[Senate Hearing 112-48]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 112-48
 
    THE SOUTHWEST/AIRTRAN MERGER AND ITS IMPACT ON M-7 BUSINESSES, 
                    CONSUMERS, AND THE LOCAL ECONOMY 
=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                 COMPETITION POLICY AND CONSUMER RIGHTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 25, 2011

                               __________

                          PEWAUKEE, WISCONSIN

                               __________

                           Serial No. J-112-6

                               __________

         Printed for the use of the Committee on the Judiciary

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67-500 PDF                       WASHINGTON : 2011 

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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
CHARLES E. SCHUMER, New York         JON KYL, Arizona
RICHARD J. DURBIN, Illinois          JEFF SESSIONS, Alabama
SHELDON WHITEHOUSE, Rhode Island     LINDSEY GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota             JOHN CORNYN, Texas
AL FRANKEN, Minnesota                MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware       TOM COBURN, Oklahoma
RICHARD BLUMENTHAL, Connecticut
            Bruce A. Cohen, Chief Counsel and Staff Director
        Kolan Davis, Republican Chief Counsel and Staff Director
                                 ------                                

   Subcommittee on Antitrust, Competition Policy and Consumer Rights

                     HERB KOHL, Wisconsin, Chairman
CHARLES E. SCHUMER, New York         MICHAEL S. LEE, Utah
AMY KLOBUCHAR, Minnesota             CHARLES E. GRASSLEY, Iowa
AL FRANKEN, Minnesota                JOHN CORNYN, Texas
RICHARD BLUMENTHAL, Connecticut
       Caroline Holland, Democratic Chief Counsel/Staff Director
                David Barlow, Republican General Counsel



















                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin......     1

                               WITNESSES

Bateman, C. Barry, Airport Director, Milwaukee County's General 
  Mitchell International Airport, Milwaukee, Wisconsin...........     7
Fornaro, Robert L., Chairman, President and Chief Executive 
  Officer, AirTran Holdings Inc., Orlando, Florida...............     5
Kelly, Gary C., Chairman, President and Chief Executive Officer, 
  Southwest Airlines, Dallas, Texas..............................     3
Moss, Diana L., Vice President and Director, American Antitrust 
  Institute, Denver, Colorado....................................    10
Sheehy, Timothy R., President, Metropolitan Milwaukee Association 
  of Commerce, Milwaukee, Wisconsin..............................     9

                       SUBMISSIONS FOR THE RECORD

Bateman, C. Barry, Airport Director, Milwaukee County's General 
  Mitchell International Airport, Milwaukee, Wisconsin, statement    21
Fornaro, Robert L., Chairman, President and Chief Executive 
  Officer, AirTran Holdings Inc., Orlando, Florida, statement....    27
Kelly, Gary C., Chairman, President and Chief Executive Officer, 
  Southwest Airlines, Dallas, Texas, statement...................    34
La Macchia, William E., Chairman, Mark Travel Corporation, 
  Milwaukee, Wisconsin, statement................................    39
Moss, Diana L., Vice President and Director, American Antitrust 
  Institute, Denver, Colorado, statement.........................    41
Sheehy, Timothy R., President, Metropolitan Milwaukee Association 
  of Commerce, Milwaukee, Wisconsin, statement...................    51


    THE SOUTHWEST/AIRTRAN MERGER AND ITS IMPACT ON M-7 BUSINESSES, 
                    CONSUMERS, AND THE LOCAL ECONOMY

                              ----------                              


                       FRIDAY, FEBRUARY 25, 2011

                                       U.S. Senate,
         Subcommittee on Antitrust, Competition Policy, and
                                           Consumer Rights,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:16 a.m., at 
Waukesha County Technical College, Pewaukee Campus Lecture Hall 
B140, 800 Main Street, Pewaukee, Wisconsin, Hon. Herb Kohl, 
Chairman of the Subcommittee, presiding.
    Present: Senator Kohl.

 OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE 
                       STATE OF WISCONSIN

        Chairman Kohl. Good morning, one and all. We appreciate 
        your all being here.
    Today we are here to examine the proposed merger between 
Southwest Airlines and AirTran and its effect on travelers and 
businesses here in the Milwaukee area. In recent years, air 
travel at Mitchell Airport has been a commercial success story. 
Mitchell Airport is one of the Nation's fastest-growing 
airports, serving more and more passengers and routes every 
year.
    AirTran in recent years has made Milwaukee one of its key 
hubs and now has the largest share of the market of any airline 
serving Milwaukee. AirTran serves 19 cities with nonstop 
service and carried over 2.6 million passengers in 2010 and has 
gained a 31-percent market share.
    Southwest began service at Mitchell Airport in November 
2009 and now has achieved an 8-percent market share, carrying 
nearly 800,000 passengers in 2010.
    The competition between AirTran, Southwest, and fellow 
discount carrier frontier has been an indisputable boon to air 
travelers and businesses in the entire Milwaukee region. This 
competition has kept airfares low, offered passengers frequent 
and reliable air service to small, medium, and large cities 
across the Nation, and has kept aviation-related employment in 
this area high.
    But we are now confronted with the plans of Southwest and 
AirTran to merge. Southwest touts the national benefits of this 
merger in giving it access to key east coast airports such as 
Atlanta, New York LaGuardia, and Washington Reagan National, 
arguing that this will make a stronger carrier to compete with 
the other giant national airlines.
    However, the important question for us is what this will 
mean for air travelers and businesses in Milwaukee. Will the 
loss of competition between these two airlines, who together 
will have a nearly 40-percent market share at Mitchell Airport, 
mean higher fares and decreased quality of service? Will 
Southwest maintain the scale and growth of AirTran's hub 
operations in Milwaukee? Will Southwest maintain AirTran's 
level of employment and community involvement here? Will 
Southwest's no-frills service be satisfactory for business 
travelers who previously had the choice of upgraded levels of 
service?
    The experience of other airline mergers in recent years 
gives us reason for caution. Shortly after American merged with 
TWA a decade ago, American dropped TWA's St. Louis hub, costing 
hundreds of high-quality jobs, despite promises to the 
contrary. Formerly strong Delta hubs such as Cincinnati have 
faced declining service after Delta's 2008 merger with 
Northwest.
    Just 2 weeks ago, we learned that the newly combined 
United/Continental was eliminating 500 jobs at Continental's 
former headquarters in Houston. This occurred despite 
Continental's former CEO's promise at our hearing on the deal 
last year in D.C. that we should expect to see ``a net gain'' 
in jobs in Houston.
    So it is essential that we hear from Mr. Kelly and Mr. 
Fornaro about their plans for the combined airline in Milwaukee 
after the merger. The growth of air travel in recent years at 
Mitchell Airport has been essential for travelers throughout 
the Milwaukee region and has been vital for our economic 
growth. In these difficult times it is critical that Milwaukee 
have a convenient, reliable, and inexpensive air service to 
other vital business centers. And vigorous airline competition 
has been the key to the growth of air service at Mitchell 
Airport.
    We need to take care to ensure that nothing in this merger 
will degrade airline competition here. We look forward to 
hearing the views of our excellent panel of witnesses regarding 
the impact of this proposed merger on competition and airline 
service in Milwaukee.
    I would like to introduce now our excellent panel of 
witnesses, and we welcome you all here to Wisconsin.
    Our first witness today will be Gary Kelly. Mr. Kelly 
serves as Chairman of the board, president, and CEO at 
Southwest Airlines. He began his career at Southwest Airlines 
as comptroller in 1986, became CEO in 1989, and he has received 
numerous awards for his leadership at Southwest.
    Our second witness today will be Robert Fornaro. Mr. 
Fornaro serves as chairman, president, and CEO of AirTran 
Airways.
    Next we will be hearing from Barry Bateman. Mr. Bateman has 
served as the airport director for Milwaukee County's General 
Mitchell International Airport since 1982.
    Next we will be hearing from Tim Sheehy who has served as 
President of the Metropolitan Milwaukee Association of Commerce 
since 1993.
    Finally, we will be hearing from Diana Moss. Dr. Moss is 
director and vice president of the American Antitrust 
Institute, and she is on the faculty of the University of 
Colorado at Boulder.
    Please keep your testimony to 5 minutes. Mr. Kelly.

