Southwest Airlines paid $1.42 billion to merge with AirTran, which is also a large discount airline within the U.S.. Southwest’s acquisition of AirTran enables the airline to increase to key eastern hubs and sets it up to compete with major international carriers. Travel experts were confused when it happened. Some are saying that the Southwest/AirTran combination will result in higher ticket prices and fees for passengers, now that competition in the discount airfare market has been reduced. Competition within the market can be easier for the large business. Smaller corporations will have to merge to compete with Southwest. Southwest promised to keep its policy of no baggage fees which can be good for any AirTran customers.
Southwest Airlines showing up all around the east now
Southwest Airlines spend $1.42 billion buying out AirTran. Nobody was all that surprised by this. Delta and Northwest merged in 2008. October 1 is when Continental and United Airlines will merge. This means they can be the largest airline in the world. New York’s La Guardia and Washington D.C.’s Reagan National will now have Southwest in their travel hubs with this, says USA Today. Delta will be Southwest’s biggest competitor within the world’s busiest airport in Atlanta where it now has access.
Southwest does better with AirTran investment
Dallas-based Southwest Airlines carries more passengers than any other airline in 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. $670 million can be paid with accessible cash by Southwest. Southwest took on more than just a company. It also took $2 billion in debt from AirTran. Assuming regulatory and shareholder approval, the deal is expected to close within the first half of 2011. There will be an additional change by 2012. AirTran planes will all get a paint job to be Southwest planes.
Effects 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. The competition being gone will leave Southwest and other businesses with less pressure. Without the pressure, prices are sure to go up. George Hobica of Airfarewatchdog told The Consumerist the Southwest AirTran merger will also lead to more airline consolidation, further reducing competition and consumer choice. Southwest may have to decide whether to just raise its prices or continue to profit off of low fares, states Hobica. Other larger corporations 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
