Southwest's Ata Bid

[wnbubbleboy]

Bid Submitted for Six ATA Gates

DALLAS, Dec. 10 /PRNewswire-FirstCall/ -- Later today, Southwest Airlines
will formally submit its bid in the federal bankruptcy court of Indianapolis
for certain ATA Airlines, Inc. (ATA) assets, including a commitment to connect
and exchange passengers with ATA, and various financing agreements. Total cash
consideration and financing in the ATA bid will exceed $100 million.
Southwest's bid includes the acquisition of six Chicago Midway Airport
gates currently under lease to ATA. The addition of these six gates increases
Southwest's capacity by 32 percent, supporting further expansion plans.
As part of the bid, Southwest is willing to enter into a code share
agreement with ATA, covering certain flights from Chicago Midway to
approximately nine ATA domestic nonstop destinations. The code share, which
will commence next year, could generate additional annual revenue in the $25
to $50 million range for each airline. Southwest estimates its annual traffic
would grow, overall, approximately one percent as a result of the proposed
code share.
"We are very excited about the opportunity to grow further at Chicago
Midway Airport, by acquiring necessary airport gates and by code sharing with
ATA," said Gary Kelly, CEO of Southwest. "This proposal is certainly good news
for air travelers, as we continue to expand our flights and low fares from the
new and improved Midway Airport. We believe the proposal is good for
Southwest and the City of Chicago. Finally, we believe our bid provides a
superior reorganization opportunity for ATA and its stakeholders compared to
the bid from AirTran Airways."
Under the federal bankruptcy court's supervision, an auction will take
place next week along with hearings to determine the disposition of ATA's
assets and liabilities. Due to the competitive nature of the airline industry
and the bidding process, no further details will be made available until the
final bid is awarded.

 

[whlinder]

I won't believe WN wants to codeshare until it actually happens. No way. I can't see how they would ever want to go that route until they've exhausted all growth opportunities.

 

[swflyer]

An explanation from PlaneBusiness.com (12/8/04):

Southwest: Eye on the Big Picture

Why would Southwest risk doing such a move -- a move that seems so unlike Southwest?

I think you only need to look down the road to get the answer. In other words, Southwest is willing to put up DIP financing for ATA, and let the airline continue to operate in a limited sense for only one reason. It assumes that longer term ATA will not succeed.

And when that happens, then Southwest would be in the driver's seat at Midway.

And AirTran and America West would both have been blocked from gaining a bigger presence at Midway.

Pretty slick.

Now, let's look at the revised deal from the viewpoint of ATA management. Or rather, George Mikelsons, as I really don't think any of the top executives at the airline have much to say in any of this. George runs the ship. Stem to stern.

So -- from what I understand, George likes this deal.

But what George either does not know -- or refuses to acknowledge-- is this: Not everyone on the creditor's committee thinks that he should continue at the helm.

In other words, from what I understand, there are those involved in the process who think that whatever is left of ATA as part of the Southwest deal should be led by someone other than George.

George -- do you know this?

 

[SWAFA30]

I won't believe WN wants to codeshare until it actually happens. No way. I can't see how they would ever want to go that route until they've exhausted all growth opportunities.

[post="227746"][/post]​

My understanding is that the proposed codeshare would be extremely limited, one-way, and isolated to MDW only. The press release stated that the codeshare would only involve nine of ATA's domestic routes out of MDW. Guess how many routes ATA overlaps SWA on in MDW?
The answer is 8, or 9 if you consider SFO and OAK interchangeable, 10 if you wanna throw in DCA(BWI). The other routes are SEA, PHX, LAX, LAS, MCO, TPA, FLL, and PHL.

ATA can't make money on these routes because of SWA and vice versa. So, ATA "gives" the routes to SWA but is still able to sell seats on the routes to inbound MDW transfers so they are still able to profit from them. In exchange SWA gets 6 gates growing their share to a whopping 25 and thus cementing their position in the market. Further, they become, for the time being, the low-fare carrier in Chicago to some major markets.

If I understand the proposed agreement correctly, SWA would be insulating themselves from the typical pitfalls of a codeshare because SWA would not be selling seats on ATA flights, rather it would be the other way around. MDW's setup makes transferring bags and customers relatively simple between the two carriers. The only problem I see is that the company's products are very different. ATA assigns seats, SWA does not. ATA offers inflight entertainment and in some cases meals. SWA does not. ATA offers business class, SWA does not. ATA would be the one take the hit as their product would be diluted as their passengers make the switch from one carrier to the other. It seems that this would be more a sub-contract than a codeshare but a fascinating one nonetheless.

 

[boeing787]

I CALL THIS ENTIRE SOUTHWEST DEAL A MONOPOLY. YEP THAT'S RIGHT JUST CALLING IT FOR WHAT IT IS. I HIGHLY DOUBT THIS WILL "DEAL" WILL HAPPEN. TIME FOR SWA TO BE TOLD "NO"!

