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Southwest/AirTran Merger: What Does it Mean for You?

The surprise merger between Southwest and AirTran has potential to fundamentally reshape the budget travel landscape. But big changes—especially airline mergers—aren’t always a good thing for consumers. Let’s take a look at some of the basic factors in play with the Southwest/AirTran deal, and examine how customers may be affected.

Routes: For Southwest, the biggest prize in the deal is likely AirTran’s thriving hub in Atlanta’s Hartsfield-Jackson Airport. Southwest doesn’t currently fly to ATL, but the airport would become Southwest’s third-biggest destination once the deal closes (assuming it retains most of AirTran’s service there). For Southwest, it’s an extremely valuable business travel market, as it would pit the airline head-to-head with Delta, which also has its hub in Atlanta. Such a large-scale entry by Southwest into the airport could also bring down fares.

Beyond Atlanta, the deal will beef up flights from a number of destinations Southwest already serves. The Dallas Morning-News‘ Eric Torbenson wrote, back in 2009, that AirTran was a likely target for exactly this reason.

It’s pretty simple, really: Why have competitors when you can just buy them? For consumers, it means expanded service from a lot of big cities, and new service from several others, including Southwest’s first foray into Mexico and the Caribbean. For Southwest devotees, the deal will open up lots of new destinations across the country.

Price: Of course, the main concern consumers have about large consolidation deals is that they will drive fares upward. It’s too soon to make predictions on that front, but the deal makeup suggests fare increases could be a possibility. Southwest is gobbling up a primary competitor and tightening its grip on a number of destinations—this is an acquisition, remember, not exactly a merger of equals, like the United-Continental deal. In Baltimore, for example, Southwest and AirTran are the #1 and #2 carriers, respectively, so Southwest is effectively taking out its main rival there.

Of course, this is Southwest we’re talking about, and hiking prices to the moon isn’t exactly the airline’s modus operandi. “Pricing power,” to use Torbenson’s term, is probably a better way to think about it. Southwest would prefer to compete on price with legacy lines rather than with fellow low-cost carriers. Knocking out a rival and growing its presence gives the airline a stronger foothold against the larger legacies.

Still, eliminating a competitor does give Southwest space to charge a bit more where it needs to. It’s just too soon to tell where, or if, it will happen.

Fees: A quick glance at each airline’s fees reveals a number of important discrepancies. Notably, AirTran charges $20 for the first checked bag, $25 for the second, and $75 for reservation changes. Southwest’s fees for these items? Zero dollars, all around. Something’s gotta give.

Pure gut speculation on my part, but I can’t see Southwest abandoning the very policies it has hung its hat on for the past few years. It’s not likely Southwest will adopt these fees.

The fees conversation doesn’t end there, though. AirTran operates an assigned-seating system that allows customers to pre-select their seats for a fee. Southwest does not. Will Southwest adopt the policy? What about AirTran’s business class? Will we see two-class service on Southwest in the near future?

Again, pure speculation on my part, but I don’t see Southwest adopting too many of AirTran’s policies. This deal is about Southwest growing, period. I’m sure all options are on the table, but in the end my sense is Southwest will come out looking much like it does today, just a whole lot bigger.

(Editor’s note: The Dallas Morning-News reports that Southwest “does not plan to charge for bags, have first-class seating and have assigned seating.”)

Different Planes: Southwest flies a fleet of Boeing 737s, but AirTran will bring 86 smaller planes, Boeing 717s, into the mix. Early guesses are that these smaller planes will fly short routes, perhaps up and down the East Coast, freeing up the 737s for longer routes. Southwest recently floated the idea of adding a larger version of the 737 in the next few years, perhaps with an eye toward AirTran’s smaller planes shaking up the fleet.

AirTran’s fleet is also equipped with in-flight wireless. Southwest is in the process of adding Wi-Fi to its own aircraft, but it won’t be available fleetwide until 2013. Adding AirTran’s planes to its fleet will give Southwest a boost, but current AirTran customers may lose guaranteed wireless service depending on where Southwest deploys AirTran’s planes.

More Mergers (Maybe): Each new deal leads to the obvious question: Who’s next? Airfarewatchdog’s George Hobica says it could be anyone. “American and US Air must be in panic mode as Southwest continues to grow. What next? An American/US Air marriage? Frontier/Midwest combine with US Airways? JetBlue and American? The Southwest/Airtran merger came out of the blue, so anything and everything could be on the table.”

The fact is that consolidation begets more consolidation. As pairs of airlines get stronger, the carriers left behind typically become more vulnerable. Whether or not the Southwest-AirTran deal leads directly to more mergers and acquisitions is difficult to say, but it’s clear that consolidation is the name of the game.

The Low-Cost Landscape has Changed: Southwest has been walking a fine line between low-cost carrier and legacy line. Its costs aren’t really that low anymore (inheriting AirTran’s much lower unit costs are a major factor in the deal), and the carrier’s forays into LaGuardia, Boston, and Newark represented a shift away from the secondary airport strategy that historically served Southwest well.

By acquiring AirTran, that line is blurred even further. Southwest—already the largest domestic carrier—now becomes something of a mega-low-cost carrier. Its willingness to serve Atlanta, the world’s busiest airport, is a fairly definitive signal that the airline has turned the page. Sure, the no-frills service will remain, as will the low fees and reasonable fares, but Southwest is clearly trying to have it both ways: The biggest little airline in the land.

So where does that leave smaller low-cost carriers? For JetBlue in particular, today is a mixed blessing. On one hand, a major competitor at its Boston hub—AirTran—effectively just vanished … only to be replaced by Southwest, which has steadily been creeping into JetBlue’s East Coast markets. So instead of fighting off two rivals, JetBlue is now faced with only one, albeit a much, much larger one.

Readers, how do you think the Southwest/AirTran deal will change things for your travels?

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