Southwest merger with AirTran combines biggest BWI rivals

$1.4 billion deal would give Southwest 70 percent of BWI market

  • Travelers check in at BWI's Southwest ticket counter.
Travelers check in at BWI's Southwest ticket counter. (Baltimore Sun photo by Jed…)
September 27, 2010|By Lorraine Mirabella, Andrea K. Walker and Hanah Cho, The Baltimore Sun

Southwest Airlines' $1.4 billion bid for AirTran Holdings would combine the two largest carriers at Baltimore-Washington International Thurgood Marshall Airport, cementing Southwest's dominance at BWI but possibly ushering in higher passenger fares amid decreased competition.

Southwest, the nation's largest low-cost airline, announced its plans early Monday. The combined company would be based in Dallas, Southwest's home, employ about 43,000 people and fly more than 120 million passengers annually. At BWI, Southwest would secure a market share of about 70 percent.

Officials with both carriers said it is too early to determine whether a merger would lead to job cuts at BWI, where AirTran employs 245 and Southwest 2,600. But analysts said they expect little change in the overall work force of the newly created airline.

The merger would bring together two rival low-fare carriers that have helped BWI grow into a major regional hub, and, some industry analysts said, the combined company would maintain current routes there. The airport has weathered the recession better than others largely because of competition among low-cost carriers; it was one of only two major U.S. airports to see an increase in passengers in 2009.

Some analysts said the deal could raise antitrust concerns, and travel experts said they expect fares to increase as a result of the merger. George Hobica, founder of Airfarewatchdog, an online travel site that specializes in flight deals, said local travelers could see increase on fares for overlapping destinations including Boston, Indianapolis and several Florida destinations.

"A lot of these short hops don't make a lot of money. I would say that those routes will go up in price," he said.

The deal would jump-start Southwest's growth strategy, which had been hampered by soaring fuel costs and sagging travel demand. It also would allow the airline to expand to major hubs such as Reagan National Airport in Washington and offer access to leisure markets in the Caribbean and Mexico. Both companies contend the merger would be good for customers, employees and investors.

The new airline also is likely to adopt many Southwest policies that are popular with consumers, including not charging for bags. Executives said the airline does not expect to have business class or to move to assigned seating.

The cash and stock deal has been approved by the board of directors of each airline, and is now contingent upon antitrust clearance from the U.S. Department of Justice and the approval of AirTran stockholders. Both airlines have labor forces that are largely represented by unions; the Transport Workers Union, for one, said members support the acquisition.

The integration of the two carriers under the Southwest brand is expected to be completed sometime in 2012.

Southwest and AirTran have the largest number of overlap in flights at BWI and in Orlando, officials said, adding that no decisions regarding routes would be made until the deal is formally approved. At BWI, the two airlines now have a total of 223 daily departures — 170 for Southwest and 53 for AirTran.

Southwest spokesman Paul Flaningan said "it's probably much too premature to speculate" on whether the airline would pull back on the number of flights. He also said he doesn't believe a presence in Washington would siphon off some customers who may now be making the road trip to BWI.

One analyst said he doesn't expect changes in the routes at BWI.

"I think they're both making money there," said Robert McAdoo, a senior airline analyst with Avondale Partners LLC. "It is a big market for both of them. I think any changes that they make would be very modest because it is a good market for both of them."

The merger is a good move for Southwest, analysts said.

"Strategically, it make a lot of sense," said Matt Collins, an industry analyst with Edward Jones & Co. "Southwest is very strong in the western United States. AirTran gives them areas such as Atlanta as well as international routes."

But Collins said that the merger would give Southwest the largest market share of any airline at an airport in any major city across the country — an issue that could raise antitrust concerns.

"That would put them at 70 percent which would be larger than any airline at any major city airport that I know about," Collins said. "You don't see that kind of market share that often."

"Potentially that is a risk to consumers there that you could lose some competition and fares could trickle higher in the next couple of years," Collins added.

He also said he expects little change to the workforces at both airlines, though merging the union contracts could be difficult. AirTran employees should get raises as employees of Southwest, but seniority issues could come into play, he added.

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