Southwest Airlines (Stock Quote: LUV) announced Monday it plans to acquire rival budget carrier AirTran, dramatically expanding its coverage in the US.
The move finally gives Southwest a foothold in Atlanta, AirTran’s base of operations, and allows it to expand into Milwaukee, Orlando, and other smaller cities. Travelers in those areas will benefit from Southwest’s no-baggage-fee stance, which Southwest CEO Gary Kelly has already said will remain in place.
As with any corporate merger, however, the long-term implications for consumers are hazy. The acquisition comes on the heels of the United-Continental merger that is expected to become official later this week, and some analysts have already expressed fears that industry consolidation will mean less competition and higher fares.
Not all experts share those fears, however, and this could be a rare instance of a big merger actually lowering prices. “Yes, there’s a concern that consolidation could drive prices higher over time, because there’s less competition,” says Bill Miller, a vice president at the travel website, CheapOAir. “But Southwest has this different approach where they don’t charge too many extra fees… and now that they’re so big, the other airlines have to pay attention.”
As an example, Miller points to Atlanta, which had previously been dominated by AirTran and Delta. “Now you’re looking at an airline with low fares and minimal fees [Southwest] versus a legacy carrier with a more traditional fee structure [Delta],” he says. In other words, the arrival of Southwest could force Delta to lower fares in the market to compete – a phenomenon that Southwest dubbed the “Southwest Effect” in a press release announcing the deal.
Bob Mann, an airline industry analyst and consultant, likewise took an optimistic view of the merger. “I don’t see this as a negative for consumers,” he told MainStreet.com, noting that travelers in Southwest’s expanded coverage area would now enjoy Southwest’s low fares and fee policy. And as Miller notes, that coverage area will now include the international market – a first for Southwest.
While the deal must still be approved by a Department of Justice invesigation, Mann doesn’t anticipate significant regulatory hurdles, and the success of recent mergers in the industry does indeed bode well for Southwest. A DOJ investigation of the United-Continental merger lasted just four months and cited the merging airlines’ “largely complementary networks” in its decision to grant regulatory approval; as the Wall Street Journal points out, Southwest and AirTran likewise have little overlap in their routes. If and when the deal becomes official, travelers will get to see what happens when Southwest is truly free to move about the country… and beyond.
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