Morris Air has been acquired by Southwest Airlines Co. of Dallas in a deal valued at approximately $122.4 million, based on Friday's close of the New York Stock Exchange. The sale is subject to regulatory approval.
Under the agreement announced Monday, Southwest Airline will acquire all of the outstanding stock of Morris Air in exchange for 3.6 million shares of Southwest's common stock. Morris Air president David Neeleman and chief executive officer June Morris own the majority of the Utah-based airline's stock.Morris said in a prepared statement that the decision hinged on a "combination of personal concerns and future business concerns."
Neeleman said Monday that Morris was recently diagnosed with an aggressive form of breast cancer and is being treated out of state. "It's serious. But because of new technology, there's a good prognosis," Neele-man said. Morris was not available for comment.
Neeleman said the business transaction had been in the works for "a couple months."
For the next year, Morris Air will operate as a "wholly owned subsidiary" of Southwest Airlines. The airline will continue to offer low fares, and holiday operations will resume as scheduled. Its reservation center will remain in Salt Lake City.
"Passengers will absolutely see no difference. It will be better and better," Neeleman said.
Delta Air Lines spokesman Neil Monroe said the deal was "simply one carrier replacing another. This has no impact on Delta Air Lines."
Monroe said Delta will continue to "compete intensely" against Southwest Airlines. "We still have the best service and best schedule going. We'll also be competitive on fares."Delta has held onto nearly half of the local market in Salt Lake City, but Morris Air's share has risen steadily over the past year and now stands at more than 23 percent.
Delta trimmed its fares earlier this year to better compete with Morris. "They're really going to be nervous now," Neeleman said.
Southwest started in 1971 and serves 37 cities. The company employs more than 14,000 workers. Its 1992 net income was $91 million.
Herbert D. Kelleher, chairman, president and chief executive officer of Southwest Airlines, said, "Since our low fare and entrepreneurial philosophies and policies are identical; our methods of operation are very similar; and we fly the same type of aircraft, the 737-300, I am convinced that the transitional integration of Morris Air into Southwest over a period of several years will be substantially eased and facilitated."
"Last I heard, Southwest stock was up today, which is a good sign. The market really sees this as a good marriage," Neeleman said.
The announcement was greeted with shock and surprise by the air travel community, but also as a boon for Utah air travelers.
"Southwest Airlines is one of the best airlines in the United States with a long history of profitability - it's a great opportunity for us," said Louis Miller, director of airports for Salt Lake City.
"It's going to be sad to see Morris go away - they've served us well as the hometown airline - but in the long run the Salt Lake City market will be well served by Southwest being here."
Miller said Southwest is very strong in serving high-demand markets with high frequency. "They have a very competitive fare structure to Morris' and a great reputation."
Miller said he didn't think the merger will have a negative impact on Atlanta-based Delta Air Lines' dominant position in Utah.
"Delta has positioned itself well as a strong competitor in Salt Lake City, and they have been competing well with Morris," said Miller.
"Delta is used to competing with Southwest around the country - Southwest is a major airline - and I believe Delta will keep its share of the market. I can't speak for Delta, but I suspect they will view it as an opportunity to compete with a known quantity."
Miller said he and his staff have been meeting frequently with Morris officials this year, discussing future opportunities for expanding service at Salt Lake City International Airport.
"Now, we'll just have to deal with Southwest as well as the local people."
Ted Wilson, chairman of the Utah Air Travel Commission, expressed shock at the news.
"This brings in a lot of variables that are hard to predict at this time," said Wilson, whose citizen's commission is charged with improving Utah's air service. "We trusted Morris' leadership because it is local and we knew them well. It's a shocking development."
Wilson said Southwest and its chairman, Herbert Kelleher, is the current model for how to run a successful and profitable airline at a time when the larger carriers have been floundering.
"I don't think we need to be too dismal about it," said Wilson. "Who knows? Maybe this will mean even better service for Utah."
Ironically, last year the commission visited Kelleher in Dallas and invited him to come to Utah and begin operations. That move was protested by Morris officials, and some commissioners agreed that, given Morris' proven track record, it was perhaps a slap in the face at the local company to go after a competitor.
The invitation was never withdrawn, but the controversy was published in the Deseret News, and commissioners said they were sure it had come to Kelleher's attention that commissioners were at least considering withdrawing the invitation. On Monday, it no longer mattered.
Wilson said Monday's announcement reminded him of Delta Air Lines' acquisition of the former dominant carrier in Utah, Western Airlines, a decade ago.
"We tried to get Delta in here (while Wilson was mayor of Salt Lake City) and couldn't do it. Then they come in the back door by acquiring Western. Now Southwest comes in the back door via Morris. It's a strange world."
Wilson said this development indicates that the days of "hub and spoke" airline centers - such as Delta operates in Salt Lake City - may be on the way out.
"You can't stop these trends - such as the move away from hubbing in favor of point-to-point service," he said. "It's the wave of the future. Hubbing has been good to Utah but we will have to deal with this new reality to survive."
Gov. Mike Leavitt, responding to news of the sale, said "Morris has revolutionized the airline industry. It's not surprising that a company like Southwest is interested in purchasing it. I will be in contact with Southwest to explore ways Utah might play a bigger part in its future."
Morris Air was started in 1984 as a charter carrier and was converted to a full-fledged carrier about a year ago. Morris Air had a net operating income of $5.3 million in 1992 and employs about 2,000 full- and part-time employees.
Morris said in a prepared statement that Southwest will offer jobs to most of Morris Air's permanent employees. Southwest Airline, she said, has been profitable for 20 consecutive years and has provided employee profit sharing. The company has been named one of the 10 best companies to work for in the United States.
*****
(Chart)
Acquisition
Airline
Southwest Airlines
Headquarters: Dallas
Leadership: Herbert (Herb) D. Kelleher, chairman of the board, president and CEO
Initial service: June 18, 1971
Fleet: 157 Boeing 737 jets
Number of employees: Over 14,000
Stock information: Common stock traded under "LUV" on the NYSE
Statistics:
--1992 net income; $91 million
--1992 customers carried: 27.8 million
--1992 load factor: 64.5 percent
--1992 operating revenue: $1.69 billion
--1992 total assets: $2.3 billion
Cities served by Southwest (37):
Albuquerque, Amarillo, Austin, Baltimore, Birmingham, Burbank, Chicago, Cleveland, Columbus, Corpus Cristi, Dallas (Love Field), Detroit, Elpaso, Harlingen, Houston (Hobby & Intercontinental), Indianapolis, Kansas City, Las VEgas, Little Rock, Los Angeles, Louisville, Lubbock, Midland/Odessa, Nashville, New Orleans, Oakland, Oklahoma City, Ontario (Calif.), Phoenix, Reno, St. Louis, Sacramento, San Antonio, San Diego, San Francisco, San Jose, Tulsa.
Morris Air
Headquarters: Salt Lake City
Leadership: June Morris, CEO
Rick Frendt, chairman of the board
David Neeleman - president
Initial scheduled service: Dec. 2, 1992
Fleet: 21 Boeing 737 jets
Number of employees: Approximately 2,000 (full- and part-time)
Stock Information: Privately held
Statistics:
--1992 net income: $5.3 million
--1992 operating revenue: $116 million
--1992 total assets: $86.7 million
(1992 charter service only)
Cities served by Morris Air (22)
Anchorage, Boise, Colorado Springs, Denver, Eugen, Fresno, Las Vegas, Laughlin, Los Angeles, oakland, Orange County, Palm Springs, Phoenix, Portland, REno, Sacramento, Salt Lake City, San Diego, San Jose, Seattle, Spokane, Tucson.