   STATEMENT OF GARY C. KELLY, CHAIRMAN, PRESIDENT AND CHIEF 
      EXECUTIVE OFFICER, SOUTHWEST AIRLINES, DALLAS, TEXAS

    Mr. Kelly. Thank you, Mr. Chairman. On behalf of Southwest 
Airlines' 35,000 employees, thank you for today's hearing and 
inviting me and Bob Fornaro of AirTran to Milwaukee. During our 
relatively brief time here, Milwaukee has welcomed us into your 
community, given us access to a solid customer base, and 
provided us with an efficient, well-managed airport facility 
from which to operate. We are very grateful to Barry Bateman 
and his team for their professional and courteous hospitality.
    Southwest began serving Milwaukee in just November of 2009. 
After 15 months, we feel like we are just getting started at 
General Mitchell with 12 daily nonstop departures to six 
cities. We entered the Milwaukee market because of the 
opportunity to extend our low-fare brand and to fill a void in 
our route map. Milwaukee is an attractive market as well as a 
convenient alternative to Chicago's O'Hare Airport for northern 
Illinois travelers.
    Southwest sees our acquisition of AirTran Airways as a 
platform for new growth to cities and markets across the 
country that lack convenient low-fare service. Through our 
proposed acquisition of AirTran, we look forward to providing 
our Milwaukee area customers with access to an even stronger 
and larger nationwide low-fare, low-cost carrier network.
    During the past 10 years, which I think will forever be 
known as a ``lost decade'' in the airline industry, with fewer 
passengers, fewer flights, fewer airplanes, and fewer aviation 
jobs, Southwest was different. We were and remain financially 
strong. We survived without bankruptcy, without furloughs, 
without pay cuts, without diminishing the customer experience, 
and without abandoning our communities. In fact, during the 
decade we added 206 aircraft, 13 new cities, and doubled our 
revenues. In 2010, Southwest Airlines celebrated our 38th 
consecutive year of profits and profit sharing with our people. 
That profit streak is unprecedented in commercial airline 
history because we have been a maverick. We specialize in low 
cost and low fares. We are the low-fare leader in America. We 
do things differently with no hidden fees, bags fly free, and 
no change fees--and pardon my cold.
    We are over 80 percent unionized, and here again we are 
different. For 40 years, we have enjoyed outstanding labor 
relations, and just this week we reached an agreement with our 
pilots related to the AirTran transition. In fact, I would like 
to introduce several of our leaders with us here today.
    We have Captain Kevin Henry from Baltimore; Joe Hanson, a 
first officer from Baltimore; Richard Jenkins, an FO from 
Midway; Tom Windsor, FO from Midway; and Corey Pettit, who is a 
first officer in Dallas. If you guys would just wave at the 
Senator? And Tony Dorsch, our chief pilot from Chicago, is also 
here today.
    Also from our Milwaukee operation, our station manager, 
Sean Fairbanks; and Chris Barbie, who is one of our supervisors 
on the ramp.
    I am very proud of these folks. They are representatives of 
our pilots union, and we appreciate their support.
    After 40 years of service, we still serve only 72 cities in 
the United States. We have many places that we would like to 
add to our route map. So due to the challenging economic 
conditions which continue to face our country and our industry, 
and especially high energy prices, Southwest has not been able 
to add to our fleet or greatly expand our route map network 
over the last year.
    The goal of this acquisition is to change just that. 
Provided that our economy continues to recover and fuel prices 
do not escalate to prohibitive levels, we see bright skies 
ahead for our combined company and the communities that we 
serve. It is the potential for future growth at Milwaukee and 
across the country that sets this airline acquisition from 
other recent mergers in the industry. We do not simply combine 
these two great low-cost carriers in order to consolidate or 
shrink. This merger is all about creating a larger and stronger 
low-cost airline that will spread low fares farther.
    Southwest continues to work closely with the U.S. 
Department of Justice, the Department of Transportation, and 
various State Attorneys General on the review of our proposed 
acquisition. We hope that this collaborative process will be 
completed in the second quarter of 2011. The benefits of 
Southwest's planned acquisition of AirTran can be summed up in 
one word: growth. This transaction creates a host of exciting 
and unique growth opportunities that otherwise would not be 
realistic for Southwest, our customers, our communities, or our 
people.
    The biggest impediment to growth in the industry is the 
high cost of jet fuel. Fuel prices are not affected solely by 
the price of crude oil. The oft cited benchmark for crude oil 
in the U.S. is known as ``West Texas Intermediate,'' but the 
effective price of crude is currently understated for 
businesses like airlines, which participate in global energy 
markets. The world price of crude is more closely tied to a 
different benchmark, which is ``Brent'' or North Sea crude. I 
would have to get my iPhone out to tell you exactly what it is 
right now, but as February the 22nd, WTI was about $95 a 
barrel. As you probably know, it has actually gone over $100 
and fallen back. But Brent is $111 a barrel, and that is 
essentially what we have to pay for jet fuel, is off of that 
crude oil price. That is an alarmingly huge run-up in prices 
over a very short period of time, and, of course, if high crude 
oil prices were not serious enough, the actual price that 
airlines pay for refined jet fuel ``at the pump'' has risen 
even faster.
    Of course, high jet fuel prices do not diminish the 
importance of this merger. To the contrary, they make it 
absolutely imperative. The economies of scale and the revenue 
and cost synergies presented by this merger are a ``hedge,'' if 
you will, against higher fuel prices. Southwest is the industry 
leader in hedging fuel through the derivatives market. But as 
we learned in 2008 when oil prices went to $147, only to plunge 
to $35 in a matter of weeks, derivatives are never the perfect 
hedge. They are but one tool. High fuel prices have stymied 
growth in the airline industry in the domestic U.S. market as 
well as worldwide, and will continue to do so for the 
foreseeable future.
    The AirTran acquisition is a strategic hedge to enable a 
resumption of growth by Southwest. Absent the merger, both 
carriers will be constrained and even hard-pressed to maintain 
current capacity levels. This transaction is the single best 
strategic initiative that we have to preserve jobs and maintain 
service to communities, and it gives us the best chance to grow 
jobs and add new service to our communities.
    Growth is important. It is important to the future for our 
people, our customers, our communities, and our Shareholders. 
The combination of Southwest and AirTran creates that event 
where the whole is truly greater than the sum of the parts, and 
that means more competition and better quality of air service, 
happier employees, and lower fares.
    I thank you for the opportunity to testify here today.
    [The prepared statement of Mr. Kelly appears as a 
submission for the record.]
    Chairman Kohl. Thank you very much, Mr. Kelly.
    Mr. Fornaro.

