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. It threw some travel experts off their game to hear this. Some are stating the Southwest/AirTran merger will result in higher ticket prices and fees for passengers, now that competition within the discount airfare market has been reduced. It will also force other air carriers to merge in order to compete. However, a definite positive for previous 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. There was a different merge in 2008. Delta and Northwest were merged. October 1 is when Continental and United Airlines will combine. This means they will 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 investment helping out Southwest
Dallas-based Southwest Airlines carries more passengers than any airline within the United States. AirTran is on the list too. It was the eighth largest carrier before it was bought. As outlined by the Associated Press, AirTran’s closing price was $4.55 but then increased 69 percent to be $7.69 with Southwest’s acquisition on Friday. Southwest has plans to pay with cash. It has in available cash $670 million. $2 billion in AirTran debt is going straight to Southwest. Assuming regulatory and shareholder approval, the deal is expected to close in the first half of 2011. All AirTran planes can have been changed to Southwest by 2012.
Consequences of merging air carriers
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. There isn’t as much pressure to keep flights at low prices if there is not competition within the discount realm. Prices are sure to go up says George Hobica of Airfarewatchdog. He told The Consumerist that this will happen because more companies will merge making for even less competition than before. Southwest could have to decide whether to just raise its prices or continue to profit off of low fares, says Hobica. Another possible outcome is that a bigger Southwest could force the bigger airlines to compete on its level and lower airfares overall.
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
