Low-fare, low-cost startups on both the east and west coasts of the US are seeking critical mass through mergers in their struggle for survival.
On the east coast, ValuJet's mid-July merger with Airways Corporation allows the Atlanta-based airline to obtain critical mass without technically infringing the growth restrictions imposed by the Federal Aviation Administration.
The FAA acknowledges that as long as the two merged airlines continue to function under their own operating certificates, then ValuJet - under intense scrutiny since the crash in Florida last year - will not have expanded on paper. In reality, however, the combined company will have 41 aircraft, against ValuJet's current 30, and it will serve 46 cities instead of 22. In addition, ValuJet will drop its name and use the AirTran Airlines name and livery.
ValuJet says Atlanta will continue to be a hub, but the HQ of the new company seems likely to move to Orlando, where AirTran has a maintenance facility. 'This merger is driven by economics, make no mistake of that,' says Joseph Corr, ValuJet's president and CEO, who will hold the same post at AirTran Holdings.
In the west, Frontier Airlines, the minnow that has been mildly annoying to United Airlines' expansion plans at Denver International Airport, looks set to become a bothersome pike. The merger of Denver-based, low-cost operator Frontier with Western Pacific Airlines, based in Colorado Springs, could spark a price war. Susan Donofrio, an analyst at NatWest in New York, says United has invested heavily in Denver and anticipates a battle. 'United has always been a formidable competitor and I'm sure they won't take this lying down.' But she suggests that the combination of market growth and Continental's withdrawal from Denver two years ago could leave room for two carriers.
Frontier, which has a lawsuit pending against United alleging predatory pricing, says it is hopeful of the merger gaining regulatory and shareholder approval by October. In the interim, a codeshare agreement will begin from 1 August, and WestPac is moving its operations to Denver.
The merger will give the combined company economies of scale that should help to reduce available seat mile costs to around 7.5 cents and allow frequent services to popular business destinations, which should attract more high-yield passengers, says Frontier. In particular, the airlines have their eyes on San Francisco, Los Angeles and Chicago/Midway. Services to those cities will be ramped up to five or more daily flights, while unprofitable routes, such as Las Vegas, will be dropped.
Robert Peiser, WestPac's president and chief executive officer, will continue in that role at the combined company and by year's end the airline expects to be operating 34 B737s with 76 daily departures from Denver.
Karen Walker
Source: Airline Business