 STATEMENT OF ROBERT L. FORNARO, CHAIRMAN, PRESIDENT AND CHIEF 
   EXECUTIVE OFFICER, AIRTRAN HOLDINGS INC., ORLANDO, FLORIDA

    Mr. Fornaro. Chairman Kohl, good morning and thank you for 
holding this hearing and giving me the opportunity to address 
these very important issues.
    On behalf of the 8,300 hard-working men and women of 
AirTran Airways, several of whom are here today, including the 
president of our pilots union, Linden Hillman, it is my 
pleasure to appear before you to talk about AirTran's presence 
in Wisconsin and our plans to merge with Southwest Airlines.
    Senator Kohl, your support of the airport and steps you 
have taken to support airport operations and funding is one of 
the reasons that General Mitchell International Airport has 
continued to expand and is an important part of the economic 
growth in this region. Thank you for that.
    I would also like to acknowledge the support we have 
received over the years. Barry Bateman and Tim Sheehy, who are 
sitting next to me, have done an excellent job and played a key 
role in the economic development of the Greater Milwaukee area.
    As you know, a longstanding and high priority for AirTran 
has been the continued expansion of our Milwaukee network. 
Milwaukee is now our third largest market behind Atlanta and 
Orlando. Since initiating service to Milwaukee in the summer of 
2002, AirTran has grown consistently and now offers more than 
55 daily departures. As a result of this increased competition, 
General Mitchell International is one of the few airports in 
the United States that have reported increased traffic over the 
last few years. In fact, over the last five quarters, the 
number of Milwaukee passengers has grown by double-digit 
percentages while nearby Chicago O'Hare passenger numbers have 
declined. I am proud to say that AirTran has played an 
important role in setting these records, and we are now the 
largest carrier, by market share, at MKE.
    In 2007, we outlined our expansion plans and vision that 
Milwaukee was an untapped resource. We strongly believed then 
and continue to believe now that MKE has not reached its full 
potential.
    However, the business and economic challenges we face today 
as a company and as an industry have substantially increased 
since 2007. We continue to deal with very high fuel costs and 
an uncertain economy, especially for domestic U.S. travel. 
Growth in this environment has been very difficult, and AirTran 
has not been an exception.
    To weather the storm, in recent years we have dramatically 
reset our fleet, selling aircraft, and deferring new deliveries 
in order to restore profitability. Since 2008, we have sold or 
deferred 47 airplanes. Milwaukee has been one of the few bright 
spots over this period. Despite shrinking our overall capacity, 
we have continued to grow our network here.
    When we began discussions and negotiations with Southwest 
last summer, the price of jet fuel, which is the benchmark 
across the crack spread, was $85 a barrel. As of last 
Wednesday, 2 days ago, the price of jet fuel was more than $125 
a barrel. To put that into perspective, Mr. Chairman, every $10 
increase for AirTran adds more than $90 million of annual 
expense.
    The difficult economy and fuel volatility is a key reason 
AirTran agreed to merge with Southwest. We believe this merger 
will create growth opportunities for both airlines that would 
not happen independently.
    Equally important, this deal is good for our shareholders, 
our employee crew members, and the communities we serve. By 
combining the AirTran network with Southwest, we can take 
advantage of Southwest's history of financial performance and 
substantial resources to create a stronger platform for growth, 
while providing career certainty for our employees and 
tremendous benefits to consumers, especially here in Milwaukee.
    When we have the necessary Federal regulatory approvals and 
can talk with our Southwest colleagues about market specifics, 
it will be my recommendation to Gary Kelly and his team that 
Milwaukee continues to be a key opportunity for growth.
    AirTran's success and growth in Milwaukee has allowed us to 
double our local employee in each of the last 4 years. Our 330 
Milwaukee crew members are also proud to be active partners in 
community service. We are proud of our sponsorship of the 
Milwaukee Brewers and the Marquette Golden Eagles, and by 
assisting groups like the YMCA, the Hunger Task Force, and 
Habitat for Humanity.
    I and all of our crew members are especially proud to say 
that we sponsor the Donald Driver Foundation and that Donald is 
an AirTran endorser. And it was great to see him and the 
Packers win the Super Bowl.
    Senator Kohl, thank you and your staff for all you have 
done to promote this airport and community. I am proud that you 
have given me the opportunity to represent AirTran and our crew 
members today.
    [The prepared statement of Mr. Fornaro appears as a 
submission for the record.]
    Chairman Kohl. Thank you very much, Mr. Fornaro.
    Mr. Bateman.

  STATEMENT OF C. BARRY BATEMAN, AIRPORT DIRECTOR, MILWAUKEE 
  COUNTY'S GENERAL MITCHELL INTERNATIONAL AIRPORT, MILWAUKEE, 
                           WISCONSIN

