Too early to tell what Southwest-AirTran merger would mean for PHL

If Southwest Airlines Co. succeeds in closing its deal to buy AirTran Airways, the legendary discount fares and service Southwest is famous for could take hold in more Southeastern U.S. cities, and eventually could mean cheaper air tickets to Atlanta for Philadelphia passengers.

Southwest, the nation's largest low-fare carrier, announced Monday it had agreed to purchase smaller discount carrier AirTran for $1.4 billion, to get a footprint in Atlanta, the world's busiest airport, and expand its presence in airports in New York, Washington, Boston, and Baltimore.

The move would give Southwest access for the first time to service in Mexico and the Caribbean.

"This is a smart and relatively low risk move," wrote airline analyst James Higgins of Soleil Securities. The big opportunity for Southwest would be gaining 32 gates at AirTran's Atlanta hub, which is also Delta Air Lines' hub.

Other than a negative impact on Delta, "the second most affected carrier" would be US Airways Group Inc., Higgins said, in a client note. US Airways' major hub in Charlotte, N.C., "will probably see incrementally more competition."

What further consolidation in the industry - and removal of one low-fare competitor that now serves Philadelphia - would mean at Philadelphia International Airport is too soon to know, said the Philadelphia airport's chief executive officer, Mark Gale.

Southwest CEO Gary Kelly said Monday that consumers would be the big benefactors. "We are bringing more low fares to more customers."

If approved by regulators and AirTran shareholders, Southwest's route network will grow 25 percent, and its revenue by 20 percent, or $2 billion.

If Southwest increases its 55 weekday and 40 weekend flights in Philadelphia, and keeps AirTran's nine daily flights, and brings new markets to Philadelphia, that would be good, Gale said.

But if Southwest shrinks here, that would be bad and could lead to higher fares in the years ahead. "The devil is in the details; it's too soon to know," Gale said. "I think we need to be careful about what it brings to Philadelphia."

Losing one low-fare carrier, AirTran, that serves the airport "is a little concerning" because AirTran and Southwest have different product offerings, Gale said. AirTran has Business Class and assigned seating; Southwest does not. Both airlines have frequent fare sales.

"We only want to see Southwest's flight numbers go up at Philadelphia," Gale said. "We believe that they are a very healthy competitor with US Airways in Philly, and competition is a good thing."

The Southwest-AirTran announcement follows two other recent mergers: Delta combined with Northwest Airlines, and the Continental Airlines-United Airlines merger.

"It is certainly not a decision to do something just because someone else did," Kelly told investors on a conference call. "On the other hand, it is a brutally competitive industry, and challenging just to make a profit. Every major airline that was in existence 20 years ago, with the exception of one, is either gone or has been bankrupt at least once."

Southwest shuttles 11 percent of passengers at Philadelphia International, while AirTran transports 1.9 percent with flights to Orlando and Atlanta. The only overlapping route that Southwest and AirTran have here is to Orlando, where both operate four daily flights.

In contrast, US Airways Group Inc., Philadelphia's dominant airline, transports 67.9 percent of passengers on 400 daily flights here.

Airline analyst Bob McAdoo of Avondale Partners L.L.C. said that when the Southwest-AirTran merger takes effect, not likely before the end of next year, the most obvious thing Philadelphia passengers will see is "prices to Atlanta will be consistent with Southwest prices elsewhere."

And Business Class seats, previously available on AirTran, will disappear. "So for the guys who really like AirTran because they have business class at a reasonable price, that's probably not going to be part of the deal going forward."

McAdoo sees Southwest's expansion to more cities as a good move for consumers.

"It takes the Southwest product, which across the country people have voted with their feet," he said. "More people fly Southwest within the United States than any other airline because of the kind of product and the pricing. This just gives you the whole Southeast U.S. operated that way, too."

The deal, approved unanimously by boards of both airlines Sunday, is valued at $3.4 billion, including AirTran's debt and aircraft leases.

"My immediate reaction is very, very good," said frequent flier Steve Lapin, of Elkins Park. "With Southwest's fare structure, there will probably be real good prices from here to Atlanta. Since I fly Southwest a lot, I think it's great."

Southwest Airlines

Founded: 1971

Headquarters: Dallas

Employees: 35,000

Flights per day: 3,200

Aircraft: 500

Routes: Serves 69 U.S. cities in 35 states

2009 revenue:

$10.4 billion

2009 profit:

$99 million

AirTran Holdings

Founded: 1992,

as ValuJet Airlines

Headquarters:

Orlando, Fla.

Employees: 8,000

Flights per day: 730

Aircraft: 138

Routes: Serves 60 U.S. cities and the Caribbean

2009 revenue:

$2.3 billion

2009 profit:

$135 million

SOURCES: Southwest, AirTran, Bloomberg News

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