Southwest Airlines to Merge with AirTran

As you have probably learned already, Southwest Airlines is set to acquire AirTran for $1.4 billion. On September 27, Southwest Airlines announced the friendly take-over. Interesting is the fact that, for the first time, Southwest will then offer flights to destinations outside of the U.S. (continuing AirTran service to Mexico and the Caribbean).

The deal is in general an interesting move by Southwest, which has shied away from acquisitions for most of its 39-year history. The timing is also well chosen - since Continental's and United's stakeholders just approved their merger a few weeks ago. But why did Southwest consider the merger in the first place? Well, the two airlines competed at around 30 airports and the merger will give Southwest more access to important markets, such as New York, Orlando and Boston. It also gives Southwest more slots at Atlanta, Delta's main hub.

The fact that AirTran owns Boeing 717s as well as 737s will be a huge disadvantage and I would bet my money that Southwest will get rid of AirTran's 717 shortly. One of the key strategies of Southwest is owning only one aircraft type - the 737. This means that all pilots can fly all planes, all parts are the same for all planes and training for crew members is really simple. If they suddenly have two different planes, the costs will go up.

All in all, I think the merger will be good for the U.S. airline industry, but bad for most customers, since I predict that ticket prices will go up...

To read the Wall Street Journal Article, please click here.