SouthWest and Air Tran Merger?

Southwest Airlines  announced today that it has entered into a definitive agreement to acquire all of the outstanding common stock of AirTran Holdings, Inc. the parent company of AirTran Airways, for a combination of cash and Southwest Airlines’ common stock.

“Today is an exciting day for our Employees, our Customers, the communities we serve, and our Shareholders,” said Gary C. Kelly, Chairman, President, and CEO of Southwest Airlines. “As we approach our 40th Anniversary of providing exceptional Customer Service at everyday low fares, the acquisition of AirTran represents a unique opportunity to grow Southwest Airlines’ presence in key markets we don’t yet serve and takes a significant step towards positioning us for future growth.

“It offers Customers more low-fare destinations as we extend our network and diversify into new markets, including significant opportunities to and from Atlanta, the busiest airport in the U.S. and the largest domestic market we do not serve, as well as Washington, D.C. via Ronald Reagan National Airport. The acquisition also allows us to expand our presence in key markets, like New York LaGuardia, Boston Logan, and Baltimore/Washington. It presents us the opportunity to extend our service to many smaller domestic cities that we don’t serve today, and provides access to key near-international leisure markets in the Caribbean and Mexico. Finally, this accelerates our goal to boost profits and achieve our financial targets,” he continued.

The deal will let Southwest enter Atlanta and expand quickly in New York and Boston, all markets that are important to business travelers.

Southwest’s biggest acquisition ever, the $1.42 billion deal offers the low-fare king a chance to expand significantly at a time when the U.S. air-travel market is barely growing. For other airlines, especially Delta Air Lines Inc. in Atlanta, it creates an even bigger low-cost rival with more power to set prices on hundreds of routes.

AirTran has carved out a profitable business competing with Delta in Atlanta. Southwest has stayed out of the fight, making Atlanta the biggest U.S. city that it doesn’t serve. That causes Southwest to lose potential customers elsewhere.

The agreement has been unanimously approved by the boards of directors of each company, and closing is subject to the approval of AirTran stockholders, receipt of certain regulatory clearances, and fulfillment of customary closing conditions.

Based on an economic analysis by Campbell-Hill Aviation Group, LLP, retained by the airline to conduct market analysis, Southwest Airlines’ more expansive low-fare service at Atlanta, alone, has the potential to stimulate over two million new passengers and over $200 million in consumer savings, annually. These savings would be created from the new low-fare competition that Southwest Airlines would be able to provide as a result of the acquisition, expanding the well-known “Southwest Effect'” of reducing fares and stimulating new passenger traffic wherever it flies.