    Mr. Bateman. Thank you for the opportunity to speak before 
you, Senator Kohl, regarding the merger of AirTran and 
Southwest Airlines.
    Mitchell Airport is currently served by nine airlines. With 
220 departures per day and nonstop service to 55 cities, 
Mitchell Airport served a record 9.85 million passengers in 
2010, a 24-percent increase over 2009. There were 2 million 
connecting passengers, which was also a record number. Our 
primary service areas are southeastern Wisconsin and northern 
Illinois, but many of our passengers drive in from Rockford, 
Illinois, and Madison, Appleton, Oshkosh, Fond du Lac, and 
Green Bay. We also attract passengers from as far away as the 
Michigan Upper Peninsula and eastern Iowa.
    In 2010, our passenger count increased by 1.9 million. In 
terms of passengers, we ranked 45th largest in the country. In 
2010, we passed several airports, and we estimate that we are 
now the 45th largest in the country.
    The reason for this meteoric growth over the past 17 months 
is the increase in low-cost carrier service at Milwaukee, which 
has brought low fares and outstanding nonstop service to 55 
cities. Nonstop service, as you know, sir, is of paramount 
importance to business travelers and is also preferred by 
leisure travelers as it saves time and avoids missed 
connections. Low-cost carrier service and the competition which 
it brings have resulted in Milwaukee offering the 93rd lowest 
average airfares in the country.
    Midwest Airlines was the growing and dominant carrier at 
Milwaukee in the 1980s and 1990s. Starting in 1984 with service 
to just three cities, Midwest grew to a peak market share of 54 
percent in 2007. Its business model of providing ``first-class 
service at coach prices'' worked well in the 1980s and 1990s. 
But with the recession that began the summer of 2001, followed 
by the tragedy of 9/11, that business model no longer worked. 
Business travel had fallen off significantly. Midwest market 
share fell to 34 percent in 2009.
    AirTran, seeing the opportunities at Mitchell, entered the 
Milwaukee market in 2002, with modest service and 1.7- percent 
market share in 2002. AirTran was Milwaukee's first low-cost 
carrier to enter the market, and with them came low fares to 
the cities that they served. By 2008, they became our second 
largest airline, with a 23-percent market share.
    Frontier Airlines entered our market in 2003, with service 
to Denver and Western cities. As a result, Milwaukee saw more 
pressure of new low-cost carriers' influence on Milwaukee 
ticket prices, and it was being felt most by Midwest.
    On several occasions, AirTran proposed merger talks with 
Midwest, but was rebuffed. Eventually, Midwest in the 11th hour 
sold to TPG Holdings and Northwest. In spite of the new 
ownership, Midwest continued to fail, and was bought by 
Republic Holdings in 2009. Republic soon after purchased 
Frontier and rebranded the carrier as Frontier. Together, 
Frontier and Midwest account for 37 percent of our traffic in 
2009 and 32 percent in 2010.
    Southwest Airlines entered the Milwaukee market in November 
of 2009. In 2010, Southwest had 7.99-percent market share and 
became Milwaukee's fourth largest carrier. With Southwest's 
entry, low-fare service has further increased, and Milwaukee 
has become a pre-eminent low-fare airport.
    Mitchell markets itself as Chicago's third airport. Our 
location on the south side of Milwaukee presents an opportunity 
to serve the northern suburbs of Chicago and Rockford and serve 
as Chicago's third airport. There are almost 1 million O'Hare 
passengers living in northern Illinois within 60 minutes of 
Milwaukee that are potential growth passengers for us. There 
are another quarter of a million in Rockford. We know that we 
can attract more customers from northern Illinois, and if we 
can do that, the airlines will respond with more seats and more 
cities served. And that is good for Greater Milwaukee.
    O'Hare, of course, is a formidable airport, with 1,100 
departures serving 200 destinations. We have marketed ourselves 
at the third Chicago airport for years, with limited success. 
However, with Southwest's interest in the market in 2009 and 
the strong brand and customer loyalty that they bring, we have 
seen more northern Illinois plates in our parking structure 
than ever before. Since Southwest entered the market in 2009, 
our northern Illinois passengers have increased 20 percent. 
Southwest's entrance into the Milwaukee market was the tipping 
point, building on the previous efforts of Frontier/Midwest and 
AirTran and has cemented our position as Chicago's third 
airport. Southwest not only serves Greater Milwaukee, but has 
bracketed Chicago with its Midway operation on the south side 
and the Mitchell operation on the north side.
    And in a case of a rising tide raising all ships, when 
northern Illinois passengers book Southwest out of Milwaukee, 
they discover that there are eight other airlines here flying 
to 55 cities. We believe Milwaukee will continue to be very 
cost competitive airport with O'Hare. We believe that the 
airlines will take notice of that and use us as a northern 
Illinois alternative, similar to the Fort Lauderdale/Miami 
example.
    Milwaukee, with its mid-continent location, is in the 
unusual and enviable position of having two airlines hubbing--
AirTran and Frontier. There are only four other cities in the 
country that have two hubbing airlines: Atlanta, Phoenix, 
Denver, and Chicago.
    Clearly, Milwaukee is smaller than those cities, and the 
scale of the Frontier and AirTran hubs is not as large as the 
hubs in those cities. Nevertheless, Frontier serves 33 cities 
and AirTran serves 22. Fourteen of those cities are served by 
both carriers. Now add Southwest, with their current six 
cities, all of which are also served by other carriers. 
Competition is alive and well in Milwaukee.
    In 2010, AirTran had 29-percent market share, Midwest/
Frontier had 32 percent, Delta had 15 percent, Southwest had 8 
percent. Other airlines at Milwaukee are United, American, US 
Airways, Continental, and Air Canada, served by Jazz. In 2010, 
in October, AirTran took over as the market share leader in 
Milwaukee with 31 percent market share over Frontier's 30 
percent.
    Frontier and AirTran have built successful hubs at 
Milwaukee which have been very important in supporting and 
growing the economy of Milwaukee and the surrounding area. 
Should the merger of Southwest and AirTran be approved, we are 
very hopeful that Southwest will maintain and grow the 
successful Milwaukee AirTran hub, not only for Milwaukee but 
for the attraction of more passengers from northern Illinois. 
We are confident that Frontier will remain a strong and growing 
airline at Milwaukee. Milwaukee has the facilities and the 
market to continue strong growth into the future, and we look 
forward to the opportunities ahead.
    [The prepared statement of Mr. Bateman appears as a 
submission for the record.]
    Chairman Kohl. Thank you, Mr. Bateman.
    Mr. Sheehy.

    STATEMENT OF TIMOTHY R. SHEEHY, PRESIDENT, METROPOLITAN 
    MILWAUKEE ASSOCIATION OF COMMERCE, MILWAUKEE, WISCONSIN

    Mr. Sheehy. Thank you, Senator, and thank you very much for 
your leadership. I have prepared remarks that I submitted 
earlier so I thought I would just highlight them briefly.
    Our organization has about 2,000 companies as members that 
employ 300,000 people in southeastern Wisconsin, so it is a 
good chunk of the flying public and certainly great 
representation of the flying business public.
    When I think about the hearing today and the pending 
merger, maybe I will start out with a piece of anecdotal 
evidence since I am not an industry expert here today.
    My counterpart who runs the Cincinnati Chamber and are both 
going to the same meeting in Raleigh. We both had the same lead 
time. My flight to Raleigh was 200 bucks, hers was 600 bucks. 
It is a great example of what Barry talked about in terms of 
competition, and why Milwaukee is so blessed in terms of having 
that competition. And we certainly do not want to see anything 
disrupt that.
    Business travelers I do not think are different from other 
travelers, but in particular, they are looking for markets 
served directly, they are looking for frequency, and they are 
looking for a competitive price. If we can continue to deliver 
that here in Milwaukee, then we have a distinct advantage.
    Our economy is built on our connectivity, our ability to 
connect to other markets in the U.S., our ability, primarily 
through O'Hare, to connect to other markets around the globe. 
And when you look at Milwaukee in the metro area, which I would 
look at from Madison to Green Bay to northern Chicago and 
certainly the metro Milwaukee area. But metro Milwaukee has the 
third largest concentration of Fortune 500 companies 
headquartered here. We have 18 Fortune 1000 companies, and by 
nature, those are the types of companies that demand good 
quality air service. They feed off of it. It is a real 
competitive advantage for us. Milwaukee's leadership in 
manufacturing by its nature means that most of the customers 
are not in Milwaukee, so air service is critical to us.
    So when we look at this merger, when we look at the impact 
on air service here, we feel positively about what is 
transpiring. While in a sense we are losing a carrier, we are 
gaining a stronger carrier. And maybe to put it in common 
language for both of us, if we are going to create a new Dwyane 
Wade here in Milwaukee, we want to make sure there are other 
Brandon Jennings to compete with it. If we can continue to do 
that in the marketplace here, then I think Milwaukee is going 
to be well served and will have a competitive advantage and, 
quite frankly, an advantage over some of our peers, like 
Cincinnati, Pittsburgh, and Cleveland, that do not have this 
rich mix of healthy competitors in their marketplace.
    So, again, thanks very much for the opportunity to appear 
today, and I would be happy to answer any questions when we are 
finished.
    [The prepared statement of Mr. Sheehy appears as a 
submission for the record.]
    Chairman Kohl. Thank you very much, Mr. Sheehy.
    Dr. Moss.

