Southwest Unveils Flights to Five Cities

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For the first time ever, domestic top-notch carrier Southwest Airlines Co. (LUV) introduced flights to five cities in one day.  This move underlines the company’s endeavors to expand its foothold outside the 48 contiguous states and the continuous success of the ongoing integration of AirTran Airways.

From Apr 14, Southwest commenced nonstop services from Charlotte to Baltimore/Washington, Chicago (Midway), Houston (Hobby), and Orlando; from Flint to Baltimore/Washington, Orlando, and Tampa Bay; from Portland, Maine to  Baltimore/Washington; from Rochester to Baltimore/Washington, Chicago (Midway), Orlando, and Tampa Bay; and lastly, from San Juan to Orlando and Tampa Bay.

Southwest, with its superior customer services and affordable prices, aims to have a robust operational base in these cities that were earlier served by AirTran Airways. The latter stopped operating at Charlotte, Flint, Portland (Maine), and Rochester airports on Apr 13. However, AirTran Airways will continue to fly jets between San Juan and Baltimore/Washington, Fort Lauderdale/Hollywood, and Atlanta. Southwest is slated to take over AirTran's San Juan service to Fort Lauderdale/Hollywood on Sep 29, 2013.

In May 2011, Southwest completed the acquisition of AirTran Holdings, which now operates as a wholly owned subsidiary under the name AirTran Airways. Though Southwest and AirTran are still operating as separate entities, the single operating certificate obtained in March, last year, allows the company to combine their operations.

The AirTran integration procedure is on track for completion by the end of 2014. At 2012-end, Southwest converted 11 AirTran 737 – 700s aircraft into its livery. Further, Southwest completed the integration of Finance and Human Resources systems (SAP) and brought in 26% of the AirTran workforce under its wings.

We expect the AirTran merger to be accretive to Southwest’s earnings when realized fully. The company realized net, annualized, pre-tax synergies of $142 million in 2012 and the transaction is expected to generate net synergies of more than $400 million by year-end 2013.

Southwest – which carries the maximum number of U.S. passengers compared to any other player such as United Continental Holdings (UAL), Delta Air Lines Inc. (DAL) and JetBlue Airways (JBLU) – currently holds a Zacks Rank #3, implying a Hold rating.

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