The Southwest Airlines Factor and more answers to your questions

sw_logo.jpg During the day, we’ve been getting answers to the questions you’ve submitted. After the frequent flier question, the most often asked question is “Can we get Southwest Airlines to come here?” The short answer is “probably not.” But Southwest is playing a big role in this merger. Late this afternoon, a lot of questions came in about the future of regional airlines. A lot of regional pilots go to school in these parts and then sign on. So we’ve got some answers. Sort of. (By the way if you want to read a good blog by a regional pilot, go here)

The last interview I have for you today is with Dr. Dan Petree of Embry Ridle Aeronautical University, who once was “one of us,” having taught at Concordia College in Moorhead. I tracked him down at a conference in Hawaii, and he turned out to be a fabulous interview.

I’ll be writing up the Cliff Notes version but as I do, Here’s the whole interview. Oh, and here’s audio of my appearance with Tom Crann on All Things Considered tonight. Many thanks for your questions.

With that, let’s get to your questions and Dr. Petree’s answers.

Q: Northwest/Delta says anti-trust concerns should be allayed by the fact Southwest is still out there providing “price discipline.” How big of a factor is Southwest in all of this?

A: Southwest is a metaphor for low-cost carriers that do provide some assurance against predatory pricing or extraordinary rents being attracted by markets that lack competition. We don’t really know if Southwest will offset the effect of large airlines, but we do know their impact has been profound. It’s hard for a lot of us to understand how you take two high-cost competitors and suddenly make them low-cost competitors, but the market is significantly different today than 20 years ago and the low-cost carriers are playing the tune. Low-cost carriers shouldn’t be too worried about the merger. (Listen – 5:55)

Q: Any chance of Southwest coming to Minneapolis-St. Paul?

A: Unlikely. The conditions have to be exactly right for Southwest. They don’t take on people just for the sake of competing. They take people head-on because they think they can get market share and sustain it. They look for available gates at underserved airports, the right mix of business and leisure travel, they look to establish brands in markets where the existing airline appears to have a weakness. The last head-to-head competition was AirTran’s entry into Milwaukee. It was resisted by Midwest but at the end of the day it looks to have been successful by AirTran, capturing a large share of the Milwaukee market. They did that because it made sense for them and they perceived a weakness. And Milwaukee is close enough to Chicago that it wasn’t considered a major market anyway. Southwest doesn’t go head-to-head against major established networked carriers in heavily utilized airports. (Listen – 3:35)

Q: Mia, of St. James, Minn., was one of many people who asked, “What is going to hapen with the regionals that fly for both. Northwest uses Mesaba, Compass, and Pinnacle for their regional routes. Obviously they will not need all three anymore.

A: They have different strategy. Delta has gone from owning the regionals to spinning them off and then competing head-to-head with them. If I were looking at a map, I’d be most concerned if I were in Cincinnati with ComAir. How can you maintain that many hubs and do it efficiently? Clearly they’re going to want discipline to flow through the whole system. We just saw Delta just discipline Mesa Airlines, who they had a long-time relationship with. They basically said “you’re done.” I don’t think there’s any reason to think these relationships will go on forever just because they always have. The expectations are going to change and the regionals will have to figure out if they can compete. The real question is the communities served by the regionals. Do they have reason to expect their service will increase under this new regime; that goes to the economic vitality to a particular ‘city pair.’ (Listen – 3:48)

Q: A pilot on a closed pilots’ forum online asked us to ask, “What does the combined carrier plan to do about a 100-seat aircraft replacement? Our DC-9s are the only true 100 seaters that the combined carrier owns. There is clearly a need to have a 100-seat airplane, but the 9’s are old and need to be replaced. Obviously, we want a mainline replacement airplane, and not another attempt to outsource more of our flying.”

A: It’s hard to make money with jets under 100 seats. What you’re likely to see is an investment in Embraers and additional regional jets at 120-150 seats and get rid of the smaller regional jets, it could lead to higher volume operations in some of the smaller communities. They’re going to rationalize their service around demand. If demand for 200 seats, and they’re doing it with three flights in a 70-seat aircraft, chances are they’re going to reduce service to two 100-seat aircraft until demand demonstrates that they need to add additional aircraft. The DC-9 isn’t done. These things take time to work themselves out. If a particular market can sustain the economics of an inefficient and relatively old aircraft and it’s available, there’s no reason why they wouldn’t use a DC-9. Longer term, they’re signaling that the current economics do not favor regional jets or any jet that’s below 100 seats, primarily because of the price of fuel. They might be trying to buy additional larger RJs, in the 115 seat category as opposed to taking delivery on some orders they may already have in place for 70-seat RJs. (Listen – 2:46)

Q: Jason Voiovich of St. Paul asked, “Another angle on the Northwest/Delta merger is what that merger means not just for the airline industry, but for the Minnesota “brand”. Losing the corporate headquarters makes it harder for the state to “sell” itself nationally as relevant in the airline industry (the action will now take place in Atlanta). The more we corporate HQ’s we lose at the “top end” of an industry spectrum – like NWA – , the more difficult it will be for the state to attract and retain top talent, investment, and satellite companies that grow up around it. In other words, the economic impact could be deeper than just this specific company.

A: For the answer — sort of — we turn to Jason Voiovich who writes about branding on a blog called State of the Brand 2008. He writes:

Minnesota is a “biotech leader” because of Medtronic and Mayo Clinic. Minnesota is a “manufacturing/innovation” leader because of 3M. Minnesota is a “retail powerhouse” because of Target. The state is an agricultural/food innovator because of Cargill and SuperValu.

Until now, Minnesota was an “aviation center” because of Northwest Airlines.

It’s a fascinating essay and one well worth reading and discussing. Also see some interesting comments from former Norwest Bank boss Jim Campbell in Brandt Williams’ story.

This pretty much wraps up “Northwest-Delta Day” on News Cut. It’s a different approach to covering breaking news and I hope you’ve been able to follow along.

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