With oil hitting record highs and cutthroat domestic competition eating into pricing power, carriers including Delta Air Lines Inc., United parent UAL Corp. and others have been pining for consolidation in recent months, leading many to believe that M&A in 2008 is inevitable. And though few expect discount king Southwest to lead the charge, management made it clear that it is ready to react should deals be announced.
Speaking to a gathering of business editors and reporters in Dallas, Southwest CEO Gary Kelly said that “at some point, I think we’ll probably acquire somebody,” according to the Dallas Morning News. “There’s bound to be a scenario that we would say, ‘That scenario out of these 10, yep, that one would work for us.’ ”
Though it is hard to speculate now how consolidation will play out and what scenarios Southwest may consider, some have mentioned fellow discounter AirTran Holdings Inc. as a potential target. AirTran tried to play the role of the acquirer earlier this year with an unsuccessful hostile bid for Midwest Air Group Inc., but could prove a tempting target to Southwest should the airline seek to establish a presence in Atlanta.
More likely, however, is for Southwest to gobble up divestitures required by regulators as part of other deals. Southwest, according to analysts, could be interested in applying its lower costs and fuel hedges to US Airways or Delta’s Washington/New York/Boston shuttle operations, should one become available, and could establish a presence in a market like Cincinnati or Memphis should Delta or Northwest be required to sell smallish hubs in those cities as part of a deal.
Whatever happens, Kelly's comments are a reminder to the rest of the industry that Southwest, which for the better part of two decades has been a thorn in the side of competitors wherever it lands, is not resting on its laurels. — Lou Whiteman
See TheDeal.com story on Delta's CEO fueling deal talk
See TheDeal.com story on potential 2008 airline consolidation
See Dallas Morning News story with Kelly's comments
See TheDeal.com story on AirTran's attempt to buy Midwest
See Dealwatch: The airline industry
