Thread: Southwest will buy AirTran for $1.4 BILLION

Southwest will buy AirTran in merger of low-cost rivals

Updated 14m ago
By Charisse Jones and Ben Mutzabaugh, USA TODAY

Southwest Airlines (LUV) said Monday that it will buy smaller rival AirTran Airways (AAI) for $1.4 billion, in a merger of low-cost carriers whose impact will be felt from fares to the number of flights available to millions of passengers.

The merger continues a trend of airlline consolidation, which has seen Continental and United Airlines announcing their intention to join operations Oct. 1, making it the largest airline in the world, and Delta and Northwest merging in 2008.

"The acquisition of AirTran represents a unique opportunity to grow Southwest Airlines' presence in key markets we don't yet serve and takes a significant step towards positioning us for future growth," Southwest CEO Gary Kelly said.

The deal stunned some travel experts, who said the union of Southwest and AirTran would force up fares now that leading low-cost carriers are uniting rather than competing. And other airlines will likely be forced to consolidate to survive, further reducing alternatives for fliers.

"This is truly a shocker, and it can only mean further consolidation," says George Hobica, founder of airfarewatchdog.com. "I don't think anyone really saw this coming. More than any recent merger, it spells bad news for low fares, since both airlines were leaders in the low fare space and had frequent, almost weekly, sales. I can only imagine that now pressure is on for American to find a partner, and also US Airways, and that will lead to even less fare competition."

The cash and stock deal will allow Southwest to move into or plant a larger stake in primary travel hubs such as New York's La Guardia and Reagan National airport near Washington, D.C. It will also give Southwest entree into Atlanta, busiest passenger airport in the world, paving the way for the low-cost carrier to go head to head with Delta on that airline's home turf.

Terms of the deal call for AirTran stockholders to get a combination of Southwest common stock and cash valued at $7.25 to $7.75 per share, depending on the price of Southwest stock prior to the merger. At least $3.75 will be cash, the companies say.

Southwest and AirTran said the combined airline would fly more than 100 million passengers out of more than 100 airports, including some overseas. In 2009, Southwest carried 101,338 passengers to AirTran's 23,998, the comanies say.

Many details of the merger are unclear, such as whether Southwest and AirTran will each shed some destinations, and whose fee structure would dominate. Southwest prides itself on not charging for the first two checked bags while AirTran charges $20 for the first, and $25 for the second checked bag.

The merger must be approved by both U.S. regulators and the companies' shareholders.

http://www.usatoday.com/money/industrie ... titialskip

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