Southwest vs. NWA: Is this finally the fight we’ve been waiting for?

BY DICK SAUNDERS
AND JIM SPENSLEY

Southwest Airlines, the country’s largest domestic carrier, has challenged Northwest Airlines, now a part of the world’s largest carrier, Delta Airlines, to a market fight right here in River City.

Southwest began service March 8 between Minneapolis-St. Paul International Airport (MSP) and Chicago Midway with eight flights daily from the Humphrey Terminal with $49 fares (before taxes and fees) and no luggage surcharge. NWA countered with extended Frequent Flyer miles and a near-matching price cut on roundtrip fares. And AirTran Airways has jumped into the fray as a wild card.
Who’ll win the first round between Southwest and Northwest? Some observers foresee a TKO as early as the end of 2009. Others say that if SWA is satisfied with its market penetration in one small market test by then, several more cities may be added in 2010. That would extend the bout to Round 2, lasting two years. The ultimate outcome depends on the Upper Midwest’s market response, the length of the economic slump, and the carrier with the deepest pockets to outlast the price war.

Tale of the Tape
NWA, the heavyweight slugger, has used predatory market tactics to knock out at least four previous attempts by relative lightweights to invade its fortress hub at MSP. In a fifth case, it has let home-grown but tiny Sun Country Airlines survive, although Sun Country has been through two bankruptcies and two management changes in the past 10 years. SCA still hangs on by a thread, benefiting from lower fuel prices and some military contracts.

On the other hand, NWA and Delta have been knocked groggy since the late-October merger by reduced traffic, backfiring fuel price hedges, and special charges for employee buyouts and layoffs. Delta took a $1 billion loss in the last quarter of 2008, and has warned of a substantial loss in the first quarter of 2009. However, it retains a sizable bank account.

In the other corner, SWA can “sting like a bee,” as Muhammad Ali would have said. It has built the industry’s most consistent growth record in the past 30 years by carefully picking entry points near hub airports and body punching with good service, seemingly irresistible prices, and a popular “peanuts and lively chatter” traveling experience in leather-seated Boeing 737s.

SWA has shown that its fast-turnaround point-to-point service can out-earn the legacy carriers who depend on the more costly hub-and-spoke model to collect and redistribute passengers. The hub carriers—United, American, US Airways, Continental, Delta and Northwest—have lost more money than they’ve earned in the past decade, according to analyst statistics.

So the question of the hour: Can the 800-pound gorilla, now beefed up to 1,600 pounds by merging with Delta, outbox the shifty newcomer and survive to fight another day? The odds would seem to be in their favor, but Wall Street isn’t confident. The stock of the merged company has dropped dramatically to around $5 a share from a peak of $15 after the bankruptcies of both ended in April 2008.

MAC’s Role
MAC, which pursued SWA unsuccessfully for more than 15 years, has invested $3 million to renovate a counter and gate area for SWA at Humphrey. MAC says there is space there to build 13 more gates for single-aisle jets. The plans to develop this space are on indefinite hold as the slump in air travel continues. The agreement with Delta allows a further reduction in Delta operations.

Meanwhile, a MAC official indicates to Southside Pride that it is accumulating several Lindbergh gates in case any international carriers want to come with twin-aisle jets and enough political clout to get U.S. landing rights through a treaty. Aeromexico is one candidate, once the economy improves, MAC says.
The authors think MSP management has the major airlines’ view of how to operate an airport. After all, Southwest may be the first low-cost major airline. MAC can support their growth at Lindbergh more quickly and economically than by adding new gates over years at Humphrey.

Back at the gym, the bell has rung for the first round. We’ll keep you posted over the crowd noise.