   STATEMENT OF DIANA L. MOSS, VICE PRESIDENT AND DIRECTOR, 
         AMERICAN ANTITRUST INSTITUTE, DENVER, COLORADO

    Ms. Moss. Thank you, Senator, and the Judiciary Committee, 
for holding this hearing on the first major merger of low-cost 
carriers in the U.S. airline industry. It is an honor to appear 
here today.
    For those of you not familiar with the American Antitrust 
Institute, we are independent advocacy group. We advocate for 
fair competition and enforcement of our antitrust laws.
    My testimony here today is based largely on a White Paper 
that the American Antitrust Institute produced called ``Airline 
Mergers at a Crossroads: Southwest Airlines and AirTran 
Airways.'' It is available on our website. In it we raise key 
questions, novel questions about what this particular merger 
might raise relative to former mergers of legacies.
    The role of the LCCs in the domestic airline industry is an 
important one. LCCs have penetrated markets that have formerly 
been the domain of the legacy airlines. They have brought 
benefits to consumers in the form of lower prices, increased 
choice, innovative business models, and service offerings. LCCs 
have challenging their legacy counterparts to become more 
efficient and competitive.
    Today I would like to address two major points: The effect 
of the merger on Milwaukee, and also what more novel or 
interesting questions, unusual questions this particular merger 
of low-cost carriers raises.
    So what are the major issues that we would like to see and 
antitrust review give special attention to? One is the effect 
of the merger on price discounting and entry. AAI has done a 
significant amount of analysis looking at how Southwest and 
AirTran, relative to other LCCs and legacies, price and what 
markets they enter or have attempted to enter. The low- cost 
carriers are probably each other's closest competitors, but it 
is very clear that AirTran is an aggressive discounter relative 
to Southwest. AirTran has also pursued a very aggressive 
expansion strategy in new markets relative to Southwest.
    The AAI, therefore, believes that it is important to 
consider what taking a maverick-like firm such as AirTran out 
of the mix, how that could change incentives for the merged 
company to discount post merger and to enter new markets to 
serve U.S. consumers.
    With the ranks of the low-cost carriers reduced through the 
merger, it is a fair question to ask, How will the remaining 
low-cost carriers exercise rivalry and competition in the 
market to restrain any potential price increases?
    Another question that is worth asking and answering in the 
course of this merger review is how output and capacity will be 
affected. Merger concerns do not focus exclusively on price. 
Fewer flights, loss of choice, and discontinuation of nonstop 
service represent real potential adverse effects of a merger. 
This is particularly true in cases where two carriers overlap 
on routes, as they do with Southwest and at an, and are 
particularly adept at managing or rationalizing their capacity.
    The American Midwest is particularly at risk since 
consumers rely on service at cities like Cincinnati, Milwaukee, 
Memphis, Cleveland, and Detroit to connect to other larger 
destinations.
    Capacity cutbacks are demonstrated effects that have been 
largely overlooked in airline merger analysis. Reductions in 
flight frequencies at key airports such as St. Louis, Las 
Vegas, and Cincinnati following the consummation of numerous 
legacy mergers over the last decade show us how real those 
cutbacks can be and what effect they have on consumers. The 
Ohio Attorney General's efforts to obtain a commitment from 
United and Continental to maintain service at Cleveland 
punctuates the threat of post merger cutbacks. Low-cost carrier 
mergers should be no exception to this concern.
    Finally, how might Milwaukee be affected by the proposed 
merger. I think it is safe to say that Milwaukee is a haven for 
low-cost carriers. There are about 130 nonstop segments that 
originate or terminate at General Mitchell Airport. Low- cost 
carriers account for about 60 percent of total passenger miles 
on those segments. Post merger, Southwest and AirTran would 
have a share of between 40 to 50 percent, depending on how it 
is measured.
    Some routes originating or terminating at Milwaukee are 
extremely important. For example, 19 nonstop and connective 
service routes make the Department of Transparency's top 1,000 
city pair rankings. Southwest and AirTran compete on almost 80 
percent of those routes. They are the low-fare carrier on about 
three-quarters of those routes, and together they account for 
over one-half of total passenger miles.
    The take-away from this analysis of Milwaukee is twofold:
    First, passengers originating or terminating at Milwaukee 
are clearly dependent on low-cost carriers for service. The 
competitive discipline injected by LCCs here may be one reason 
why airfares based on the Airline Travel Price Index have 
actually declined 2.5 percent since 1995. In light of the 
importance of the LCCs here, it is worth examining very closely 
how the merger could change the competitive dynamics of rivalry 
at the airport.
    Second, passengers traveling two and from Milwaukee are 
dependent not only on LCCs, but on Southwest and AirTran in 
particular. These two airlines have a significant presence 
here, are head-to-head competitors on important, heavily 
traveled routes, and in light of the fact that AirTran exhibits 
its characteristic aggressive price discounting here, it is 
worth asking how the merger might change pricing behavior after 
the merger is consummated.
    The merged airline will be in competition against legacy 
carriers and another major LCC, but they will no longer be in 
competition with each other. While they may continue to be the 
low-fare carrier, their fares could edge higher and rivalry 
diminish and consumers suffer.
    Thank you for the opportunity to testify, and I again refer 
you to AAI's White Paper on our Web site.
    [The prepared statement of Ms. Moss appears as a submission 
for the record.]
    Chairman Kohl. Thank you very much, Dr. Moss.
    Mr. Kelly, we will start with you. Air travelers and 
businesses in Milwaukee have greatly benefited from AirTran's 
presence and growth in Milwaukee in recent years. The growth of 
AirTran at Mitchell has been an unquestioned boon to air 
travelers and businesses in the entire Milwaukee region.
    Would you at this time commit to maintaining AirTran's 
service and its growth plans at Mitchell Airport after this 
merger takes place?
    Mr. Kelly. Mr. Chairman, we are very enthused about 
Milwaukee. We are very enthused about continuing to grow 
Southwest Airlines. If I could commit what Colonel Qaddafi is 
doing in Libya, and, the effect that will have an fuel prices, 
I think I would have a better opportunity to make a firm 
commitment about our future at Southwest Airlines. We want to 
grow, we want to add airplanes, we want to add flights, we want 
to hire more employees across our system. But we have to do 
that in a fiscally responsible way.
    Our fuel budget right now stands at about $4.5 billion for 
a $12 billion company for 2011, and as it stands today, we are 
probably close to $1 billion over our fuel budget. So, with 
that, all else being equal, our earnings would actually be 
lower this year than a year ago. In that scenario, would we 
continue to grow? Of course not. We could not afford to. We 
cannot operate in a deficit that way.
    Do we have the desire to maintain the AirTran level of 
service? Absolutely, and, in fact, we have the desire to take 
the Southwest flights plus the AirTran flights, sir, and grow 
it. I just cannot guarantee that we will have the fiscal 
ability to do that because we cannot predict fuel prices.
    Chairman Kohl. You already have a large operation at Midway 
Airport in Chicago.
    Mr. Kelly. Yes, sir.
    Chairman Kohl. How do you plan to bring together these two 
operations in a way that will benefit Milwaukee? It seems to us 
that your large operation at Midway will inevitably tend to 
diminish what you or what we might expect or hope that you will 
do here.
    Mr. Kelly. I do not see that risk at all. In fact, we 
choose cities based on a market opportunity and then choose 
airports based on that relative opportunity. So for years we 
