Two of the largest U.S. discount airlines were merged together when AirTran was bought by Southwest for $1.42 billion. Southwest is now more game with all of the access it has to the east side of the country. It also can play internationally with the competition. Travel experts were confused when it happened. Some say that fees because of the Southwest/AirTran combination could be going up without as much competition in the discount market. Other air carriers will only be able to compete by merging themselves. Southwest promised to keep its policy of no baggage fees which could be good for any AirTran customers.
Southwest Airlines showing up all over the east now
Airlines are consolidating more often which is why it isn’t that surprising that Southwest Airlines bought AirTran for $1.42 billion. Delta and Northwest merged in 2008. October 1 is when Continental and United Air carriers will merge. This means they can be 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 options supporting out Southwest
In the United States of America, there is not any other airline that beats out Dallas-based Southwest Airlines for carrying more passengers. AirTran is on the list too. It was the eighth largest carrier before it was bought. The Associated Press reports that depending 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 money. Southwest will assume $2 billion in AirTran debt. In the first half of 2011, the deal could be expected to be close. By 2012, all AirTran planes will bear Southwest colors.
Is it positive or negative that air carriers combine?
To customers, the Southwest/AirTran merger could mean the end of low air fares. According to the Consumerist, it is good to have more competition. Without competition, the prices will go up. 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 the Southwest AirTran merger may 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. Other larger companies may be forced into lowering their prices. This would only be if Southwest becomes a competitor to them.
Further reading
USA Today
usatoday.com/money/industries/travel/2010-09-27-southwest-airtran-merger_N.htm
Associated Press
google.com/hostednews/ap/article/ALeqM5hFjJQqYUno_x04Nx3mAvf9Na1EwwD9IGC59G0
The Consumerist
consumerist.com/2010/09/what-does-southwest-buying-air-tran-mean-for-consumers.html
