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Southwest Airlines merging with Alaska or JetBlue?

There are rumors circulating about Southwest potentially merging with Alaska or JetBlue. But, would a merger, or an M&A (Merger & Acquisition) be the answer to Southwest’s 737 MAX problems?

Southwest and the 737 Max dilemma

CEO Gary Kelly appears furious with Boeing as the 737 Max continues to present problems for regulators and airlines.

Southwest and United both have the 737 Max grounded, at least until January 5. American has its Max fleet out of commission at least until January 16.

But those dates are all goal-setting and best-case scenarios determined by the airlines.

When the Max flies again is entirely up to the FAA and Boeing to determine.

European Regulators want additional testing on the aircraft software before giving their green light. The WSJ article explains the disagreements between the FAA and the European Regulators.

This article talks about how Max still has not been cleared to fly after being grounded for such a long time. The grounding has gone from an annoyance to an existential threat for Low-Cost Carriers.

Economic Metrics are great, but without passengers those Metrics mean nothing

Southwest is one of the Low-Cost Carriers described in the article. 1 in 5 passengers currently says they won’t fly the 737 Max. Airline projections forecast a generation of close to 25% more revenue and close to 15% more profit when Southwest puts Max back in service.

However, no amount of economic metrics will replace the lost passengers looking at other airlines or booking complicated routes just to avoid Max.

Why Southwest Is Rethinking Its Boeing 737 Strategy. Video: CNBC/YouTube.

Is Southwest merging with Alaska or JetBlue the solution to the 737 Max challenge?

There are a few merger-candidates out there. Regardless, it appears like an uphill battle for Southwest. The candidates could provide more capacity and an actual diversification of fleets.

Although it is improbable, everything is at the table.

This all started with a tweet by Brian Sumers, a Senior Aviation Business Editor at Skift:

“Acquiring Jetblue is such an opportunity – just earlier than perhaps Southwest would ideally prefer”. Twitter.

As sumners stated, it is an interesting idea. Theoretical thoughts are one thing, but implementing this could be an uphill battle.

Overlap in many markets

JetBlue is a competitor in many of the markets where Southwest flies. Off the top of my head, I can mention overlapping routes involving the main airports of California, Florida, the Northeast, and Puerto Rico.

However, JetBlue does not compete with Southwest in the Midwest and Central Plains.

Looking at this as a “theoretical merger,” the DOJ (Department of Justice) Anti-Trust Division, could see such a merger as a problem since Southwest would be removing a competitor.

Even with David Neeleman (the founder of JetBlue and Brazilian airline Azul), with a new airline (codename “Moxy”) coming to the marketplace, the DOJ would remain skeptical of a Southwest merger.

However, the merger of Alaska Airlines and Virgin America resulted in quick DOJ approval. But that’s because the scale of both airlines was small.

ALaska and Virgin. Now, Southwest merging with Alaska or JetBlue?
The Alaska Air Group acquired Virgin America in April 2016. The transaction cost ran about $4 billion. Virgin America continued operating under its own name and brand until the airline was fully merged into Alaska Airlines. The merger was completed on April 24, 2018. Photo: Alaska Air.

Alaska is a better merger-choice, but is it swallowable?

If Southwest looks to the Northwest for a partner (in Alaska), it could become sellable, since Alaska has a stronghold on the West Coast.

Yet, Southwest operates more like a point-to-point model, as compared with Alaska.

In the Alaska-Virgin merger, Virgin’s flight attendants had to fly separately from Alaska’s flight attendants in the beginning. That was until the merged operating certificate allowed them to work as one procedurally standardized crew. The Virgin pilots, however, won’t start flying with Alaska’s pilots until sometime next year.

Also, Alaska and Virgin are still in the completion-process of combining their companies.

Adding a Southwest merger into the mix might bring memories of the America West-U.S. Airways-American Airlines integration challenges to mind. The United-Continental integration problems also come to mind.

Could Southwest be looking beyond the box?

If you’re thinking this, then you’re like me. Looking for different opportunities, the question becomes, how about Frontier or Spirit?

Well, those two airlines would be better merging-choices. Southwest is a Low-Cost Carrier like Frontier and Spirit are.

Frontier and Spirit are both Ultra-Low-Cost Carriers, or ULCCs, making their two free luggage that Southwest passengers love as something that has gone after 2008.

Is there a solution to Southwest’s Max dilemma?

Southwest’s CEO Gary Kelly can approach the 737 Max problem by applying one out of three different solutions:

  • Merge with another airline, or
  • Kelly can bite his tongue, wait for the FAA to get re-certification on the 737 Max, or
  • Start talking to Airbus, or negotiate with Leasing companies that lease Airbus to airlines.

Looking for a partner to dance with has become much more difficult, unless you’re talking Alaska, JetBlue, Frontier, or Spirit.

Your comments

What do you think about the idea of Southwest merging with Alaska or JetBlue? Is it a good or bad idea? Please, leave your comments for me here.

Alex.

Featured Image: Unsplash.

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