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As the title of our new report suggests, we expect a relatively easy antitrust review for the proposed Southwest (LUV) - AirTran (AAI) merger. But while researching "Southwest's proposed merger with AirTran likely to pass antitrust review," our analysis of the two carriers' overlap markets surfaced a few areas of concern worth highlighting:

  1. The Proposed Merger Will Push 16 Overlap Routes Into Monopoly

The combined carrier would gain a lock (greater than 90% market share) on 16 routes which served nearly 6.1 million passengers during the twelve months ending June 30, 2010. The following airports are affected by at least one new monopoly route: Baltimore (BWI), Chicago Midway (MDW), Columbus (CMH), Fort Lauderdale (FLL), Fort Meyers (RSW), Indianapolis (IND), Kansas City (MCI), Milwaukee (MKE), Orlando International (MCO), New Orleans (MSY), Pittsburgh (PIT), Seattle (SEA), and Tampa (TPA).

  1. Baltimore Alone Accounts for Half of New monopoly Routes, Affecting 3.3 Million Passengers

During the twelve-month period studied, 3.3 million BWI passengers traveled these routes to Fort Lauderdale (FLL), Fort Meyers (RSW), Indianapolis (IND), Milwaukee (MKE), New Orleans (MSY), Seattle (SEA), and Tampa (TPA). Just over one million passengers would be affected by one route alone: the combined carrier's second-busiest route between Baltimore (BWI) and Orlando (MCO).

  1. Even the Highly Competitive Orlando Market Could See 6 Routes Pushed Into Monopoly

Orlando passengers would lose airline choice to six cities: Baltimore (BWI), Chicago Midway (MDW), Columbus (CMH), Indianapolis (IND), Kansas City (MCI), and Pittsburgh (PIT). The 3.1 million passengers carried by the combined carriers on these routes accounted for 10.5% of Orlando International's domestic passengers during the same period.

With close to 20% of BWI's domestic passengers losing airline choice, any DOJ intervention in this merger is likely to involve the Baltimore market. When the United-Continental (UAL) merger threatened to cause an over-concentration at slot-controlled Newark, the remedy involved transferring slots to a new entrant (Southwest). Without slots to trade, that tidy solution is not available to regulators.

But BWI is no Newark, and such intervention may not be deemed to be necessary. We assume that at least some of AirTran's 10 gates will be freed up as Southwest integrates and streamlines operations at BWI. These gates could be made available to any of a number of competitors already established at the airport. The question is whether there will be any takers, and if DOJ will have a hand in engineering any incentives.

Disclosure: No positions

Source: Southwest-AirTran Merger: The Top 3 Antitrust Concerns