Southwest has agreed to buy AirTran for $1.4 billion, the latest of three airline mergers in the past two years. As the industry continues to battle a tough market, who gains and who loses from this deal? Here's the rundown of what Southwest is thinking, what competitors and customers should be worried about, and what the move might mean in the broader context of recent airline mergers.
- Southwest Gains Atlanta "The
discount airline currently doesn't have a stake in Atlanta's airport,
the biggest in the world and the biggest major market Southwest
currently doesn't serve," summarizes Ernie Smith at Shortformblog. "AirTran's biggest hub is Atlanta."
- Pitting It 'Against Delta Air Lines,' explains Lewis Lazare at the Chicago Sun-Times. Delta "has long been the dominant force in that large business destination."
- A Good Business Move for Southwest, All Around Mergers are tricky, but "this one is about as close to a sure thing as you can get, assuming Southwest is paying a fair price," comments The Atlantic's Dan Indiviglio. "The two airlines appeal to a similar group of consumers, so there should be little difficulty in putting the two together. Meanwhile, the larger airline can streamline costs, but still have a broader offering." Lewis Lazare adds that Southwest will gain access, through AirTran, to Reagan National Airport in DC, as well as "more landing slots at both New York's LaGuardia Airport and Boston's Logan International." Why is that good? "Southwest has long profited from leisure travelers but stands to gain significantly in the business market." Also, he adds, the move would make Southwest an international carrier, since AirTran serves parts of the Caribbean.
- But for the Customers? Marnie Hunter at CNN talks to George Hobica, founder of Airfarewatchdog.com, who thinks the merger is "good news for AirTran passengers ... in general because Southwest has better service than AirTran and lower fees." Dan Indiviglio is less optimistic, pointing out that mergers generally mean higher prices, though Southwest's new strength might allow it to compete with "the big guys like Continental-United, American, and Delta," forcing down fares. "Possibly the worst-case scenario would be if this merger causes the other airlines to feel like they should consolidate too."
- The Three Groups Hurt by This "The first are airline employees, some of whom are almost always fired in carrier marriages," explains 24/7 Wall St.'s Douglas McIntyre. "Otherwise, how would the carriers cut costs?" Then, McIntyre comes down on the side of the merger hurting customers, too: "The merger of two sets of ground personnel and computer reservation systems cause glitches." That's even before you're considering price. "The last losers in airline mergers are the large aircraft builders, Boeing (NYSE: BA) and Airbus. Larger airlines have more bargaining power because of the size of their fleets."
- Old Mergers Helped Economy, but New Mergers Are Playing Market Defense Time's John Curran views this move alongside similar plans by Wal-Mart and Unilever to buy other companies. "It' almost feels like the Go-Go Eighties," he says, except that back then, "companies and corporate raiders embarked on acquisitions to unlock value, siphon cash from overfunded pensions, leverage the balance sheet of slow-growing companies and make other tactical moves to get a quick payback," leading to higher stock prices. "Mergers today are more about buying growth or consolidating within industries to adapt to lower demand."
This article is from the archive of our partner The Wire.