Southwest closes AirTran acquisition

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Southwest Airlines today formally closed its acquisition of AirTran Airways, setting the stage for historical consolidation in the US low cost airline industry.

Southwest unveiled its intent to acquire its low-fare rival in September of 2010, and the US Justice Department formally approved the deal on 27 April.

The combined revenues of the carriers in 2010 reached $14.7 billion while total unrestricted cash balances were roughly $5 billion as of 31 March this year.

Southwest estimates the transaction's value at $3.2 billion and believes one-time costs related the purchase and integration of AirTran to reach $500 million.

Excluding those expenses Southwest estimates the acquisition should be accretive to its earnings per share in the first 12 months after today's closing, producing net annual synergies of more than $400 million.

Southwest expects to obtain a single operating certificate from the US FAA for the two carriers during the first quarter of 2012 and cautions it will take several years to complete the transition of AirTran into its operations. The process of converting AirTran's fleet to the Southwest livery should start next year.

 airtran 717, simon wilson/airteamimages.com

 
   

Combined the carriers operate 690 aircraft, including 88 717s in the AirTran fleet. Southwest has previously stated it intends to keep the smaller 717s, and could at some point operate three different fleet types.

A key element of the AirTran acquisition is Southwest gaining access to Atlanta Hartsfield International airport, which is operated as a traditional hub. Southwest typically attempts to shun the hub and spoke structure.

Recently Southwest CEO Gary Kelly acknowledged AirTran's presence in Atlanta is a significant operation for Southwest to inherit. He suggests Southwest needs to understand how the Atlanta operation works before making any major changes at the airport.