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  • Southwest And The Lynx Mystery
    Posted by Andrew Compart 5:20 PM on Aug 13, 2009

    One of the biggest surprises -- and mysteries -- in Southwest's revised, much higher bid for Frontier is why the airline has decided it would maintain service with Frontier's regional subsidiary indefinitely if it acquires the carrier.

    Southwest executives said they have not decided whether Southwest would operate Lynx itself, or contract with a regional carrier to operate the service. But either way, it would be a big change for an airline that has insisted it had no interest in providing service on regional aircraft (Lynx flies Bombardier Q400 turboprops). In fact, Southwest Chairman, President and CEO Gary Kelly said just a few weeks ago, during the airline's second quarter earnings call with stock analysts, "We have absolutely no interest in any kind of a regional jet operation."  (You can read the transcript of his remarks here.) That's about as declarative as someone can get -- and, no, I am not giving him an out because, technically, Lynx is not a regional jet operation with its turboprop fleet.

    Even Southwest executives admitted Monday the decision to keep Lynx is a surprise. Answering questions about the airline's new higher bid for Frontier -- 10 days after it submitted the minimum offer required to become part of the auction process -- Bob Jordan, executive vice president, strategy, said "the big change over the last 10 day is our bid includes Lynx; that's a big change."

    But why? Ron Ricks, executive vice president, corporate services, and corporate secretary,said Southwest thinks Lynx is profitable and can become even more so when connected with the  bigger Southwest network. But even Sean Menke, Frontier's CEO, has admitted Lynx is not consistently profitable. As Menke explains in this Aviation Daily subscriber-only story, Lynx has only been profitable on a stand-alone basis in peak months. It has been losing money in other months, but Menke -- no fan of Lynx when he took the helm of Frontier in //// -- defended it as a positive contributor on an annual basis because of the traffic it feeds to Frontier's mainline services.

    This may be where we start getting to the answer to the mystery. Ricks said Southwest's bigger network would feed more traffic to Lynx, and Lynx would feed more traffic to Southwest, increasing its value and profitability. But that sounds like a hub-and-spoke system; isn't Southwest a point-to-point carrier?Well, yes and no. Point-to-point is Southwest's bread-and-butter, but by its own account about 20% of its traffic is connecting. And, this may be the key here, the airline may be more reliant on connecting traffic in Denver.

    I'm basing that on this data analysis by Boyd Group International, which concludes that Southwest Denver traffic is "dependent on connecting passengers." The Boyd Group said its analysis shows connecting traffic in Southwest's Denver markets ranges from 19.6% to 60.6%, with a dozen markets near or above the 50% mark

    Perhaps, then, it is not that Southwest wants Lynx, but that it needs Lynx -- just, as I wrote in this AWIN-subscriber only analysis, Southwest may be bidding for Frontier because it feels it must.

    Tags: tw99, Southwest, Frontier, Lynx

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