Southwest's Artful Approach

A partnership with ATA Airlines is providing Southwest with options it never had before.


The airline's most valuable asset, its Midway gates, was sought by AirTran Airways (AAI:NYSE), America West Airlines and Southwest. Southwest out-muscled its rivals, buying six gates for $30 million and providing ATA with a $47 million loan, in that rare sort of deal that so far has exceeded the expectations of both parties.

"If there was ever a win-win, this is it," Stewart says. "The court was looking for the best deal for ATA, and we wanted to expand at Midway, and this was one of the best ways to do it. We knew that one of the things that would attract ATA was the possibility of a code-share. It's small for us, but for them it was important to have that kind of reach.

"Nothing precludes us from going to these airports in the future, but there are so many other opportunities, and we have a limited number of aircraft," Stewart adds.

Aviation consultant Darryl Jenkins said the deal resembles Southwest's successful fuel-hedging strategy in that it shows the carrier's ability to seize opportunities and run with them. "These guys think things out," Jenkins says. Additionally, the deal allows Southwest "to take risks, but not with their own brand."

ATA, in effect, "serves as Southwest's proxy" in places that Southwest finds attractive, but not from an operating profile, Mann says. The deal also "got ATA out of a morass and gave them a revenue boost from the portions of their business that they were able to save."

Indianapolis-based ATA, which spent 16 months in bankruptcy before emerging in March, has a fleet of 29 airplanes, down from 64 before its bankruptcy, and had 2005 revenue of about $1 billion. CEO John Denison, a former Southwest executive, recently told The Indianapolis Star that ATA could go public within two years, assuming that its business stabilizes. The principal shareholder is New York investment firm Matlin Patterson.

The successful partnership between Northwest Airlines (NWACQ:OTC BB) and KLM, part of Air France (AKH:NYSE ADR), provides a model for ATA and Southwest, says Loew, who spent seven years at Northwest.

The Northwest and KLM alliance "was set up with a mindset that 'it doesn't matter which side I sit on, I will be happy with the agreement,'" Loew says. "So when I worked with KLM, we both tried to make things work. This is the only basis for long-term growth. Anything else is an illusion."



News stories provided by third parties are not edited by "Site Publication" staff. For suggestions and comments, please click the Contact link at the bottom of this page.

We Recommend