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Atlanta Business News
2:30 p.m. Saturday, October 2, 2010

‘Southwest Effect’ heads for Atlanta
Experts debate whether it’ll lead to higher ticket costs, job losses, pay cuts

By Russell Grantham

The Atlanta Journal-Constitution

Southwest Airlines’ impact on fares when it moves into a new market is now a part of industry lore.

Orlando Sentinel While Southwest says the merger could save Atlanta travelers up to $200 million a year through lower fares and new routes, some experts disagree.

Some experts say prices will go down. Others disagree.

Then there’s the question of employees. The merger with AirTran Airways will result in pay raises for most AirTran employees, but job losses for others, some predict. And, while Atlanta passengers will have more low-fare routes to choose from, there will be changes in customer service that some love and others hate.

(Southwest doesn’t offer business class or assigned seating as AirTran does, but its staff is “insanely customer-focused,” said longtime airline and airport consultant Mike Boyd, with the Colorado-based Boyd Group.)

In other words, it’s the same sort of mixed bag of effects that Atlanta has come to expect as a result of the consolidation wave that has been sweeping the airline industry for years.

About a dozen major carriers operating in North America have completed or announced mergers over the past decade, dramatically shrinking the industry along the way.

Atlanta has had a ringside seat. Delta Air Lines, Atlanta’s largest carrier, announced its merger with Northwest Airlines in 2008. SkyWest acquired Delta subsidiary Atlantic Southeast Airlines in 2005.

And now there’s Southwest’s planned acquisition of AirTran. Atlanta is AirTran’s key hub and operational center, accounting for about three-quarters of its 8,000 employees.

So far, the city has maintained better access to air travel than the rest of the nation, and more local airline workers have kept their jobs compared to the industry as a whole, federal and state statistics show.

But Atlanta’s air travelers also have paid a higher price — literally — for better access to air travel.

The average domestic fare in Atlanta in the first quarter of 2010 was $355, above the national average of $328, according to data from the federal Bureau of Transportation Statistics. It also was significantly above the $248 average fare at Dallas Love Field, Southwest’s home airport.

Fares also have dropped more in most other communities over the past decade than in Atlanta. From the first quarter of 2001 to the first quarter of 2010, the Atlanta average fell 3.7 percent versus 5.6 percent nationally.

Prices are typically higher at major hub airports dominated by one carrier. Delta accounts for about three-quarters of Hartsfield-Jackson’s traffic.

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“Atlanta doesn’t have a lot of competition. Delta owns the airport, for most practical purposes,” said Frank Werner, a finance professor at Fordham University in New York.

He said new competition from Southwest may dramatically lower fares in Atlanta, at least on domestic routes where AirTran doesn’t compete with Delta now.

Southwest, likewise, said the merger could save Atlanta travelers up to $200 million a year through lower fares and new routes to cities where AirTran doesn’t currently fly.

But Boyd disagrees.

“Southwest coming in [to Atlanta] is not going to lower fares,” said Boyd. “AirTran’s already done that.”

In fact, J.P. Morgan analyst Jamie Baker said in a research report after the proposed deal was announced last week, fares will likely rise because both Southwest’s costs and fares are typically higher than AirTran’s.

Competitors such as Delta “may actually benefit from AirTran’s re-branding to Southwest,” he said.

In any case, industry experts say, the acquisition will eventually bring more travel alternatives as Southwest’s and AirTran’s route networks are combined.

That also mirrors what has been happening in Atlanta over the past decade, despite industry consolidation.

From 2000 to 2009, passenger traffic grew twice as fast in Atlanta, by 8 percent, as the rest of the nation, according to data from the Bureau of transportation Statistics. Airlines also added more capacity in Atlanta during the decade even as they retrenched on domestic service in the nation as a whole, data show.

Likewise, airline employment in metro Atlanta fared better than the industry overall. From 2003 to 2009, nationwide airline employment dropped 12.5 percent, to 386,000, according to the BTS.

In contrast, airline employment in metro Atlanta squeaked upward by 0.8 percent during the same period, to 38,100, according to the Georgia Department of Labor.

But it’s unclear whether those trends will continue.

Part of the reason Atlanta did better in terms of airline service and employment is that Delta may have dodged a bullet in 2007.

That’s when US Airways made a hostile bid to acquire Delta as it was still restructuring in bankruptcy court. After a bitter two-month battle between the two carriers, Delta’s creditors sided with Delta’s executives, who later orchestrated a merger with Northwest Airlines after both carriers emerged from bankruptcy.

A merger with US Airways would have likely resulted in substantial job cuts in Atlanta and route cuts to the two carriers’ overlapping networks.

On the other hand, Delta kept its headquarters in Atlanta after the Delta-Northwest merger. Little route overlap between the two carriers also meant relatively few job cuts for employees such as pilots and flight attendants, said Boyd, the airline consultant.

“It had nothing to do with cutting capacity,” he said. “It had to do with bringing more revenue in the door.”

The biggest adverse impact was in Eagan, Minn., which lost Northwest’s former headquarters, said Boyd.

Southwest will likely cut jobs as it consolidates AirTran’s small Orlando headquarters into its headquarters in Dallas. Southwest could likewise cut jobs at AirTran’s corporate support offices and reservation centers in metro Atlanta.

“A fair number of [jobs] are going to go away,” said Werner, with Fordham University.

Boyd disagreed.

He said local employment may rise as Southwest takes advantage of growth opportunities from combining Southwest’s and AirTran’s routes and fleet, which will open up new markets in smaller cities and the Caribbean. Because Southwest has some of the highest pay scales in the industry, he added, AirTran’s pilots, mechanics, flight attendants and other line employees will likely get “meaningful” pay raises, he said.