL and 717 fleet to DL on a silver fleet. exactly how dumb are those management folks at Love Field ?
*silver platter
I feel like Southwest does have red eyes flights. I see their planes landing after midnight regularly at BOS. Unless in order to be called a red eye, you need to land later in the morning?
In Q2 WN had the highest net margin DESPITE the issues with the MAX. They can’t be too dumb at Love Field.
Highest passenger count of an airline in the USA.
Gosh, what a failure.
JetBlue is so weak on the West Coast.
Alaska is still mending itself after the Virgin America merger.
Southwest has few options (if any) and a merger with JetBlue or Alaska isn’t a marriage that is practical or economical.
If anything, United and JetBlue (with their massive Orlando expansions) would be a far better fit.
Not a chance in heck. Herb is probably twitching in his grave even hearing someone mention it!
More likely is that WN goes out of the box and finds a way to lease previous gen 737’s or hunt out a few that are on the market for sale to bridge the gap. Potentially even doing the unthinkable: Adding Airbus to the fleet.
Look, I am sure the executives in Dallas are seriously rethinking their one aircraft type strategy BECAUSE of the Max. While it has certain benefits in training and maintenance those factors would be an easy offset in allowing Southwest to add something like the A220 for long lean market pairs (I.e. BNA-SEA, PDX-MSY etc). As well, not put them in a position like this when a debacle happens with the aircraft type they are so heavily relying on.
Further, they should do this because despite when the MAX comes back, it will take years for the public to trust it again. I am one example of many I am sure. Not setting foot on one for a few years until I am certain it is safe.
Sell side analysts and their version of click bait.
Why not buy Sun Country? Yes, a small amount of planes, but all 737 NG planes and they wouldn’t need a ton of reconfiguration. Yes, they would not get 100, just maybe 30, but that would get what they want and finally put the nail in the coffin of Sun Country in a good way.
Sun Country! That makes almost too much sense. makes WN a player in MSP also.
This is actually kinda brilliant.
brilliant suggestion. Much more palatable than buying Alaska, two completely different cultures
This is actually an interesting theory. Would make more sense than any other merger.
I could see WN and Spirit before anything else. It would quickly give WN a dual fleet and a large presence in Central and South America, which they want. It would be an upgrade for Spirit’s current customers as well. As long as the brains in the training center in Dallas don’t try and re-invent the wheel, it would go “not poorly”. WN is interested in larger airplanes now, so the A220 isn’t a priority where the 320/321 would rank high. The next couple of years will be interesting.
Allegiant?
My thoughts.
First Alaska has a long history as an independent and I have to think that over the years there have been other airlines that wanted to acquire them and got rejected. I see zero reason to think their leadership is interested in being bought.
Second I tend to doubt that an Alaska or JetBlue acquisition would be allowed by the DOT. With Trump at the helm you never know of course but I don’t think the regulators want to let the big 4 get any bigger by gobbling up one of the larger remaining independents. Now a bit player like Sun Country could be a different deal.
Third, one thing the AirTran merger showed us was Southwest’s distaste for operating multiple fleet types. With either Alaska or JetBlue (and especially JetBlue) they would be buying a ton of different airplanes. I just don’t see an appetite for that. Especially to cure what really is a short term issue with the MAX.
Fourth, buying Alaska would also mean having to deal with the regional operation. Yes they can unwind those contracts over time but until they do their business model has just changed dramatically.
Lastly I strongly suspect this story is being driven more by analysts who love mergers and love pushing mergers than by anyone at Southwest themselves.
Now Sun Country that could be a very different story. Smaller operator, all 737. They could very quickly repaint those planes and re do the cabins and absorb them into their system without much need to worry about what Sun Country used to be.
Not too many people would miss Sun Country and its planes fit. Remember why people fly WN. No other airline comes close. It would let Sun Country go away gracefully although it really doesn’t deserve such a decent demise.
How about Spirit? Acquire them simply for the turn key second fleet type and to do away with a competitor. Quickly dismantle Spirit’s network and deploy the Airbus where it makes sense within the WN network.
Agree Mike… except for the “quickly” part. Gaining pricing power over Spirit helps SWA and increases profitability, growth, etc. You’d eventually bring the two together, but probably over 5 to 7 years… it takes a while, but that’s not a bad thing.
