New strength for Southwest

Competition: The carrier outbids rival AirTran Airlines for gates at a key Midwest hub.

Low-cost Air Wars

December 17, 2004|By Meredith Cohn | Meredith Cohn,SUN STAFF

Low-cost leader Southwest Airlines showed its muscle yesterday by winning more gates at a pivotal Midwest hub, crowding out its competitors and solidifying its stature as the dominant carrier at a growing number of airports.

Southwest won control of six additional gates at Chicago Midway Airport, giving it more than half of the total, during a bitterly contested auction of assets from ATA Airlines, which filed for bankruptcy protection Oct. 26. It beat out smaller low-cost rival AirTran Airlines, which had hoped to grow beyond its East Coast strength and, for the first time, take on Southwest's dominance.

Southwest expects to spend $117 million for the gates, loans to ATA and a 27.5 percent nonvoting stake in the carrier when it emerges from bankruptcy.

"We are very excited to be named as the winning bidder," Southwest Chief Executive Officer Gary Kelly said in a statement. "This allows Southwest to grow our Chicago presence, and it will provide ATA and its employees and stakeholders with much needed liquidity."

Some experts said Southwest's move could be good for passengers because the airline likely will increase routes from one of the country's busiest central hubs. But others said Southwest's new power at Midway could send a message to other airlines that they can't compete in the nation's top markets.

The $89.3 million AirTran bid for all of ATA's 14 gates at Midway would have put the airline on a par with Southwest at the airport and given it control of some assets at New York LaGuardia and Washington Reagan National airports.

"I think there is real concern there will be too much Southwest," said Joseph P. Schwieterman, a transportation expert at Chicago's DePaul University. "Discount airlines will think twice before stepping into the fray, or making investment in Midway and elsewhere. Southwest is such a formidable competitor."

ATA executives said Southwest made a superior financial offer to AirTran and also gave it a chance to code share with Southwest, or sell seats on each other's planes.

The deal with Southwest will allow ATA to maintain eight gates at Midway, but ATA couldn't say yesterday which routes it would eliminate. It did say it would reduce the size of its fleet of 60 jets and work force of 7,700.

George Mikelsons, ATA Airlines chairman and chief executive, said in a conference call yesterday that Southwest carries more passengers than any other airline in the nation and ATA stands to benefit from that relationship.

Midway, an increasingly important airport as neighboring O'Hare grapples with over-crowding, could provide Chicagoans other options for flying to airports on the East and West coasts that ATA does not serve, such as Baltimore-Washington International. Airport. Alternatively, the central hub could increase access from BWI, Philadelphia International Airport and others to Midwest and western cities.

Darryl Jenkins, a visiting professor at Embry-Riddle Aeronautical University, said Southwest's bid at Midway was partly a defensive move to keep AirTran from dominating the airport and part of a previously planned expansion there.

"Southwest likes to dominate its markets," he said. "If they can't be No. 1 or No. 2, they can't go in at all. This is in line with their long-term strategy. This will make a big difference for passengers in Chicago, and it's not going to affect passengers elsewhere adversely either."

Southwest is No. 1 at BWI, where it controls more than half the flights. It has eight daily departures to Midway and recently announced it would add another daily flight in March. A new terminal for the airline is expected to open in the spring that will give it more room to grow.

That expansion has made the airport somewhat unattractive to other airlines, though AirTran, the airport's No. 2 carrier, has found a niche there and plans to add some flights. But both airlines have said that expansion in Chicago has been their prime focus.

Analysts say it is undesirable to have one airline control more than three-quarters of the flights at one airport. Schwieterman said Southwest currently controls about 40 percent of Midway's flights. The bid yesterday will give Southwest 25 of the airport's 43 gates, and the airline estimates it will increase flights there by a third. Once those changes take place, Southwest may control more of Midway than any other airport, Schwieterman said.

But Kevin Mitchell of the Business Travel Coalition said even if Southwest dominates the airport, it won't act like the traditional carriers that long controlled airports across the country and maintained high fares.

"People say Southwest is going to monopolize Midway," he said. "Even if they do, they won't exploit the position. ... Their prices are predicated upon a consistent approach to pricing."

But that said, Mitchell said competition is good and if AirTran had won the gates, it would have allowed the carrier to expand its network. Travelers from the East might have been able to avoid the bottleneck at the carrier's Atlanta hub when flying to Los Angeles by routing through Midway instead.

AirTran executives expressed disappointment at losing the deal, which it had worked out with ATA soon after the airline's Chapter 11 bankruptcy filing. However, AirTran plans to continue expanding.

"We saw Midway Airport expansion as a good opportunity, but we were not going to overpay for those assets," said Joe Leonard, AirTran chairman and chief executive. "Before this opportunity came along, the airline had a successful growth blueprint in place, and we will continue to move forward with that plan."

Southwest said bankruptcy court approval of the deal is expected Tuesday.

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