In a $1.4 billion transaction, Southwest Airlines has acquired AirTran to provide further growth to the low-cost carrier. This will be the third acquisition for Southwest, which previously acquired Muse Air and Morris Air and made a failed offer for Frontier just last year.
AirTran provides Southwest with an immediate large presence in Atlanta, entry into Reagan National Airport in Washington DC, and international service to Aruba, Bahamas, Dominican Republic, Jamaica, Puerto Rico and Mexico.
This acquisition appears to be complimentary in terms of routes and structure, as well as fleets, with the exception of the Boeing 717. AirTran will be integrated into Southwest’s operations once the transaction is completed, which will result in changes for AirTran passengers.
AirTran currently offers 2-class seating, with a business and economy configuration and advanced seat selection while Southwest offers one-class seating with board by check-in number open seating. A major change will occur for AirTran passengers.
Acquisition expenses are estimated to be between $400-$500 million, and Southwest believes the acquisition will be significantly accretive after the first year.
This acquisition has significant implications, and the AirInsight team will analyze this transaction as more information becomes available. Stay tuned for a podcast later today.
Some points to consider in your pod cast:
1. Does this merger give SW dominant leverage in Boeing’s decision whether to refresh or replace the 737? By my count, SW will have about 550 737-700s after the merger, counting the planes each has and on order; plus 80-100 737-300s. Jim Albaugh recently said in an interview with the Puget Sound Business Journal that a major problem with introducing a new plane will be whether they can seamlessly shift from the 737 to that plane at Renton, a major point because of the cost of production infra-structure. With SW’s numbers, they and Boeing could almost standing alone figure out how this change could be made most efficiently.
2. When as a practical matter can Boeing deliver a 737 replacement. They recently got a patent for an elliptical, composite, fuselage with two asiles that is the size of the 737/A320. See Flightblogger.com, 9/23/10. How quickly could they get a plane like this to mkt? If its 5-7 years, then SW and Boeing negociate how to work the transition between current orders and ones for the new plane. If its in the early 2020s, then SW keeps buying refreshed 737s until that transition line appears. It was fortunate for Boeing that the SW/Frontier merger failed because that would have brought the A320 into the mix, and created an opening at least for Airbus to push the NEO to replace the 737-300s and 717s. Unlikely, but possible and certainly an irritant for Boeing with its best 737 customer.
3. What effect if any will SW’s taking AT’s 86 (!) 717s have on the sales of CSeries type planes. If SW ever thought about buying those, they won’t any more because with the 717s they are getting similar performance with none of the expense of introducing a new plane because AT already has all that infrastructure in place.
This will be a powerhouse of an Airline with a compatable fleet and the dicipline and knowledge to be run well.
Delta will be experiencing some competition in Atlanta.
It will be interesting to see how and when this new combination starts expanding internationally.
This is an accretive and successful merger for everyone.