Southwest-AirTran deal means more options for some

[KNRX]

"Southwest's decision to buy AirTran will mean more routes and fewer
delays and cancellations in small cities but higher fares in the
Northeast and perhaps the end of the super-low sale fare.

Southwest Airlines, which has built a loyal following with its tongue-
in-cheek ads and refusal to charge for checked bags, said Monday it
planned to buy AirTran for $1.4 billion.

The deal will move Southwest into 37 new cities, expand its presence
in cities like New York and Boston and move it into Atlanta, the
busiest airport in the nation.

Combining the AirTran and Southwest routes means more connecting
options for people flying through places like Moline, Ill., and
Wichita, Kan., which should result in fewer delays and cancellations
because there will be more options for rerouting passengers.

In bigger cities like the Northeast hubs, however, fares will probably
eventually go up. They may not rise right away because many of those
cities are still served by a third discounter, JetBlue Airways, said
fare expert George Hobica.

The acquisition may also spell the end of the deep-discount sales
currently offered by AirTran and Southwest because there will be less
competition. Right now, for example, AirTran is offering a $54 one-way
fare between Baltimore and Boston.

"The era of irrational, stupid, destructive fare sales is over,"
Hobica said. "This is the new normal. JetBlue now has permission to
raise prices between Baltimore and Boston. Other airlines now have
permission to raise prices between Washington, D.C., and Florida."

In welcome news for weary travelers, Southwest said it will drop
AirTran's bag fees when the pair combine in 2012. Right now, AirTran
charges $20 for the first checked bag, $25 for the second.

Some major airlines charge even more. Southwest claims it has lured
passengers by refusing to charge for bags, and it has built a
marketing campaign around the policy, with baggage handlers shouting
declarations of love to suitcases on the tarmac.

The combined airline probably won't be large enough to pressure big
competitors like United and American to give up the hundreds of
millions of dollars a year they make from baggage fees, airline
analyst Jay Sorensen said.

While Southwest will be about 25 percent larger when the deal is
complete, it will remain the fourth-largest by traffic. The upcoming
combination of United and Continental will be No. 1, followed by Delta
and the parent of American.

Southwest will move into Atlanta, the only major business hub it
doesn't already serve. Business travelers are key to airlines because
they tend to pay higher fares. In an interview with The Associated
Press, Southwest CEO Gary Kelly said Atlanta was a "gaping hole in our
route system."

Southwest also gains routes to Mexico and the Caribbean, where JetBlue
has a big presence.

The buyout is the latest in a wave of consolidation in the airline
industry. Continental and United will topple Delta as the largest
airline in the world when they combine this week. Delta got the title
when it bought Northwest in 2008. In the past 10 years, 10 major
airlines have paired off, leaving five fewer.

The deal will leave only four major airlines without suitors:
American, US Airways, JetBlue and Alaska Airlines. Several experts
suggest the unexpected Southwest deal will pressure American to tie up
with US Airways, or possibly JetBlue.

AirTran was founded in 1992 as ValuJet Airlines. It was renamed after
the 1996 crash of ValuJet Flight 592 into the Florida Everglades,
which killed all 110 people on board. It would be Southwest's largest
acquisition by far.

Southwest founder Herb Kelleher, a cigarette-smoking, Wild Turkey-
drinking Texas lawyer, revolutionized the airline industry in the
1970s by offering low fares to leisure travelers out of secondary
airports. Early on, the airline drew customers by passing out booze
and putting flight attendants in hot pants.

The company, which began with a handful of planes hopping among three
Texas cities, bought Morris Air and Muse Air in the mid-1980s. Two
years ago, it bought assets of ATA Airlines out of bankruptcy and
began limited service to and from New York's LaGuardia Airport.

Last year, Southwest tried unsuccessfully to buy Frontier Airlines out
of bankruptcy. Republic Airways Holdings won the auction instead and
bought it for $109 million.

Southwest's acquisition of AirTran is expected to close in the first
half of next year. It requires both regulatory and shareholder
approval.

Based on Southwest Airlines' closing share price on Friday, the deal
is worth $7.69 per AirTran share. That's a 69 percent premium over its
closing price of $4.55. AirTran shares jumped 62 percent to $7.36,
while Southwest shares rose $1.73 to $14.01.

Southwest will pay about $670 million with available cash and assume
$2 billion in AirTran debt. Southwest and AirTran said the new airline
will operate from more than 100 different airports and serve more than
100 million customers."

Source: http://travel.yahoo.com/p-interests-35927476;_ylt=AvDz3BEbPRbMtKffEiVUfRVsNMN_