Southwest to buy AirTran;changes in GR?

NEW YORK (AP) - Southwest Airlines said Monday it will buy AirTran for about $1.42 billion. The move will put Southwest in head-to-head competition with Delta Air Lines in Delta's home base of Atlanta.

The buyout, funded mostly with debt, will also give Southwest a bigger slice of the market in cities like Boston and New York, where it has been expanding.

Southwest, based in Dallas, carries more passengers than any other airline in the U.S. Besides its base in Atlanta, AirTran has hubs in Milwaukee and Orlando.

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AirTran recently began flying into and out of the Gerald R. Ford International Airport in Grand Rapids. Airport spokesperson Phil Johnson told 24 Hour News 8 while it it too early to tell, the airport expects business as usual. He believes Air Tran's service to and from Grand Rapids has exceeded expectations and doesn't expect any cut backs in service.

The most recent merger has been between Delta and Northwest and Johnson said service has stayed the same, even though some cities lost hub service to Cleveland and Cincinnati.

But when CEO's start talking like this, it's almost never good for consumers.

"It has the potential of adding more than 20 percent to our annual revenues," said Southwest CEO Gary Kelly. "For our shareholders, it will also allow an enhanced profit outlook, boosting our odds of achieving our financial return targets."

More mergers mean less competition giving more pricing power to the one who is buying. The news of Southwest buying Airtran was a concern to these passengers in from Orlando on AirTran shortly after the news broke.

"Southwest fares, they are more expensive than AirTran that's why I chose this," said passenger Masooma Ahmad.

"I was perfectly happy with AirTran," said passenger Amy Sikkenga. "Just hope they'll be able to keep their rates low."

At least one airport official and a spokesperson from the local business group that lured AirTran to Grand Rapids think the merger can be a win win. Southwest serves far more cities at discount prices than AirTran -- but no one can say if AirTran's fares will trickle up a little once it becomes part of Southwest.

On Monday, 24 Hour News 8 priced trips to three different cities for three non-holiday weekends in October, November and December. One city, Phoenix, was eliminated from this comparison because Air Tran does not fly there.

In this comparison - Southwest flights out of Detroit and Air Tran flights out of Grand Rapids and Detroit -- Air Tran beat Southwest fares six to three.

That's not surprising to market experts who say Air Tran has the lowest operating expenses in the industry. One reason, they say, is employees at AirTran are non-union. Southwest employees are unionized.

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The announcement continues the airline industry's move to consolidate. Continental Airlines and United Airlines parent UAL
Corp. will formally combine at the end of this week and become the world's largest, toppling Delta. Delta claimed that spot when it acquired Northwest Airlines two years ago.

Southwest tried unsuccessfully last year to buy Frontier Airlines out of bankruptcy. Republic Airways Holdings won the
auction for Frontier last August, buying the Denver-based carrier for almost $108.8 million.

Southwest's acquisition of AirTran is expected to close in the first half of next year. It requires both regulatory and
shareholder approval. The airlines expect to fully blend their operations in 2012.

Based on Southwest Airlines' closing share price on Friday, the deal is worth $7.69 per AirTran share. That's a 69 percent premium over its closing price of $4.55. In premarket trading, AirTran shares jumped 61 percent to $7.31, while Southwest shares rose 12 cents to $12.40.

Southwest will pay about $670 million with available cash. Southwest will assume $2 billion in AirTran debt.

Southwest and AirTran said the new airline will operate from more than 100 different airports and serve more than 100 million customers.

In April, AirTran Holdings Inc. CEO Robert Fornaro signaled his interest in making a deal, saying the airline would consider a combination with another carrier if approached and if such a deal made sense for the company and shareholders.

But when asked by The Associated Press who might be a potential suitor for AirTran, Fornaro said, "I'm not sure that we're necessarily a natural fit to be gobbled up by somebody else."

24 Hour News 8's Anne Schieber contributed to this report.

AP Business Writer Michelle Chapman in New York contributed to this report.