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Southwest Airlines to buy AirTran for $1.4B

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Dallas-based Southwest Airlines would bump Delta Air Lines from top carrier spot at Indianapolis International Airport upon acquiring Orlando-based-based AirTran in a  $1.4 billion deal announced Monday morning.

Southwest/AirTran would have about a third of the Indianapolis market, serving about 3,700 passengers daily with flights to 14 destinations, airport officials said.

Of course, that’s before any route changes that would most certainly result from the combination.

“It is difficult to speculate what the merger impact could be for us,” Chris Matney, air service director for the Indianapolis Airport Authority, said in a statement.

“There could be some reduction of existing routes. There could also be added capacity to create more competition between the airlines from Indianapolis to strategic markets,” Matney added.

Fortunately Indianapolis is not a hub for either airline, which would make it most vulnerable to the effects of a merger.

As of August, Delta carried 25 percent of passengers at Indianapolis, followed by Southwest, at 17.5 percent, and AirTran’s 16.5 percent.

The acquisition announcement continues the airline industry's move to consolidate. Continental Airlines and United Airlines parent UAL Corp. will formally combine at the end of this week and become the world's largest, toppling Delta. Delta claimed that spot when it acquired Northwest Airlines two years ago. United is Indianapolis' sixth-busiest airline; Continental is seventh.

The AirTran acquisition will put Southwest in head-to-head competition with Delta Air Lines in Delta's home base of Atlanta. The buyout, funded mostly with debt, also will give Southwest a bigger slice of the market in cities like Boston and New York, where it has been expanding.

Both carriers offer nonstop service from Indianapolis to Baltimore, Orlando, Las Vegas and Tampa. Popular nonstop destinations that AirTran currently serves from Indianapolis that Southwest does not are Atlanta and New York’s LaGuardia.

Southwest tried unsuccessfully last year to buy Frontier Airlines out of bankruptcy. Indianapolis-based Republic Airways Holdings won the auction for Frontier last August, buying the Denver-based carrier for almost $108.8 million.

Southwest's acquisition of AirTran is expected to close in the first half of next year. It requires both regulatory and shareholder approval. The airlines expect to fully blend their operations in 2012.

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.

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.

In April, AirTran Holdings Inc. CEO Robert Fornaro signaled his interest in making a deal, saying the airline would consider a combination with another carrier if approached and if such a deal made sense for the company and shareholders.

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  • Competition
    There could also be a reduction in competition and higher fares.

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