Delta, US Airways Feel a Merger's Impact

DALLAS (TheStreet) -- Southwest(LUV), which has been expanding in the east since 1993, heralded its biggest eastward move on Monday when it announced a merger with AirTran(AAI).

The deal, which requires regulatory approval, would get Southwest into Atlanta and Washington's Reagan National Airport, both places where it does not have a single flight. It would speed up Southwest's growth in the New York area, amalgamating the two carriers' slots at Newark and LaGuardia, bringing the total to about 45 daily departure slots. It would also bring Southwest into Charlotte, N.C., which AirTran currently serves from Atlanta and Baltimore.

On a conference call with analysts, Southwest CEO Gary Kelly made clear that Atlanta is the principal focus: "The story here is about Atlanta, [about] us bringing more competition, more low fares," he said. "We see very healthy passenger growth with lower fares out of Atlanta."

Southwest arrived on the East Coast in 1993, when it began service to Baltimore, eventually forcing then high-cost operator US Airways(LCC) to shut down its Baltimore hub.

Times have changed, because today the arrival of Southwest in another carrier's hub -- while not greeted enthusiastically by the incumbent -- is hardly something to fear.

Kelly's proclamation about Atlanta pushed the price of Delta(DAL) stock down Monday, as did an early report by UBS analyst Kevin Crissey, who wrote "this deal is not good news for Delta." In midafternoon trading, Delta shares were down 32 cents, or nearly 3%, to $11.37.

But Delta already faces low-cost competition in Atlanta from AirTran, which operates a hub with about 202 daily departures. Delta operates about 1,000 daily departures from Atlanta to 212 destinations, including 70 international destinations. "Delta successfully competes with these [two] airlines in most of the major domestic markets we serve," said Delta spokesman Kent Landers. "Customers choose Delta for our full service product offering and because no low-cost carrier can match the global access we offer to more than 350 cities on six continents."

When Southwest replaces AirTran in Atlanta -- the actual takeover may take two years, giving the various requirements, including a transition to a single operating certificate -- its policies are likely to replace AirTran's. That will mean no first class as well as free bag checking. It remains to be seen whether the changes lure business customers or send them packing. It should be remembered that one of the benefits of the Delta identity credit card, widely held in Atlanta, is that passengers who use it to book seats on Delta are already getting free bag checking.