Frontier Airlines has single cabins. All contract under the jet labor. The largest A320NEO order in the world under parent company Indigo Partners. Alaska and JetBlue merger talk is completely out to lunch. Alaska has a completely incompatible culture to include not hiring pilots if they use nicotine. JetBlue operates two models of aircraft already. Frontier flys many of the same routes and is the largest direct competitor in the very important DEN market. Also Indigo is privately held and therefore a merger could happen far more quickly.
The Flight Attendants & Pilots unions, wouldn’t allow it to happen. That’s what stopped it 10 years ago, there unions there unions dragged there feet over it so both parties walked. Then Republic took over.
I believe the 2 possibilities are Spirit and Jet Blue with Spirit having the fewest complications. People talk about business models, aircraft type, etc… most of that is irrelevant. Consider the Alaska/Virgin American merger… or Southwest/AirTran. There were significant differences in those areas in both cases. What happens when you acquire another airline is, for quite a while (4 or 5 years… more if you want to slow roll it), both airlines operate under their separate brands. Until you achieve FAA approval for “single operating certificate”, nothing really has to change unless you want it to. Of course, management at SWA would eventually want things to change, but they’d move toward the SWA way of doing things at their own pace. So now… why Spirit? Spirit has about 140 planes (all AirBus) with 100 320 neo orders and 50 options through 2027… that’s a lot of growth potential. You could potentially convert some of those to XLR orders giving you the range to go to Europe or deep into South America. Spirit is already operating in a lot of places SWA desires to go in Central and South America… SWA is already in the Caribbean but can go other places there too with the large presence they have in FLL… add the market share and gates Spirit has there and you have a fortress “domicile” (SWA doesn’t actually operate hub and spoke). Such an acquisition would: 1) Eliminate a significant and growing competitor (on ticket pricing) 2) Establish SWA in a large number of places they’ve eventually wanted to be to the south (without having to create their own infrastructure, manning, etc) and 3) Solve the issue of lack of growth and diversify the fleet (i.e. reduce the dependence on Boeing). Also, with increasing competition for pilot hiring, bringing the pilots of Spirit over to SWA reduces the challenge of finding enough pilots over the next 6 or 7 years, at least. IF SWA decided to remain all 737 (whether or not that’s a good idea is another subject), they could easily sell off the existing jets and orders over a decade or more as they wind down the Spirit operation.
Regarding JetBlue, acquiring them would have significant value for sure, but would be much more challenging. For one, the market cap of JetBlue is nearly $5.4B (vs just $2.9B for Spirit). Labor relations would be much more contentious (I think Spirit Pilots would jump at the chance to fly under the SWA contract… seniority list integrations always being contentious). However, gaining the terminal at JFK (which would be an extremely valuable gateway to Europe) would be the boon.
Regarding anti-trust issues… JetBlue is an awfully big acquisition and may be harder to get past regulators. With Spirit being smaller (and among the most disliked airlines in America, BTW), I think it’s an easier sell.
We should all know by now nothing is ever in inevitable. In addition the airline industry is the most volatile hit hardest by where economy is standing, pandemics, war , not to mention if airline has huge debt from purchasing other airlines & inheriting their debt. Such a complicated industry. alask Airlines has basically no debt paid off buying virgin thankfully before pandemic hit. The company and powers that employs & also has a very tight/strict requirements guidelines with customer service. At the end of the day that’s what this is all about Customer service… people want to be treated like they’re special especially when they’re going on a special vacation or even a meeting…life events.
Southwest is great too it’s the greyhound in the sky no frills you pay for what you get-no expectation.
The two companies coming together figuring out the logistics could monopolize domestic flying in the United States. Maintenance will be kept low because of the 737 aircraft and being able to swap out parts. Keeping flight attendants and pilots on hand will be easy everybody’s qualified….
Would be great for Alaska to acquire Alaska being in the game East Coast/S America & conversion rate bus pilots ready to go!
Alison Brown could just predict this for me so I know which one of my favorite be going and I’m just glad to be on the side and a man thank you moving forward positively!
Siri hates me!
Great if Alaska purchased Jet blue w/bonus of gaining more routes East Coast. Alaska is not a fan of Airbus with exception of A321.
Airline industry has a lot to ponder with what they just went through/pandemic. For the airlines that want it done right then RIGHT now is the time to work out brain damage of airlines coming together! I say TRIFECTA & crush Delta domestically! ✈️♥️