 

[whlinder]

Interesting. I guess when I read the press release I took

Southwest is willing to enter into a code share
agreement with ATA, covering certain flights from Chicago Midway to
approximately nine ATA domestic nonstop destinations.

to mean that it would be WN putting their code on some TZ flights, since they called them 9 ATA nonstop destinations, not 9 ATA/WN destinations. In my head I had the 9 destinations as SFO/DEN/CLT/PIT/DCA/EWR/LGA/BOS/MSP, flown by TZ but with a WN code. I suppose the arrangement you outlined makes much more sense though and is closer to the traditional WN model.
This is a very fascinating deal and development.

 

[funguy2]

I suspect Southwest is offering the code-share deal because by the time the dust settles, there will be nothing left for Southwest to put its code on.

In articles relating to America West dropping its bid for ATA, they have stated that aircraft lessors will be repossessing airplanes... The 737-800s are going to Asia and the 757-300's are going to another North American carrier (probably Continental). That leaves ATA with 16 757-200's. Not really a whole lot. In fact, one aircraft can make it coast-to-coast two to three times in one day. Therefore, best case scenario is 48 departures to 9 cities? Maybe, but doubtful.

Maybe Southwest is agreeing to code-share to 9 of the 12 destinations served from MDW by Chicago Express?

I think Southwest is "willing" to enter a code-share agreement because at the end of the day, they think that there will be no ATA (or Chicgo Express) to enter into a code-share with. In other words, its a red-herring in order to get what they want at MDW.

 

[ramper_in_las]

I CALL THIS ENTIRE SOUTHWEST DEAL A MONOPOLY. YEP THAT'S RIGHT JUST CALLING IT FOR WHAT IT IS. I HIGHLY DOUBT THIS WILL "DEAL" WILL HAPPEN. TIME FOR SWA TO BE TOLD "NO"!

[post="227799"][/post]​

please explain your position further on how you think this is a monopoly deal... :blink:

 

[ngneer]

I CALL THIS ENTIRE SOUTHWEST DEAL A MONOPOLY. YEP THAT'S RIGHT JUST CALLING IT FOR WHAT IT IS. I HIGHLY DOUBT THIS WILL "DEAL" WILL HAPPEN. TIME FOR SWA TO BE TOLD "NO"!

[post="227799"][/post]​

With AA and UAL both operating major hubs in Chicago, how is this a Southwest monopoly? Yes, Southwest is trying to gain an even larger presence in Chicago at MDW, but they would hardly have a monopoly in the market.

 

[boeing787]

Severe pricing power at MDW they could run off any LCC that tries to get in there. Let alone AMR and UAL

 

[coolflyingfool]

I think that this would be a great deal for all involved. It gives ATAH money and time, it gives SWA gates, it keeps airfares low for the cith of Chicago, and it keeps AMR and UAL happy that there is not going to be a big new player in Chicago. just my thoughts.....

 

[WorldTraveler]

I agree that it is not a given that WN would be able to pull off the deal the way it is designed and get blessings from the Dept. of Justice which does have the authority to block and approve mergers. I think there will be much outcry from lots of corners at the prospect of any airline controlling 2/3 of the gates at a very prime airport, and where there is little possibility of building any more. It would be completely opposite the tact the government has taken with legacy carriers to allow an LCC to control the majority of gates at an airport when they have taken huge steps to open limited access airports to other non-incumbent airlines. Fares are not the issue if there is not enough access to ensure competition.

 

[mga707]

An explanation from PlaneBusiness.com (12/8/04):

Southwest: Eye on the Big Picture

Why would Southwest risk doing such a move -- a move that seems so unlike Southwest?

I think you only need to look down the road to get the answer. In other words, Southwest is willing to put up DIP financing for ATA, and let the airline continue to operate in a limited sense for only one reason. It assumes that longer term ATA will not succeed.

I don't know if it's all that much "unlike Southwest"...they've done a similar thing once before.
Doesn't anyone else remember Muse/TranStar?
Keep ATA going for a year or so, and then quietly shut 'em down. Just like what they did with TranStar bzck in '87.

 

[motnot]

It's a great move by WN -- clearly better for TZ than the FL offer. But it appears that the aircraft lessors are ready to take their planes and go home, or at least to Asia. So there might not be enough planes for TZ to keep flying to the extent that the WN offer envisions. We'll just have to see how this all plays out.

 

[AAmech]

I think that this would be a great deal for all involved. It gives ATAH money and time, it gives SWA gates, it keeps airfares low for the cith of Chicago, and it keeps AMR and UAL happy that there is not going to be a big new player in Chicago. just my thoughts.....

[post="227948"][/post]​

It would undoubtably be in AMR and UAL's favor for WN to win this, but this deal has a bad smell to it. Its blantaly obvious that WN does NOT want to have any real competition at MDW and is using this to lock that airport up. WN needs to get this approved quickly because the longer this deal hangs around the more time people will have to examine it and see what its REALLY about. The DOJ/DOT will have to act.