Southwest Airlines to Buy Airtran in Low-Cost Airline Merger

by Jordan Yerman | September 27, 2010 at 07:19 am

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Southwest Airlines Buying Airtran for $1.4 Billion

Southwest Airlines is buying Airtran for $1.4 billion in cash and stock. This move will give Southwest Airlines entry into the Atlanta hub, as well as extend its reach into Mexico and the Caribbean.

An Airtran-Southwest Airlines merger will not be good news for passengers, though: both are positioned as low-cost airlines (open to debate once you add in baggage fees and charges for talking to live phone support- Southwest currently charges $35 to talk to a human), so reducing choice will also reduce incentive to remain competitive on price. Watch for higher ticket fees when the merger comes into effect.

The offer values Orlando, Florida-based AirTran at $7.69 a share, 69 percent more than its closing price on Sept. 24, Southwest said today in a statement. The transaction price includes AirTran’s convertible notes.

Southwest will partially fund the purchase with $670 million from its cash on hand. The carrier has $3.3 billion in cash and short-term investments, and an available $600 million revolving credit line.

The combined carrier will have 43,000 employees and will serve more than 100 airports in the U.S., Mexico and the Caribbean.