Monday, September 27, 2010

Southwest Airlines buyout of AirTran Airways has bright future for both carriers

Southwest Airlines 737-7H4 (32458/2517) N909WN turns into gate 1 at Orange County Airport (SNA/KSNA) sporting the "Free bags fly here" logo. (Photo by Michael Carter)

Southwest Airlines' acquisition of AirTran Airways for approximately $1.4 billion in cash and SWA stock (see item below) is expected to yield net annual synergies of more than $400 million by 2013, SWA said on Monday. One-time costs related to the acquisition and integration of AirTran are expected to be in the range of $300-$500 million.

The deal combines two carriers with little route overlap. SWA serves 69 airports and AirTran 70, but each serves 37 airports not served by the other, according to SWA CFO Laura Wright who spoke to Wall Street analysts yesterday via webcast. According to Oliver Wyman's website, they operate flights in just 20 common nonstop segments based on schedules for this week.

Post-merger, SWA will blanket the Northeast and Mid-Atlantic regions, serving 23 airports between Virginia and Maine, as well as 11 in Florida. Acquisition of AirTran also gives SWA entry into slot-constrained Washington National; both already serve Washington Dulles and Baltimore/Washington.

AirTran's largest market remains Atlanta, which accounts for about 47% of daily departures, down from 91% 10 years ago. It next largest airport is BWI, with 51 daily departures and Orlando, where it is headquartered, with 43. Southwest's largest base is Las Vegas, with 224 daily departures, followed by Chicago Midway with 216, Phoenix with 178, BWI with 171 and Denver with 144.

The combined carriers will operate 685 aircraft comprising 401 737-700s, 173 737-300s, 25 737-500s and 86 717s. On Monday, SWA Chairman, President and CEO Gary Kelly said that SWA believes it can make the 717 work in the SWA fleet.

Southwest already carries more passengers within the US than any other airline and will continue to do so even after Continental and United complete their merger. Both airlines' cost structures are similar, but AirTran has slightly lower non-fuel CASM on a stage-length adjusted basis and Southwest's employees are paid considerably more on average. Workforces of both airlines are heavily organized. SWA's approximately 5,900 pilots are represented by the Southwest Airlines Pilots Assn. while AirTran's 1,500 pilots are represented by the Air Line Pilots Assn. SWA's 9,600 flight attendants are represented by the Transport Workers Union while AirTran's 2,000 flight attendants are represented by the Assn. of Flight Attendants. Full integration is expected to take up to two years.

(Perry Flint - ATWOnline News)

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