Southwest to buy AirTran for $1b

The merger fever in the US airline business is showing no signs of abating.

Southwest Airlines, the biggest low-cost carrier in the United States, said in a surprise announcement that it had agreed to buy a smaller rival, AirTran Airways, for US$1.4 billion, reported the International Herald Tribune.

The planned merger would be the third in the past two years in the battered airline industry. Delta Air Lines bought Northwest in 2008, and a merger of United Airlines and Continental is due to be completed on Friday.

The Southwest deal was announced as demand for domestic air travel remained sluggish. Even with the airlines holding capacity down, industry executives say, there are still too many planes chasing too few passengers. Airline analysts and some executives said the US market would eventually centre on just three or four major airlines.

Southwest has traditionally managed to offer low fares by flying out of smaller airports where it is cheaper to operate and by relying on a single type of Boeing 737 plane to reduce its operation costs. But while Southwest was promoting the deal as an expansion of the low-fare model, it was unclear how much effect it would have on prices, as the carrier moved into major hubs like Atlanta and Washington and bolstered its minimal presence at La Guardia Airport in New York.

Still, by expanding Southwest’s network, especially in the Northeast, the deal would put pressure on the major airlines that have well-entrenched and dominant hubs there.

The deal poses a particular challenge to the US carriers that have not bulked up recently, especially American Airlines and US Airways.

American, in particular, could now face more pressure to find a partner. Analysts have long suggested a tie-up with US Airways, but some also raise the possibility of its bidding for Alaska Airlines or JetBlue Airways. Either would bolster American’s presence on the West or East Coast.
(Source:www.cargonewsasia.com)