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David Kelly

Southwest buys AirTran Airways

By September 27, 2010

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This morning, Southwest Airlines announced today that it plans to acquire AirTran Airways for $1.4 billion.

AirTran Airways

The deal expands Southwest's reach to 37 new cities, as well as Atlanta, the nation's busiest airport, and gives Southwest a much greater claim to key markets such as Boston, New York, Washington D.C., and more. But the real question is how this will impact business travelers.

The deal is actually pretty remarkable and will potentially have a big impact on business travelers, especially in the eastern part of the United States, where AirTran has lots of routes and much greater access than Southwest. Southwest is already the number one U.S. domestic airline in passengers carried. This deal will significantly increase its reach, broaden the number of flights, especially in eastern U.S., and provide greater price competition against other airlines. I believe this merger will be a big win for business travelers, if judged on the potential for lower prices and more options.

Details

As usual, the deal is subject to review and clearance by the U.S. Department of Justice and other regulatory agencies. It also need to be approved by AirTran stockholders. In the short term, no changes in operating procedures are expected at either company. But once the acquisition goes through, Airtran will take on Southwest's policies and operating practices, such as allowing two free checked bags. According to statements, Southwest expects to integrate AirTran into Southwest within two years of the closing of the transaction. The AirTran brand will be discontinued, and the Southwest brand will continue.

Fewer Fees

AirTran currently charges for checked bags ($20 and $25), and ticket changes ($75). Once integrated, Southwest expects those fees to disappear and follow Southwest's current policies (no change fee for tickets, and 2 free checked bags). In addition, Southwest expects seating to follow its current open seating process, unlike AirTran, which assigns seats. It will also eliminate AirTran's Business class seating.

Rewards

Southwest expects to eventually merge AirTran's A+ Rewards program into Southwest's Rapid Rewards program, but it will take time to do that once the deal is completed.


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