Southwest’s $550 Million Integration of AirTran Still A Work in Progress

More than three years after Southwest acquired AirTran for $1.4 billion, the integration of the two carriers is a work in progress, although it is expected to be completed by the end of 2014.

If you consider that Southwest announced its agreement to acquire AirTran in late September 2010, even though integration work had to await the transaction’s official closing to commence, then the integration wait seems even more protracted.

Whether you are a proponent or opponent of consolidation in the U.S. airline industry, its somewhat limited future array of possibilities should provide some solace to observers of United-Continental’s tortuous integration, and the more than three year melding process of Southwest and AirTran that is still four months away from finishing up.

In its second quarter financial report to the Securities and Exchange Commission a couple of weeks ago, Slouthwest noted that it spent $466 million on the effort to integrate the two carriers’ “networks, fleets, systems, and People” through June 30, 2014, and the process “remains on track” to be finished by December 31.

Southwest estimates it will spend an additional $84 million to complete the job.

Painting Planes and Fee Changes

Among the items on Southwest’s AirTran integration to-do list, it must convert an additional 28 AirTran 737-700s to Southwest livery. Some 24 of these AirTran aircraft have already received the Southwest paint job.

During the first six months of 2014, Southwest’s ancillary revenue was negatively impacted by the integration of AirTran because AirTran charges bag fees and its schedule was reduced while with Southwest the first two checked bags fly free.

Southwest’s “other revenue” line thus fell by $18 million, or 4.2%, in the first two quarters of 2014, but Southwest’s EarlyBird Check-In and its option to let passengers pay for certain boarding positions at the gate partially made up for the drop in AirTran fee revenue.

There is plenty of AirTran integration work still to be done, although the process appears to have gone relatively smoothly as these things go.

First AirTran, Now Amadeus

Still, if the heavy lifting will be all but over by the time 2015 arrives, there is another tech-makeover project that still awaits.

Southwest recently began operating its first international flights — they previously were solely an AirTran feature — and that came about because of the seemingly successful introduction of the Amadeus Altea reservations system.

While Amadeus only handles international reservations for Southwest at this juncture, Southwest announced in May that Amadeus has been given the OK to implement a much-larger domestic reservation system for the airline, and to combine them into a single reservations system.

The reservation system transition will be a complex process — and one that will rival the AirTran integration in duration.