Aviation

Southwest to buy AirTran; Wichita impact uncertain

Southwest Airlines announced Monday that it's buying rival discount carrier AirTran Airways in a deal for cash and assumed debt valued at $3.42 billion.

AirTran operates three daily flights from Wichita Mid-Continent Airport to its Atlanta hub.

Wichita City Manager Robert Layton said it is too early to speculate on what the change will mean to the Wichita market.

"I'm sure they'll be a lot of discussions with the merged carrier between now and then," Layton said. "We're very hopeful that we're going to maintain a low-cost carrier."

The deal will combine two of the country's largest low-fare airlines and give Southwest a bigger slice of the market in the Northwest and Atlanta, the nation's busiest hub. The move gives Southwest, which carries more passengers than any other American airline, access to 37 new cities.

Southwest and AirTran together serve 106 U.S. cities along with Mexico and the Caribbean with 685 all-Boeing aircraft. Together, they employ 43,000 people.

Southwest would likely retain its Atlanta service in Wichita, said Boyd Group airline analyst Mike Boyd.

"Only because you (Wichita) drag in passengers that are business travelers from all over the country," Boyd said. "Business travelers are what (airlines) want. If you were a vacation destination, I'd say the writing's on the wall."

One question is whether Southwest will continue operating in markets where AirTran gets a subsidy to underwrite losses, as it does in Wichita, Boyd said.

AirTran has collected revenue guarantees each of the eight years it's had service in Wichita.

"If AirTran cannot make a profit in Wichita, there's no way Southwest can. Southwest has higher costs (than AirTran)," Boyd said. "You don't have enough traffic."

Still, Boyd doesn't expect Southwest to pull the Wichita service.

"At worst, it will be a wash," Boyd said.

Wichita State University associate professor of marketing Dean Headley said Southwest's presence could ultimately be good for Wichita.

"Southwest was thinking about coming here anyhow," Headley said.

Southwest has been in talks with city and airport officials about beginning service in 2011 from Wichita to Las Vegas, Dallas and St. Louis, with the St. Louis flight continuing on to Chicago.

Talks were recently suspended after Southwest said it didn't plan to add destinations next year.

There was a concern about Southwest's entrance into Wichita and what affect it would have on AirTran.

"It's entirely probable that AirTran would have left," Headley said.

Now, that's not an issue. And Southwest wasn't asking for a lot of subsidies to begin service here — only a few million dollars a year for a couple of years, he said.

People have a favorable impression of Southwest, Headley said.

"If there's (additional) traffic to be had, Southwest will bring it out of the woodwork," he said. "Everybody likes them.... It seems like they're the darling of the industry."

Randy Jarman drove from Tulsa to Wichita on Monday to catch AirTran's afternoon flight to Atlanta for a business trip.

"AirTran and Southwest are the two best airlines," Jarman said. "This is a real positive partnership."

Both offer attractive fares, but Jarman drives to Wichita for AirTran because Southwest doesn't offer direct flights to Atlanta from Tulsa.

Steve Haworth also took AirTran's afternoon flight from Mid-Continent.

"Those are two of my favorite airlines because they have a lot of Boeing aircraft," said Haworth, a former Boeing employee who now lives in Connecticut.

The deal is expected to close in the first half of 2011, but it will be 2012 before the airlines will be full integrated. The deal must be approved by regulators and shareholders.

Until the acquisition is finalized, both carriers will continue to operate independently.

Eventually, AirTran's former routes will be changed to Southwest's model of no charge for the first or second checked bag, no change fees and no assigned seating.

The acquisition may also spell the end of the deep-discount sales currently offered by AirTran and Southwest because there will be less competition.

"The era of irrational, stupid, destructive fare sales is over," said fare expert George Hobica. "This is the new normal."

The purchase will also put Southwest in direct competition with Delta Air Lines at its Atlanta hub.

"It's a perfect fit," Maxim Group analyst Ray Neidl said of Southwest's purchase. "They're getting a very good asset while also eliminating a competitor that would have overlapped them eventually."

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