By Maria Saporta
Published in the Atlanta Business Chronicle on February 14, 2014
Two years after Southwest Airlines began flying into Atlanta, perhaps no entity has been more pleased with the results than Delta Air Lines Inc.
Southwest entered the Atlanta market by acquiring discount carrier AirTran Airways — an airline that had made Atlanta its key hub and had been going head-to-head with Delta in many markets.
When Southwest began flying out of Hartsfield-Jackson Atlanta International Airport on Feb. 14, 2012, expectations were high that Atlanta would enjoy a Southwest glow of cheaper fares and more travel destinations.
But actually the opposite has occurred.
When the merger was announced in September 2011, AirTran had 207 daily flights going to 56 different destinations.(A year earlier, AirTran had been serving 60 cities.) By the first quarter of 2014, the combined number of AirTran and Southwest daily flights totaled 156 to 45 destinations.
Consumer expert Clark Howard, who welcomed Southwest’s entry to Atlanta with open arms, acknowledged that so far “it’s been a real disappointment to some people in Atlanta.” People who were interested in discount fares have come to realize that Southwest’s prices are not as aggressive as AirTran’s.
Michael Boyd, an aviation consultant with BoydGroup International based in Evergreen, Colo., said that for the third quarter of 2013, the average one-way domestic airfare out of Atlanta increased by 20.6 percent compared with the same period in 2012.
The integration of Southwest and AirTran is still underway. The two airlines operated under different models. AirTran used Atlanta as a hub where nearly 75 percent of its business was connecting passengers.
Southwest’s model is one based on origin and destination traffic (O&D) — serving people traveling between two cities rather than those connecting to other flights. So Southwest has been in the middle of “dehubing” AirTran’s Atlanta operations. As a result, Boyd said that Atlanta’s O&D traffic has dropped by 10 percent from the third quarter of 2012 to the third quarter of 2013 — so the Southwest merger with AirTran has fallen short of stimulating air travel out of Atlanta.
“When you dehub an airport, at first it’s all bad news,” Howard said. “People who love AirTran’s business class, that goes away. We lost so many cities. The fares have not been exciting at all. The first phase of this has not been that great for Atlanta.”
Gary Kelly, Southwest’s chairman and CEO, said in a one-on-one interview Feb. 10 that it’s still early.
“We are right in the middle of the sausage making,” Kelly said. “It is far from optimized. We don’t have the best product on the shelf yet. It won’t be until 2015. We are obviously committed to the community, and we want to make sure we fulfill the potential that exists in Atlanta.”
When asked to describe that potential, Kelly said: “It’s premature to say. We need to finish the integration.”
The AirTran brand will disappear from the skies by the end of the year, and then it will be totally a Southwest operation. Although there may be fewer flights, Kelly said they will be more tailored to an Atlanta market than to a connecting clientele.
“You will have a lot of new destinations that AirTran was not serving,” Kelly said. “We are pivoting to places where Atlanta wants to go — to cities in the Southwest route network. It’s an evolution.”
Kelly also bristled when asked if Southwest is no longer a low-cost carrier. He said the airline continues to have competitive fares and offers several passenger discounts such as no baggage fees and no fees for changing tickets. He did say that Southwest’s airfares do not have the deep discounts that existed 15 years ago because fuel prices have gone up and competitors have driven down their costs. “That gap has narrowed,” Kelly said.
Even though Southwest’s two-year tenure in Atlanta has not lived up to expectations, airline observers are still enthusiastic about the airline flying into Hartsfield-Jackson.
“I was leading the parade for Southwest,” Howard said, adding that AirTran was great while it lasted but he questioned whether the highly leveraged discount carrier would have been able to stay in business without the Southwest merger.
“Once Southwest fully finishes with the AirTran absorption by the November schedule, I think that’s when they’ll start putting the focus on Atlanta strategically,” Howard added. “I do expect that on balance it will be very good for us.”
Boyd agreed. “It’s great to have Southwest in the market,” he said, adding that he expects the airline to end up having about a 20 percent market share out of Atlanta. He does not expect Southwest to grow significantly out of Atlanta — either domestically or internationally — because Delta is so strong.
“There’s only one play for Atlanta, and that’s Delta Air Lines,” Boyd said.
Meanwhile Southwest is focusing on expanding internationally for the first time in its history. It is building five international gates out of Houston, and similar expansions are underway at Dallas’ Love Field and in Fort Lauderdale.
“It is like a new frontier for us after 48 years,” said Kelly, adding that he is not sure about whether Southwest will be expanding internationally out of Atlanta. Adding international routes was one of the key bonuses Southwest got when it bought AirTran.
As for Delta, Howard said the Atlanta-based airline was able to buy AirTran’s Boeing 717 planes from Southwest for “bargain prices” and Southwest is converting them to Delta planes.
“Delta was smiling broadly when Southwest bought AirTran,” Boyd said. “Today Southwest is not a low-cost carrier.”
Because of the challenging economic environment and rising fuel prices, Kelly said Southwest has not been able to offer super-low fares; it also hasn’t been in a position to grow the airline since the merger.
“The years 2015 and 2016 are key years for us to really appraise what the potential really is,” Kelly said. “What we want is to take full advantage of that potential. It’s not time for us to grow in Atlanta. … 2015 is the year I really hope we will grow, but there are some assumptions about the economy and some assumptions about fuel prices. Our world is very dynamic.”
Veronica Biggins, an Atlanta-based search consultant who served on AirTran’s board and is now on Southwest’s board, said she believes Atlanta has welcomed the Dallas-based airline.
“Whenever I go out to the airport our gates are packed and our planes are full,” she said. “Southwest is a great airline and a phenomenal organization. Most cities are begging for Southwest. I would say to Atlanta: ‘wait and see.’ It’s already been a good thing for Atlanta, and I think it will only get better.”