Southwest Airlines paid $1.42 billion to combine with AirTran, which is also a large discount airline within the United States of America. Southwest is now more within the game with all the access it has to the east side of the country. It also can play internationally with the competition. Travel experts were confused when it happened. There is a lot less competition in the discount flying market meaning there is an expected increase in fees after the Southwest/AirTran merger, most are stating. Other airlines will only be able to compete by merging themselves. However, a definite good for former AirTran passengers could be Southwest’s policy of no baggage fees, which the airline said it will maintain across the board.
Southwest Airlines in the east now
Southwest Airlines’ purchase of AirTran for $1.42 billion continues a trend of airline consolidation. In 2008 Delta merged with Northwest. October 1 is when Continental and United Airlines will combine. This means they could be the largest airline in the world. USA Today reports the deal gives Southwest a major presence in primary travel hubs such as New York’s La Guardia and Washington, D.C.’s Reagan National. Southwest now has a foothold in Atlanta, the world’s busiest passenger airport, where it will compete with Delta in its backyard.
AirTran stock options gets Southwest bump
Southwest Airlines is situated in Dallas. Surprisingly, more passengers ride with Southwest within the United States than any airline. Within the United States, AirTran has been rated as the eighth largest carrier of passengers. The Associated Press reports that based on Southwest’s closing share price on Friday, Southwest’s acquisition is worth $7.69 per AirTran share–a 69 percent premium over AirTran’s closing price of $4.55. Southwest has plans to pay with money. It has in accessible cash $670 million. Southwest took on more than just a business. It also took $2 billion in debt from AirTran. Within the first half of 2011, the deal will be expected to be close. All AirTran planes could have been changed to Southwest by 2012.
Are merging airlines good or bad?
The end of low air fares may be just around the corner with the Southwest/AirTran combination. The competition between businesses is what keeps prices low, states the Consumerist. There isn’t as much pressure to keep flights at low prices if there isn’t competition within the discount realm. The Consumerist reports to have spoken to George Hobica of Airfarewatchdog who said that air carriers are likely to continue combining with the trend meaning even less competition and higher prices. Hobica suggests that you will find really only two things Southwest can do. It will either be able to improve its business of making cash off of low fares or raise its prices for everyone. Also, Southwest might just make it harder for other companies to get business leading them to lower their prices overall.
Further reading
USA Today
usatoday.com/money/industries/travel/2010-09-27-southwest-airtran-merger_N.htm
Associated Press
google.com/hostednews/ap/article/ALeqM5hFjJQqYUno_x04Nx3mAvf9Na1EwwD9IGC59G0
The Consumerist
consumerist.com/2010/09/what-does-southwest-buying-air-tran-mean-for-consumers.html
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