AirTran has been purchased by Southwest Airlines for $1.42 billion in a deal that merges two of the largest discount airlines in the U.S. southwest’s acquisition of AirTran enables the airline to expand to key eastern hubs and sets it up to compete with major international carriers. The deal caught travel experts off guard. Some are saying that the Southwest/AirTran merger will result in higher ticket prices and fees for passengers, now that competition in the discount airfare market has been reduced. It will also force other airlines to merge in order to compete. However, a definite positive for former AirTran passengers will be Southwest’s policy of no baggage fees,which the airline said it will maintain across the board.
Southwest Airlines unleashed in the east
Southwest Airlines’ purchase of AirTran for 1/42 billion continues a trend of airline consolidation. Delta and Northwest merged in 2008. Continental and United Airlines will merge Oct. 1, creating the largest airline in the world. USA Today reports that the deal gives Southwest a major presence in primary travel hubs such as New York’s La Guardia and Washington, D.C.’s Reagan National. Southwest now has a foothold in Atlanta, the world’s busiest passenger airport, where it will compete with Delta in its backyard.
AirTran stock gets Southwest bump
Dallas-based Southwest Airlines carries more passengers than any other airline in the U.S. AirTran is the eigth-largest U.S. carrier. The Associated Press reports that based on Southwest’s closing share price on Friday, Southwest’s acquisition is worth $7.69 per AirTran share–a 69 percent premium over AirTran’s closing price of $4.55. Southwest will pay about $670 million with available cash. Southwest will assume $2 billion in AirTran debt. Assuming regulatory and shareholder approval, the deal is expected to close in the first half of 2011. By 2012, all AirTran planes will bear Southwest colors.
Airline mergers: good or bad for consumers?
To consumers, the Southwest/AirTran merger could mean the end of low air fares. The Consumerist reports that passengers benefit when there are more carriers competing for their business. Fewer competitors in the discount realm could mean that Southwest and other airlines have less pressure to keep fares low. George Hobica of Airfarewatchdog told The Consumerist that the Southwest AirTran merger will also lead to more airline consolidation, further reducing competition and consumer choice. Hobica said the outcome will depend on whether Southwest will use the expansion to either improve its ability to profit from low fares, or simply raise prices. Another possible outcome is that a bigger Southwest could force the bigger airlines to compete on its level and lower airfares overall.