have had--our only focus in Chicago has been Midway Airport. So 
we have never served O'Hare and have no plans to serve O'Hare.
    We see Milwaukee as a separate market opportunity, and that 
is why we have entered that market. So it will be a very nice 
complement, and I agree with Barry's point that it is, I think, 
logical to market it as the third area Chicago airport. But it 
is a different marketing area. We have multiple airports that 
we serve in the Washington, D.C., area, in the Bay area in 
California. On the other hand, in Dallas we have one airport 
that we serve because we believe that both airports in the 
Dallas-Fort Worth area serve the same market. So we do not see 
any purpose in serving DFW.
    So I think they will be a very nice complement to each 
other. It will actually provide some economies of scale for us 
to increase our presence and be able to market in a broad area 
that way. There clearly are some customers that will be 
interested in using the Southwest/AirTran combined service from 
either airport, and obviously that creates more choice from our 
customers, and that is better for Southwest Airlines in the 
long run.
    Chairman Kohl. I think most of us, gentlemen, are 
struggling with the idea of going from two airlines competing 
with each other to provide service here in Milwaukee to one 
airline in the sense of the two of you combining. And we are 
trying to figure out why this will be better. We can imagine 
how it might be worse in any which way, whether it is service, 
price, name it. You know, when people compete things get better 
for the consumer. When there is no competition or less 
competition, unless there is some explanation, the consumer has 
a right to imagine how things are not going to be better, they 
might be worse.
    One thing, for example, is that AirTran has at least two 
classes of service. Is that right, Mr. Fornaro?
    Mr. Fornaro. Yes.
    Chairman Kohl. And Southwest has just one, and I am 
assuming that that will be what occurs after the merger, and 
you can correct me if I am wrong, but I think that is an 
automatic.
    So, Mr. Bateman and Mr. Sheehy and Dr. Moss and Mr. Fornaro 
and Mr. Kelly, why will this be better for us? I can imagine 
how this will be worse for us. I cannot figure out why this is 
going to be better. Go ahead, Mr. Kelly. Mr. Fornaro, you are 
next.
    Mr. Fornaro. Just again to go back, as I mentioned, yes, 
actually Milwaukee has been a bright spot. AirTran is smaller 
domestically today than we were 3 years ago, and we are not a 
growing maverick. We operate the same number of airplanes today 
as we did 3 years ago, and, you know, we have had to 
rationalize our focus. When we made a major aircraft order in 
2003, the price of oil was just under $30 a barrel. And things 
have changed dramatically, and we have had to react to that.
    But as I view the opportunity, again, I think we are just 
getting started in Milwaukee. When you look at our operation, 
we are completely the opposite of what Delta and Northwest are 
trying to do, or United and Continental. Those companies have 
talked about consolidation. That is a word that we have not 
mentioned. This is not about consolidation. This is about 
combining Southwest and the Midwest and West and AirTran 
perhaps on the east coast and the Southwest and really putting 
them together. On that basis we think there are a lot of 
opportunities. There are a lot of opportunities in secondary 
markets that are not served nonstop today. And so we think 
those opportunities, again, given the operating environment, 
remain.
    When we viewed the Milwaukee market 3 or 4 years ago, again 
we envisioned a bigger operation than we are flying today. 
Again, obviously we have adjusted because of fuel prices. But 
it is our belief that we can dramatically broaden the route 
portfolio in Milwaukee. And I would say it is dramatically 
different than some of the other perhaps examples around the 
country. We have no intention, again, to consolidate like the 
other carriers, and our plan is to combine what is good about 
both companies and make it larger.
    Just a few examples. We believe, as an example, that 
Southwest's great presence in the Western part of the U.S. 
would allow a lot more customer choice because we could tie in 
our strengths on the east into those great strengths that 
Southwest has on the west.
    So I think the geography, you know, works very, very well. 
We do not have an overlap, and, again, I think we view 
Milwaukee as an underserved market. It was under a different 
time. We think the potential is still here, and we are seeing 
it. We have only been at it for a few years now, and I think we 
are going to continue to see the trends in this market remain.
    Chairman Kohl. Mr. Kelly.
    Mr. Kelly. Thank you, sir. Well, we are in business to 
provide a customer service, so that is our passion. The more 
customers we have, the better it is for Southwest Airlines. 
This is an opportunity for us to grow our geography by 
acquiring AirTran. We are buying a company that has a similar 
low-cost philosophy. Our cost structures are neck and neck with 
each other. We have similar low-fare strategies. We have very 
strong work ethics within our company cultures. So it will be, 
I think, a pretty seamless marriage between the two so that we 
can think about this in a successful way. But we will be able 
to add 39 new points of service on our route network, and from 
AirTran's perspective they will be now connecting into a 
customer base that is four times their size.
    So there are very significant economies of scale to add new 
itineraries and new service across the United States, and we 
will just get our toe dipped in the water internationally.
    Again, we are different, and this would be our third 
acquisition in our history, and the first one in 17 years. But 
after 40 years, we still are the low-cost leader in the United 
States. We are still the low-fare leader in the United States. 
That is what we do. We bring more competition, and by 
definition, if we can go more places and serve more customers, 
that by definition means more competition.
    Even having said all of that, we are dwarfed by very large 
legacy airlines. Their revenues are double and triple our size. 
So it is an extraordinarily competitive industry and will 
certainly remain so after Southwest acquires AirTran.
    Chairman Kohl. Mr. Bateman, I want to ask you, and then Mr. 
Sheehy, in your most idealized world, would you rather have 
these two airlines merge or would you rather have them separate 
and competing?
    Mr. Bateman. In an idealized world, well, let me just 
answer that this way, Senator. What we are seeing here is, I 
think, scale. If you look at the fabric of the airline 
landscape for the past several years, we are seeing 
consolidation in United and Continental, America West/
USAirways, Delta/Northwest. And for AirTran particularly, and 
Southwest to some lesser degree, to compete against those mega 
carriers, they have to have some scale to do that. And as much 
as one regrets seeing the loss of competition with the merger, 
I think that for them to compete against those mega airlines, 
they need greater scale to do that. And this is one step toward 
that.
    So as Tevye would say, on the one hand, you know, we regret 
it. On the other hand, I think that it is going to be to the 
benefit of Milwaukee.
    Chairman Kohl. Mr. Sheehy.
    Mr. Sheehy. Yes, the question may be a bit over my pay 
grade, but I am going to take a shot at how we would look at it 
from the business community standpoint. And, again, I know they 
are not subject to this discussion, but Frontier, if you look 
at what happened with Frontier purchasing Midwest or Republican 
purchasing Midwest and then purchasing Frontier out of 
bankruptcy, and you look at what's happened in this market, I 
think as much as it is numbers of carriers and where they 
compete on routes, I think as Barry said, it is also the 
strength of the competitor. And, you know, having Frontier 
here, they moved I think a couple hundred of their mechanics. 
One of our M-7 recruitment projects was to strengthen their 
focus here in terms of not only serving the market but their 
employment base here, and they now have a couple hundred 
mechanics serving their fleet here. They have a call center. So 
