A Strange New World: A Bidding War For An Airline

Airline analysts are worried that some US carriers will have to make huge cost cuts or face Chapter 11 filings later this year. The rising cost of jet fuel and precipitous dive in passenger traffic are causing huge losses among most of the industry’s leaders.

This  makes the bidding war for Frontier Airways especially strange. Southwest (LUV) offered $170 million for Frontier Airlines, which is in bankruptcy. That proposed deal was topped by Republic, which made a more complex bid involving unsecured claims against Frontier.

The only explanation for the passionate rivalry for Frontier is that it not only has attractive routes but that other airlines believe that they can chop costs by such a large amount that they can make the carrier profitable. Frontier was a victim of its debt load as much as its operations. It has had a tiny profit for the last several months.

Southwest is considered to have the smartest management in the airline industry. If the Dallas-based airline does not get Frontier, it is probably because the company did not want to push hard for union approvals to close the deal. Said another way, the higher price for Frontier was not worth it.

Douglas A. McIntyre