Southwest Airlines hopes to grow with Frontier bid

Southwest Airlines Co., Philly's No. 2 carrier, wants to buy bankrupt Frontier Airlines Inc. for $170 million - and then phase out its rival.

If Southwest is successful, it would have little impact on passengers at Philadelphia International Airport. Frontier has one flight a day to Denver from Terminal A-East here.

Frontier operates two-thirds of its flights west of the Mississippi River and transports fewer than 1 percent of Philadelphia passengers.

Acquiring Frontier is a big deal to Dallas-based Southwest, which transports 12 percent of passengers here. Frontier's headquarters in Denver is where Southwest also operates 121 daily departures and wants to grow.

Removing Frontier better positions Southwest to compete with United Airlines, which has a hub and a big operation in Denver.

A New York bankruptcy court is overseeing the sale. A court-supervised auction is scheduled to begin tomorrow.

Southwest on Monday boosted its initial bid of $113.6 million for Frontier, nearly doubling the offer of $108.8 million by regional jet operator Republic Airways Holdings Inc. Republic and Southwest are the only bidders.

Although a bankruptcy judge approved Republic's offer earlier this summer, the bankruptcy process allows other bidders to step forward, which Southwest did July 30.

"We believe Southwest will be the successful bidder," airline analyst Bob McAdoo of Avondale Partners L.L.C. said in a note to clients. "We like Southwest's plan."

Buying Frontier would give Southwest service to several new cities, including Atlanta and Washington's National Airport, and eliminates one of its two key competitors in Denver.

"It's very much a defensive move. Frontier has battled Southwest very successfully," said aviation consultant Darryl Jenkins.

United carries 37 percent of Denver passengers; Frontier, 24 percent, and Southwest, 12 percent.

"Southwest is losing money in Denver, and Frontier is making money in Denver," Jenkins said.

"If Southwest buys Frontier and they rationalize the route system, they get rid of their best competitor. Frontier has competed against Southwest better than anybody else ever has."

Southwest said it would immediately shrink Frontier by 20 percent, removing 11 leased aircraft. Southwest said it would continue flying all Frontier routes from Denver, and add new nonstop routes later.

Southwest also said it would likely hire many Frontier employees.

Helane Becker, analyst with Jesup & Lamont Securities Co., said it's unlikely that Republic can top Southwest's offer. Republic had $97.4 million in cash at the end of June. Southwest had $2.5 billion in cash.

"The Southwest bid is all cash, versus the Republic bid at the current price is all cash but at a higher price might not be," she said.

A sale would have to be approved by federal regulators.

Republic, which operates regional jets under the brands of big airlines, is Frontier's largest unsecured creditor.

Republic will benefit even if it loses at the auction. Under Southwest's offer, Republic would receive $20 million as an unsecured creditor in the bankruptcy, get its $40 million debtor-in-possession loan to Frontier repaid, and get a breakup fee of $3.5 million to $4 million.