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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 

( 

(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

AL FRANKEN, Minnesota 

CHRISTOPHER A. COONS, Delaware 

RICHARD BLUMENTHAL, Connecticut 

CHARLES E. GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

MICHAEL S. LEE, Utah 

TOM COBURN, Oklahoma 

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 

AMY KLOBUCHAR, Minnesota 

AL FRANKEN, Minnesota 

RICHARD BLUMENTHAL, Connecticut 

MICHAEL S. LEE, Utah 

CHARLES E. GRASSLEY, Iowa 

JOHN CORNYN, Texas 

CAROLINE HOLLAND, Democratic Chief Counsel/Staff Director 

DAVID BARLOW, Republican General Counsel 

(III) 

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 

(1) 

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, arVerDate Nov 24 2008 07:50 Aug 12, 2011 Jkt 067500 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\67500.TXT SJUD1 PsN: CMORC
2 

guing 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. 

3 

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 lowfare, 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. 

4 

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 

5 

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. 

6 

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. 

7 

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 

8 

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. 

9 

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 

10 

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 

11 

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 lowcost 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 agVerDate Nov 24 2008 07:50 Aug 12, 2011 Jkt 067500 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\67500.TXT SJUD1 PsN: CMORC
12 

gressive 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 comVerDate Nov 24 2008 07:50 Aug 12, 2011 Jkt 067500 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\67500.TXT SJUD1 PsN: CMORC
13 

plement, 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. 

14 

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, 

15 

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 acVerDate Nov 24 2008 07:50 Aug 12, 2011 Jkt 067500 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\67500.TXT SJUD1 PsN: CMORC
16 

cess 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. 

17 

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 MidVerDate Nov 24 2008 07:50 Aug 12, 2011 Jkt 067500 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\67500.TXT SJUD1 PsN: CMORC
18 

western 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. 

19 

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 

20 

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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