Monday, September 27, 2010

Southwest Plans to Buy AirTran

Massive airline news today as Dallas-based Southwest Airlines announced its intention to buy AirTran Airways for $3.4 billion in cash and assumed debt.

Assuming the regulatory gods approve the merger, this will give Southwest a big "in" at Atlanta's Hartsfield-Jackson International Airport and Washington's National Airport. It will significantly expand the airline's presence at New York LaGuardia and Boston Logan. The acquisition will also make Southwest an international airline, with service to Mexico and the Caribbean.

One logistical hurdle of the merger is AirTran's fleet of 86 Boeing 717s. Southwest's operational efficiency has long been based on flying nothing but Boeing 737s, but you can't just '86' 86 717s, so we may get to see 717s decked out in Southwest's livery in the short-term.

We know AirTran will stop serving Dallas/Fort Worth International once the merger is finalized since the end of the Wright Amendment restrictions at Dallas Love Field were partially predicated on Southwest not flying out of DFW. Additionally, smaller airports served by AirTran but close to another airport already served by Southwest may not be able to sustain service. To name a few, I would not be confident about airports in Flint, Mich., Pensacola, Fla. and Newport News/Williamsburg, Va. being served by the combined airline in the long term. Here's a telling phrase from the merger website:

We are interested in serving the great majority, if not all, of AirTran's current markets.

Perhaps most importantly to passengers, how will Southwest/AirTran reconcile the bag fee issue? The first two bags fly free on Southwest, while AirTran charges $20 for the first bag and $25 for the second. Again, from the merger website:

Upon full integration, it is our intent to have a consistent product offering. It is our intent that the bag fees would not be part of that product.

Likewise, the combined airline plans to adhere to Southwest's policy of having only one class, no assigned seating and no change fees. Overall, I'd say this merger is a net positive - even more so if we get an Austin-Atlanta run to break Delta's stranglehold on that route.

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