Though now just a bit player in Denver, Southwest Airlines is the nation’s largest airline when measured by domestic passenger traffic and has a market capitalization of nearly $13.5 billion.
Frontier Airlines, on the other hand, is Denver International Airport’s second-largest carrier after United Airlines. It employs 4,600 people, mostly in Colorado, and pays $5.2 million a year in state withholding tax. Yet, compared with Southwest, Frontier is focused primarily on flying in and out of Denver and is a much smaller airline, with a market cap of nearly $325 million.
Given Southwest’s financial strength and its aggressive approach to growth, could Frontier be at risk of being acquired by Southwest?
Frontier chief executive Jeff Potter thinks not.
“I’d be hard-pressed to find a successful merger in this industry,” Potter said in a meeting with Denver Post editors. “How do you overcome the culture issue?”
First, Southwest has chosen Boeing 737s for its fleet, while Frontier operates all Airbus planes. They’re two different sets of assets and operations.
And though Southwest and Frontier both say they have family-oriented cultures and great employees, “two good cultures don’t make a good culture,” Potter said.
Evergreen-based aviation consultant Mike Boyd agrees.
“There is so little synergy between the two airlines,” he said. “Besides that, anything Southwest wants that Frontier has, it can have. It doesn’t have to merge.”
Frontier also has a “poison pill” agreement that was adopted in 1997 to deter hostile takeovers with an increased allotment to existing shareholders. It will expire in February 2007.
A Southwest spokeswoman said Thursday, “Right now, it’s not a focus for us to acquire another airline, and Frontier as a competitor is doing fine.”
United chief executive Glenn Tilton has expressed interest in airline-industry consolidation after United emerges from bankruptcy. But for now, said United spokesman Jeff Green, “United’s focus is on completing our reorganization and exiting bankruptcy.”
Though mergers might appear possible with Frontier and some other airlines, “I think that absent a good result from (the recent merger of) America West and US Airways, it’s unlikely you would see others rush to consolidate,” said Benchmark Co. analyst Helane Becker.
Staff writer Kelly Yamanouchi can be reached at 303-820-1488 or kyamanouchi@denverpost.com.
