Southwest Airlines will acquire AirTran for $1.42 billion

NEW YORK -- Southwest Airlines, the leading carrier at McCarran International Airport, has agreed to buy AirTran in a $1.42 billion deal that will combine two of the nation's biggest discount carriers.

The two airlines primarily overlap in the Baltimore and Orlando, Fla., markets. Passengers traveling to and from those cities could face higher ticket prices because less competition traditionally means higher airfares.

The acquisition moves Southwest into 37 new cities. The largest of those is Atlanta, where Delta Air Lines is based. Atlanta's Hartsfield-Jackson International airport is the nation's busiest, and a primary hub for business travelers, a group that Southwest has increasingly been targeting because they tend to pay higher fares.

The acquisition also gives Southwest a bigger slice of the market in cities like Boston and New York, major East Coast cities, where it has been expanding. The deal is also a boost to Southwest's plans to expand internationally. The Dallas carrier gains routes to Mexico and the Caribbean, where fellow discount airline JetBlue Airways has a big presence.

Through July, Southwest was McCarran's top airline, with 9.1 million arriving and departing passengers, or roughly 39 percent of the airport's total passengers for the first seven months of the year.

While Southwest offers 206 daily flights from Las Vegas, AirTran has just six daily flights serving Atlanta, Indianapolis and Milwaukee.

Through July, McCarran's passenger counts are down 3 percent compared with the same seven months of 2009. Gaming analysts have worried that not enough flights are coming into Las Vegas to service the 148,524 hotel rooms in the market, almost 5 percent more than a year ago.

Janney Montgomery Scott gaming analyst Brian McGill said Southwest could eliminate flights where there is an overlap with AirTran's service.

"Given that Air Tran represents a very small percentage of flights in and out of McCarran, we do not think it would change the outlook for Las Vegas air service," McGill said. "We are still waiting to see if Southwest adds additional capacity to the market. As of now, it does not appear they will do so through next spring."

Southwest, based in Dallas, carries more passengers than any other airline in the U.S. AirTran is the nation's eighth largest carrier. Besides its base in Atlanta, AirTran has hubs in Milwaukee and Orlando. Southwest will remain the No. 4 airline by traffic.

This latest deal 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.

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.

AirTran shares jumped $2.79, or 61.32 percent to close at $7.36 on the New York Stock Exchange. Southwest shares rose $1.07, or 8.71 percent, to close at $13.35, also on the NYSE.

Southwest will pay about $670 million with available cash and 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.

Las Vegas Review-Journal writer Howard Stutz contributed to this report.