I think they are well positioned to compete from here.
    If that were not the case, maybe I would be a little more 
worried about this merger. But I think having strong 
competitors here, as much as we want low cost, we want the 
flights, we do in a sense as a flying public want healthy 
airlines. I mean, it is tough to look at a future if the 
airlines are continuing to lose money. They are reacting to, 
you know, global fuel prices. So I think numbers are important, 
but so is strength of competitor, and the ability to look ahead 
from the business community standpoint and plan that you can 
make a capital investment here, that you can expand your 
corporate headquarters and see a future where you have 
consistent air service at a competitive price, and I think we 
are going to get that out of here as much as I can see ahead.
    Chairman Kohl. Dr. Moss, are we better served having two 
airlines in Milwaukee here, AirTran and Southwest, or one?
    Ms. Moss. Well, I think that is the million dollar or 
billions of dollars' worth of question in this particular case. 
I think in general more competition is always better. In the 
airline industry, we have some special considerations.
    First of all, if pressures to bulk up to compete with other 
larger rivals in the market was the major motivation for 
merger, then in theory we would have one airline, because we 
would get onto the slippery slope of merging to get larger to 
compete with larger rivals, those rivals again merge, and then 
we trigger a set of mergers in the industry that is seemingly 
unstoppable.
    I think we are already onto that slippery slope, and the 
downsides of that I think are very clear. The American Midwest, 
as I noted in my remarks, is a particularly sensitive area. 
These consumers are at risk because they rely on smaller cities 
and access at smaller cities to get to larger destinations. So 
prices are not the only consideration here. It is choice, it is 
availability, it is nonstop versus connecting service, forcing 
consumers to travel to other airports because nonstop service 
was discontinued as a result of capacity rationalization I 
think is a detrimental effect of the merger.
    So the more competition, the better. I also take the point 
very seriously that airlines grapple with some fundamental 
economic issues. They have high fixed costs, they have high 
fuel costs. American airlines have struggled in the last 20 
years trying to remain profitable without getting bigger. So 
this is sort of a basic economic problem that we deal with.
    My last remark is I think we have to ask how effective are 
the remaining low-cost carriers going to be if Southwest and 
AirTran merge. If there were to be less aggressive price 
discounts--let us put it that way. They would not discount as 
much as they do now. Instead of raising prices, we might see 
fewer discounts. If that were to occur--and I am not saying 
that that would, but it is certainly a question that we ask in 
mergers--how effective is the remaining competition? The 
legacies are not going to discipline discounting behavior or 
price increases. The legacies, when you put two legacies on a 
high-fare/low-fare route, they come out with the highest 
average fares of all possible combinations. So it is not the 
legacies who would be putting competitive pressure on a merged 
Southwest/AirTran. It is going to be the other low-cost 
carriers. Well, we have got Frontier here. I flew on Frontier 
last night from Denver. Is that enough? Is that enough 
competition? How many do we need to potentially discipline 
these post merger effects? I think that is a very valid 
question to ask.
    Chairman Kohl. OK. Mr. Kelly, you are going to gain 
entrance to several major cities as a result of this merger. If 
you did not have any of that, would you still make this merger, 
Mr. Kelly? If you did not have those--I think there are four 
major cities where you are going to gain: LaGuardia, 
Washington, DC., Atlanta--what is the other one?
    Mr. Kelly. Well, we are actually in New York LaGuardia, but 
we are not able to add more departures or slots, so absolutely, 
that is a very valuable asset that AirTran brings, is more 
access to New York LaGuardia. We cannot get access absent the 
acquisition to Reagan. So, yes, you are exactly right. And the 
same essentially applies to Hartsfield. It is just not 
otherwise an opportunity for us. I think those are the primary 
three.
    The other large category that I would describe that we are 
very interested in that AirTran does is they have several dozen 
small cities that we heretofore have not tried to serve. They 
serve that with low frequency. They serve it with the Boeing 
717 aircraft, which is smaller, a good short-haul aircraft, and 
we are very intrigued with that opportunity as well.
    Chairman Kohl. Yes, but my question is: In this merger, how 
important is that consideration----
    Mr. Kelly. Very important. Our desire is to grow Southwest 
Airlines. The only way that an airline can grow in this world 
is to offer something different. What we offer is low fares. We 
have done that for 40 years. That is the way I see our vision 
for the next 40 years, to keep our costs low and our fares low.
    This, in addition to our desire to offer low fares to more 
places, they bring us the places. And if AirTran did not have 
those places, no, sir, we would not be acquiring AirTran. That 
is one of the more valuable assets that they bring us, 
expansion opportunities to new places where we can further grow 
those markets by continuing to add--or serve the markets with 
low fares.
    Chairman Kohl. Well, that is an important statement you 
made, and it is frank and honest, and we all appreciate that. 
But if I hear you correctly, what you said is without those 
entrees into these other major markets that we have discussed 
this morning, you would not be buying AirTran.
    Mr. Kelly. I do not see that.
    Chairman Kohl. And I appreciate your frankness, but, you 
know, to us who are concerned only about Milwaukee--and I am 
sure you can understand that--we worry about how Milwaukee will 
fare if and when this merger is consummated because your major 
reason for buying AirTran is not AirTran's operations in 
Milwaukee. Your major reason is because it gives you entree in 
other cities. So if you are us, you worry about it. You worry 
about it, Tim.
    Mr. Kelly. Well, there is a long list of reasons that 
AirTran makes sense for Southwest Airlines. Some of them are on 
the Southwest Airlines side of the ledger. In other words, if 
we were not financially strong, if we did not have a solid 
leadership team, if we did not offer good customer service, we 
would not be in a position where we could contemplate a 
transaction like this. AirTran brings many, many things that 
make it an attractive acquisition for us. Milwaukee is one. 
Milwaukee is simply--it did not fit your description because we 
are already in Milwaukee. But we will be able to grow Southwest 
Airlines and AirTran faster in Milwaukee than we would 
otherwise by virtue of the acquisition.
    Chairman Kohl. What do you say to that traveler that is 
pleased with the business class service that AirTran is 
providing that you no longer will be providing? What do you say 
to that traveler?
    Mr. Kelly. Well, now every customer is going to get first 
class service on Southwest Airlines, all 137 seats.
    [Laughter.]
    Mr. Kelly. But it is a model that has worked 
extraordinarily well for 40 years. We have never held ourselves 
out to be all things to all people. On the other hand, I would 
argue that we actually carry more business customers in the 
United States than any other airline. So try us. You just might 
like it. We do have a product that is targeted for business 
customers who want the seat that they want, and that is our 
business select product, and our customers tell us that they 
like it very well. But our brand rankings have never been 
higher, and we do serve a very substantial number of business 
customers.
    Mr. Fornaro. Senator Kohl, if I could add one thing, when 
Gary and I had our first conversation in early May, we talked 
about four opportunities, as Gary described to me. Washington 
National and Atlanta were brand new to Southwest, and the other 
two opportunities were to increase our service in LaGuardia and 
the other one was Milwaukee, as they viewed as an opportunity 
