No-Frills Southwest To Buy Competitor AirTran

Southwest Airlines is planning to buy discount rival AirTran for $1.4 billion. The move will put Southwest into dozens of new cities, and will ramp up pressure on the big carriers.

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Southwest Airlines is getting bigger. It's known for its cheap tickets, quirky culture and innovative business model. Now, it has announced that it will spend about $1.4 billion to acquire another large discount carrier, AirTran.

NPRs Greg Allen reports on whether Southwest can keep its distinctive personality as it grows.

GREG ALLEN: Its been nearly 40 years now since Southwest was founded as a different kind of airline. Over the years, as the airline has grown, the formula has been tweaked a bit, but Southwest still stands apart by offering just one class of seats, which arent assigned.

In return for the no-frills approach, Southwest customers got some of the industrys lowest fares. Its a relationship Southwest founder and then CEO Herb Kelleher spoofed in a 1988 commercial in which he appears wearing a paper bag over his head.

(Soundbite of ad)

Mr. HERB KELLEHER (Chairman Emeritus, Southwest Airlines): Recently, another airline suggested you might be embarrassed to fly Southwest Airlines. Well, if youre embarrassed to fly the airline with the most convenient schedules to the cities it serves, Southwest will give you this bag. If youre embarrassed by the airlines...

ALLEN: Flash forward 20 years, and Southwest is still a different kind of airline, but much bigger. It already leads the industry by flying more passengers domestically, each year, than any other airline. Now, with yesterdays announcement that it plans to buy discount competitor AirTran, Southwest could soon go through another big growth spurt.

Mr. GARY KELLY (CEO, Southwest Airlines): It improves our profit outlook and it improves it dramatically.

ALLEN: Southwest Airlines current CEO Gary Kelly said, along with boosting profits, the deal provides Southwest with new areas for growth. It will pick up AirTrans routes to some 70 cities, mostly on the East Coast, where Southwest has little presence. And AirTran also has some routes in the Caribbean, which will give Southwest its first foothold into the international market. But on a conference call, Kelly was happy to spell out where he thinks the merger will have the biggest impact.

Mr. KELLY: I think the story here is about Atlanta. I think it is about us bringing more competition, bringing more low fares.

ALLEN: Thats a direct challenge to Delta. Delta dominates Atlantas Hartsfield-Jackson International Airport, which is the busiest in the nation and where few other airlines have been able to gain a foothold. If the merger goes through, Southwest will takeover AirTrans gates at the Atlanta airport.

Most analysts say that will introduce competition likely to result in lower costs for travelers.

Christopher Muise is a former Delta employee based in Atlanta who runs TruPrice.net, a website that tracks airline fees. He says Delta charges among the highest fees of any airline. Southwest, meanwhile, has a policy of keeping fees to a minimum and not charging for bags. The company says thats unlikely to change after the merger. Muise says he suspects that will be a problem for Delta.

Mr. CHRISTOPHER MUISE (CEO, president, TruPrice.net): If Im Delta, Im looking at my fee structure and Im saying, is this competitive with Southwest? It might have been with AirTran, it will not be with Southwest.

ALLEN: Delta released a statement yesterday saying, in effect, its not worried, and willing to match low cost with luxury. It said quote, "customers choose Delta for our full-service product offering, including complimentary first class upgrades, airport lounges and assigned seating.

Southwest started as an airline specializing in mid-sized markets underserved by the major carriers. But Frank Werner, an airline finance expert at Fordham University says, for it to continue to grow, Southwest has no choice but to look to major markets and international destinations.

Professor FRANK WERNER (Fordham University): The risk, I think, continues to be for an airline like Southwest, can they maintain their culture? Can they maintain that sense that this is a young, exciting airline to fly on? The danger is, as they get big, it becomes harder and harder to keep that kind of young, upstart counter-cultural kind of feel.

ALLEN: Before the acquisition is complete Southwest has a few challenges: negotiate agreements with both companies unions and gain approval from anti-trust officials at the Justice department.

Greg Allen, NPR News, Miami.

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