Morris Air Deal Could Bring Southwest to O.C.
Southwest Airlines said Monday it has agreed to buy discount airline Morris Air in a $129-million stock deal that among other things could lead Southwest to bring its low-price ticketing to John Wayne Airport.
Purchase of Salt Lake City-based Morris Air would give Southwest more airplanes and greater reach into the West.
Feared throughout the airline industry for its deep discount ticket pricing, Southwest would inherit Morris Air’s two daily round-trip flights between Salt Lake City and Orange County.
Southwest also would have an opportunity to add several flights from Orange County to other destinations, airport officials said.
Where Southwest flies, the competition invariably slashes prices on some of its seats to match the Dallas-based carrier’s low prices.
Southwest has rejected at least three prior opportunities to begin flying from Orange County--each time saying it needed a dozen or more daily flights to make its low-price, high-volume approach work here.
The carrier has publicly acknowledged that it wants to begin serving Orange County, however, and airport spokeswoman Courtney Wiercioch said Monday that Southwest could quickly increase its flights here by qualifying its Boeing 737 series jets for low-noise ratings under the airport’s strict noise abatement rules.
“They fly jets that can meet our guidelines,” said Wiercioch, adding that there are slots available at John Wayne Airport for low-noise jets.
David Banmiller, who was president of Newport Beach-based Air California when it was acquired by American Airlines in 1987 and now operates a private consulting firm in Newport Beach, said he would be “very surprised” if Southwest dropped Morris Air’s Orange County routes, especially if there is a chance of expanding beyond the two daily flights.
Although the airline industry has been hit hard by the nationwide recession, Orange County has always been one of the most profitable airports. That is because flights from the county are heavily used by business flyers who pay premium prices because they fly at short notice. Because of that, air lines typically do not offer the same sort of bargain fares in Orange County that they do at airports like Los Angeles International.
There would be no immediate impact on fares from Orange County to Salt Lake City, however. Delta Air Lines, the only other carrier in Orange County that flies to Utah’s capital, already matches Morris Air’s discounted $118 round trip, travel agents said.
But Southwest has a big presence in Las Vegas and Phoenix, two cities served from Orange County by America West Airlines and its American Eagle shuttle service. It would make sense, said Banmiller, for Southwest to start flights to those cities, which would likely force down the other carriers’ fares.
A spokeswoman for America West said the Phoenix-based carrier’s officials would have no comment until they know what Southwest’s plans are.
Delta’s Los Angeles district sales manager, John Lawrence, however, said that “whatever happens, we will compete.” He acknowledged that Morris Air’s discount flights to Salt Lake City had forced down ticket prices.
Although Southwest flies to most cities that are served by the present carriers in Orange County, Banmiller said its would be a threat mainly on short-range routes.
Because Southwest eschews meal service, the carrier “probably would keep to flights within 600 miles” from Orange County, he said. That would make San Diego, San Francisco, Las Vegas, Phoenix and Salt Lake City the most likely destinations and Delta, America West, American and United its most likely competitors at John Wayne Airport.
Acquiring upstart Morris Air, which first took flight nine years ago as a charter operation but started regularly scheduled service only a year ago, marks something of a course change for Southwest. The airline has preferred to grow by expanding its route system rather than through mergers; it suffered one of its few money-losing episodes when it bought Muse Air in 1986.
But the tiny--though profitable--Morris Air, which approached Southwest about two months ago, was just too good to pass up, said Herbert D. Kelleher, chairman and chief executive of Southwest Airlines.
“This is a very pro-competitive, pro-consumer combination of the two carriers, and we’re looking forward to good things from it,” Kelleher said at a news conference.
Southwest’s earnings will not be diluted by the merger because Morris Air is expecting a record profit in 1993, he said. Privately held Morris Air earned $5.3 million last year on operating revenue of $116 million.
Former travel agent June Morris, founder and primary stockholder of the airline, is selling because of health reasons and because of “future business concerns,” the company said in a statement.
Morris, 62, was recently diagnosed with breast cancer and, although her prognosis is good, she and her 73-year-old husband want to slow down and spend more time with their family, company spokesman Tom Kelly said. In addition, Kelly said, Morris Air had become large enough to be interested in the sort of financial backing represented by Southwest.
“This is not something that had to be done,” Kelly said. “If Southwest had not had any interest, I don’t think we would have continued” looking for a merger partner.
Under the proposal, Southwest would buy all of Morris for 3.57 million shares of Southwest’s common stock. Based on Monday’s $36 closing price on the New York Stock Exchange--where enthusiastic traders pushed the value up $2 a share--the deal is worth $128.7 million.
But the transaction ultimately would be valued by the stock price on the day the deal closes, which is expected to be Dec. 31.
Consumers probably wouldn’t notice the change initially as the two carriers gradually meld, but the merger would lock in low prices in cities served by Morris Air, industry analysts said.
However, Southwest has not ruled out the possibility of discontinuing service to some of Morris Air’s 22 destinations if the routes are not profitable.
Times staff writers Jesus Sanchez in Los Angeles and Jeffrey Perlman in Costa Mesa contributed to this report.
Terms of the Deal
* Morris will receive 3.6 million Southwest shares, currently valued at $128.7 million
* Acquisition is expected to be completed Dec. 31
* Southwest will add 21 Boeing 737-300 jets to its fleet
* Morris’ 22 destinations include Boise, Denver, Las Vegas, Los Angeles, Oakland, Orange County, Portland, Salt Lake City and Seattle
* Southwest will honor Morris Air reservations
* Most of Morris’ permanent employees will be hired by Southwest
