Southwest's Bid: Analyst says prices won't go up. But are you buying it?

Categories: Business

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If you think we'll ever use a different photo for Southwest stories, you're high.
It's not the salty peanuts, the goofy seating arrangements or the even goofier flight attendants that Denverites are thinking about this morning after Southwest Airline's bid to buy Frontier. No, most of them are thinking about the prices. More specifically, they think they're going up.

I think they might be right.

The Post disagrees, or at least the folks they interviewed do: In an article headlined "Fliers likely to fare well," the paper quotes an analyst and travel agent who predict travelers won't see a dramatic fare increase:

"Generally when there is less competition, it produces higher fares," said Bijan Vasigh, a professor of air-transport finance at Embry-Riddle Aeronautical University in Daytona Beach, Fla. "But Southwest is not operating by that strategy. Their approach traditionally has been to provide lower fares and greater frequency of service."

In its quest to stay competitive against United, he said, Southwest may use efficiencies of scale gained by a Frontier acquisition to keep a lid on fare increases.

Vasigh likened Southwest to Wal-Mart, which has continued to carry a reputation as a low-cost retailer even as it has eliminated smaller competitors in markets it has entered.

But a reporter in Southwest's hometown, Dallas -- who seems to have spent way too much time thinking about airline pricing -- has a different, more nuanced take, and it seems to make more sense. The gist: Yes, Southwest's lowest fares may stay low -- and force United's to stay there too. But with one less operator around, those fares will sell out more quickly, allowing both airlines to charge more passengers a higher fare.

Say you fly to Las Vegas ten times in a year, to rendezvous with a stripper named Audi who has a Manchester United tattoo and really interesting thoughts on the Middle East (hypotheticals should be fun, people). With three airlines to choose from, you might pay the lowest possible fare -- say, $129 -- seven times, and a higher fare three times. But with only two airlines, those lowest possible fares will sell out more quickly, and you'll be stuck paying the higher price seven times out of ten. Combine that with Audi's bizarre insistence that you pay her $500 for those Middle East thoughts, and you're a whole lot poorer than you would be if Republic outbid Southwest.

One variable: Say Audi retires at 22 and moves to Cancun, and you want to go visit. Well, now you might be in luck, at least according to the folks at the consumer web site WalletPop:

Southwest has a history of opening in markets with low fares to force other carriers to do the same. The airline also has some of the cheapest fares around.

If successful in getting Frontier, it would give Southwest an entry into Mexico, where it doesn't yet offer flights.

So, in short: If you want swine flu or mono or whatever other disease you can pick up by making out with these kids, you're in good shape. But if you want to keep visiting your grandma in Tuscon, she's going to have pay for it herself.

Anyone see it differently?

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