strong Midwestern point and the third Chicago airport. So that 
was in our initial conversation when we met in the first week 
of May.
    Chairman Kohl. What is going to happen to that relationship 
that you now have at AirTran with SkyWest which enables you to 
service Des Moines, Omaha, St. Louis, Indianapolis, Akron, and 
Pittsburgh? Mr. Kelly, can you tell us that that relationship 
or your ability to serve those communities will not be impeded?
    Mr. Kelly. It is premature. First of all, again, over 80 
percent of our employees are subject to collective bargaining 
agreements. Our pilots' agreement has a provision in it that 
restricts domestic code sharing with Southwest Airlines. So we 
will want to and need to work with our pilots on the AirTran 
relationship with SkyWest, and then we will also need to make a 
determination, once AirTran is fully integrated into Southwest, 
what we want to do with that service.
    Now, four of those cities are already served by Southwest 
Airlines. I can assure you that that the two that are not, we 
want to serve. How SkyWest fits into that is just premature to 
say at this point.
    Chairman Kohl. What about employment here, Mr. Fornaro? You 
have how many people in Milwaukee?
    Mr. Fornaro. 330.
    Chairman Kohl. And how many are located here right now, Mr. 
Kelly?
    Mr. Kelly. We have 35 to 40. Sean?
    Mr. Fairbanks. About 50.
    Mr. Kelly. 50.
    Chairman Kohl. We are talking about somewhere close to 400. 
Is that right? Is that going to be diminished in any way? Or is 
that going to be enhanced?
    Mr. Kelly. It will be different. You have a crew base here, 
and we will not most likely. I do not know where those 
employees live, on the other hand, because a lot of our crew 
members will commute. But in terms of the airport operations, 
again, what we want to do is we want to grow the daily 
departures here in Milwaukee, and that would certainly grow the 
airport operations employment if we are able to do that. That 
would be our desire.
    Across the country, as we look at job opportunities, this 
is about growth. And Milwaukee, among the cities that we 
jointly serve, is at the top in terms of opportunities to grow. 
So I would hope that we could grow our flight activity and our 
employment here in Milwaukee.
    Chairman Kohl. So I take it you are saying the employment 
will not diminish and it may very well grow.
    Mr. Kelly. It will not diminish at least with the airport 
operating employees, but we will not have a crew base here in 
Milwaukee.
    Chairman Kohl. How many people is that crew base?
    Mr. Fornaro. That crew base has, I think, about 70 or 90 
pilots.
    Chairman Kohl. 70?
    Mr. Fornaro. Yes.
    Chairman Kohl. So those will be gone. That crew base will 
no longer be in Milwaukee.
    Mr. Kelly. The crew base would not be in Milwaukee, most 
likely. Again, even that is premature to say, but I want to 
give you a straightforward answer. But I do not know--and I 
doubt that Bob knows--where those employees actually live. They 
may very well not live in Milwaukee. They simply commute in to 
start their duty period.
    Chairman Kohl. And I am also taking for granted that the 
two classes of service that AirTran now offers will no longer 
be a part of service in Milwaukee.
    Mr. Kelly. We do not have any plans to change our on-board 
service. So it is all first class, yes, sir.
    Chairman Kohl. Well, Mr. Sheehy, your organization has 
many, many people who are willing to pay a little bit more to 
travel on the business class of AirTran. What do you say to 
them?
    Mr. Sheehy. Well, I think that, again, what is important, 
what is most important is the number of markets served directly 
and the frequency. Price probably does come in third, although 
I think in this economy and going forward more and more 
companies are sensitive to the price they are paying for their 
air service and I think will readily adapt to the model that 
Southwest has. They have options on Frontier. They have options 
on Delta and other airlines that are serving that. And I think 
if the business flying public thought that was an issue and 
they voted with how they flew, the airlines would adapt. But I 
really do not see that as a big barrier to the quality or type 
of air service that we have flying out of Milwaukee. I see Paul 
Upchurch here from Visit Milwaukee. I do not think it is a big 
issue for people coming in that are going to visit Milwaukee. 
So I really do not see that to be much of an issue at all 
unless, you know, you are Andrew Bogut or something, and then 
we all have problems fitting into airline seats these days.
    Chairman Kohl. I would love for Andrew Bogut to be 
traveling on commercial airlines.
    Mr. Sheehy. Less expensive on Southwest, yes.
    [Laughter.]
    Mr. Sheehy. We feel your pain.
    Chairman Kohl. Well, I am getting the impression here--and 
I have had since the merger was announced--that there are goods 
and bads to it. Now, obviously, Mr. Kelly and Mr. Fornaro, your 
job is to present the more positive aspects of it, 
understandably. And our job is to be concerned that whatever 
you do is good for Milwaukee. I think there are reasonable 
questions that have been raised here this morning that cause us 
to worry about whether this kind of a merger is good for 
Milwaukee. It is obviously going to be good for your airlines. 
But whether it is good for Milwaukee and Milwaukee consumers is 
a question.
    And maybe some of these questions cannot readily be 
answered, so I would like to ask you, Mr. Kelly, whether you 
are prepared to come back and visit with us annually and 
publicly to analyze the merger and its impact on Milwaukee and, 
if necessary, to make whatever accommodations or changes are 
necessary in order for you to fulfill your pledge to us, which 
is that this is going to be a good thing for Milwaukee and not 
a mixed bag or a bad thing. I think you are telling us that it 
is going to be a good thing for Milwaukee. You are not able to 
be particular about it because things change and developments 
occur, but you are assuring us that on balance this is going to 
be a good thing for Milwaukee and nothing else but a good thing 
for Milwaukee, and you do not want us to be disappointed. So 
will you come back and report to us annually on how this is 
benefiting Milwaukee?
    Mr. Kelly. I would be delighted to do that, and obviously 
we are here to serve our customers, and it is in our own 
selfish interest for you and all of our customers in Milwaukee 
to be happy. We know our communities want more service. We know 
that they want low fares. And we are the one airline over 40 
years who has lived up to that. We make commitments to our 
communities. We become involved. We do not come in 1 year and 
exit the next. Part of that is having the financial wherewithal 
to see ourselves through the bad times.
    I cannot promise you what changes we will need to make. We 
have made dramatic changes in Southwest Airlines over the last 
5 years. We were able to do that in a way where we did not 
abandon our communities, where we did not furlough employees. 
We did not ask them for pay cuts. And I am proud of that.
    So what I can promise you is that we will give it more than 
just our best effort, because we know this is important to your 
community. If we did not believe that we could take care of the 
Southwest and AirTran employees and crew members, also do good 
things for our shareholders, also do good things for our 
customers, we would not do it. And that is why we do 
acquisitions infrequently. But the last acquisition we did, I 
would just point out, we were probably 30 percent our size, so 
the track record there is pretty good that we buy as an 
incentive for us to continue to grow. And I hope that we can 
come back and tell you that we have been able to grow Southwest 
a lot.
    We would be lying to you if we did not tell you that we are 
concerned about gas prices. And we are. If we can keep moderate 
or at least stable gas prices, I think we have a very, very 
strong outlook for Southwest Airlines over the next decade.
    Chairman Kohl. Thank you very much for coming. Thank you 
all for being here today, and this hearing is closed.
    [Whereupon, at 11:24 a.m., the Subcommittee was adjourned.]
    [Submissions for the record follow.]

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