Dallas-Atlanta: Southwest Airlines Ready to Buy Air Tran (2014, leases)

[DANNYY]

The reason I'm posting this in General US is because there are plenty of people who do use both airlines and it does affect the way many here travel. Given some major markets are Miami, Orlando, Houston, Washington DC, DFW, & Atlanta for both Southwest & Air Tran. And how their off seas market in the Caribbean will be affected, since they will merge markets.

Anyways without further ado:

The acquisition also gives Dallas-based Southwest a presence in Reagan National Airport in Washington, D.C. and flights to Mexico and the Caribbean.

Another except for the destinations coming into the Southwest Market via Air Tran:

In addition to its domestic routes, Airtran flies to Cancun, Aruba, Montego Bay, Jamaica, Nassau, Bahamas and Punta Cana, Dominican Republic.

Any thoughts, concerns, or reactions to airfare and traveling now? Its a lot more convenient with this as it merges two separate markets, IMO.

[kidphilly]

One other aspect is that Southwest has maintianed a very low maintenance cost as they only flew 737s (training and parts were streamlined) - The acquisition will change their service/maintenance structure. Curious if that will have any impact on their profitability coupled with low costs

[DANNYY]

Originally Posted by kidphilly

One other aspect is that Southwest has maintianed a very low maintenance cost as they only flew 737s (training and parts were streamlined) - The acquisition will change their service/maintenance structure. Curious if that will have any impact on their profitability coupled with low costs

They also had this to say about their longterm savings due to acquisition:

The companies expect the acquisition will save $400 million annually by 2013. One-time costs related to the acquisition and integration costs are expected to be $300 million to $500 million.

And regarding their stocks:

Based on Southwest Airlines' closing stock price of $12.28 on Friday, the deal values AirTran common stock at $7.69 per share. Under the agreement, each share of AirTran common stock will be exchanged for $3.75 in cash and 0.321 shares of Southwest Airlines' common stock.

[west336]

I assume Southwest's HQ is staying in Dallas?

[diablo234]

Originally Posted by kidphilly

One other aspect is that Southwest has maintianed a very low maintenance cost as they only flew 737s (training and parts were streamlined) - The acquisition will change their service/maintenance structure. Curious if that will have any impact on their profitability coupled with low costs

I believe Air Tran is replacing their fleet with 787's.

[Spade]

Where is LANative. He is an expert on this.

[WestbankNOLA]

Ok, so if this is true I'm assuming that Southwest would sell off the 717's? Outside of that there shouldn't be an issue fleet wise since they both operate 73G's. Southwest was considering adding 738's though as the 735's went out so that will be interesting. Also, what would happen to the Caribbean and Mexican routes unless Southwest is about to change their business model.

The most interesting part will be Delta letting Southwest into Hartsfield.

What I'm really wondering is whether this is a merger or just an acquisition. I have to admit, if it's just an acquisition that it was a clever way to get into Atlanta. This will also let Southwest into DFW and MIA. AA and Delta definitely won't like it and wouldn't the Wright Amendment step in somewhere?

[Cowboys fan in Houston]

Originally Posted by Spade

Where is LANative. He is an expert on this.

Right here!

This works out as a win-win for Southwest. Southwest would love to have a presence in many of the markets Air Tran serves and it will make Southwest an even bigger force to be reckoned with.

Here is what we know so far:

1) The HQ and opps center will be in Dallas (this is an acquisition, not a merger)
2) Air Tran will no longer fly to DFW. Due to the Wright Amendment, Southwest is not allowed to fly to DFW. When the Wright Amendment compromise is in place in 2014, that will change. Naturally Love Field will still have tons of Southwest flights.
3) Over time, we will see integration of the Frequent Flyer Mileage programs. This will probably only happen when the operating certificates merge. That is probably 12-15 months off (pending approvals).

No word on whether Air Tran and Southwest will codeshare in the mean time. In my opinion, we will see first class dropped from the combined airlines (Southwest has no First Class, Air Tran does).

In any merger, the main issues are the cost structure, fleet commonality, and route structure. The route structure is complementary. Southwest does have a lower cost structure, but its not outrageous. It can be overcome. As for the fleet, I see no reason for them to sell the 717's for a couple of reasons:

1) I cant think of too many interested buyers (that could change)
2) They can still be a very useful part of the route structure.
3) The leases expire between 2014-2017

The 717s are perfect for short-haul flights to small-medium sized markets (like Atlanta-Mobile/Memphis/Nashville/Jacksonville/Richmond).

Now, who exactly does this hurt:

1) Delta- this is the biggest one. This is a huge kick in the balls to them. Now they have to deal with an even bigger and more aggressive airline in their backyard with a lower cost of operations. Southwest will increase margins in Atlanta and Delta's margins will decrease. Its nothing that will cause Delta to shrink in Atlanta, it will just affect their bottom line.
2) The City of Atlanta- Atlanta has tried to get the Air Tran HQ for a long time now. This crushes that dream. Even without this, Air Tran has been happily put in Orlando. They probably would not have moved anyway. Its not that bad of a blow to them at the end of the day.
3) DFW Airport- Due to contractual agreements, Southwest or any subsidiary can not operate out of DFW. DFW will be losing an airline (until 2014)
4) The City of Orlando- Losing an HQ and a hometown airline
5) Employees of Air Tran- Can you say "Forced relocation to Dallas or no job?" for the HQ staff and "No job for Junior members" for the FA's and pilots. There will be right sizing involved.

Who is happy by this:

1) The City of Dallas- An even larger airline HQ here means more jobs and more power
2) American- One less airline to fight at the largest home fortress. Due to contractual agreements, Southwest cannot fly there. DFW will be an airport free of low cost carriers (minus Virgin America). Not to mention, one less airline to fight overall (the others are just as happy about this). I talked with a friend who works at American and he said morale is so high over there about this, they bought a bunch of champagne.
3) Boeing- Rumor is that more airplane orders will result as a part of this.
4) Atlanta Airport- Having another huge airline with a giant hub is great for business

These are some initial thoughts. More may come to me later, but I gotta leave work.

[The Right Side_TX]

Originally Posted by west336

I assume Southwest's HQ is staying in Dallas?

Yes, Orlando will loose AirTran headquarters though.

[The Right Side_TX]

Originally Posted by diablo234

I believe Air Tran is replacing their fleet with 787's.

Nope, they never had them ordered. Nor would they make since for their type of operation.