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Southwest buys AirTran, grows even bigger

Southwest buys AirTran, grows even bigger

May 2nd, 2011 in News

DALLAS (AP) - Southwest Airlines is looking more and more like the big airlines it loves to needle.

The once-quirky upstart flies to the big, busy airports it used to shun. It lets travelers cut in front of the boarding line - for a fee. Its overhauled frequent-flier program is more complicated, like others in the industry.

Now comes Southwest's boldest move, its $1 billion purchase of AirTran Airways, completed Monday. All these changes are designed to help Southwest compete better for high-fare business travelers.

By acquiring AirTran, Southwest increases passenger traffic by 25 percent. It gains AirTran's hub in Atlanta, a business-travel center that had been missing from Southwest's route map. It gains a toehold at Washington's Reagan National and adds gates at New York's LaGuardia, two airports favored by business travelers over nearby Southwest locations.

It will rival Delta and the combined United and Continental as the biggest airline by passenger-carrying capacity within the U.S., according to aviation data firm OAG. It already flies more than 100 million domestic passengers per year, the most of any airline.

Southwest remains the most powerful price-setter in the industry, capable of forcing others to roll back fare increases on coach tickets. And it retains vestiges of its maverick past.

The airline doesn't charge for the first two checked bags or for changing a reservation. It doesn't assign seats or have first-class cabins or airport lounges.

Still, Southwest is able to make a profit even when others are losing money because it keeps boosting revenue. Thanks to a 12 percent surge in traffic - far better than at other big airlines - and higher average fares, Southwest' first-quarter revenue climbed 18 percent, compared with 11 percent at United Continental and 13 percent at Delta.

Southwest grew rapidly in the 1980s and '90s by adding new cities, mostly secondary airports that were less crowded, letting Southwest turn its planes around after just a few minutes at the gate.

Buying AirTran allows Southwest to fill the last gaping hole in its route map: Atlanta. There, AirTran has a profitable hub despite competing with Delta. Bob Jordan, the Southwest executive who will run AirTran, thinks Atlanta can become Southwest's biggest base within a few years, surpassing Las Vegas and Chicago. Southwest also gains a foothold at Washington's Reagan National and picks up AirTran's gates at LaGuardia.

AirTran could run as a separate airline into 2013. Southwest will eventually drop AirTran's bag fees and first-class seats. AirTran CEO Robert Fornaro says that's the right thing to do. "Southwest's brand is bigger; it's better known. They've got a product that works."