AirTran Acquisition Offers Glimpse of a New Southwest
by: Jeffrey Breen September 28, 2010

Southwest's (LUV) acquisition of AirTran (AAI) sets the carrier's course for the next decade. With a stroke of the pen, Southwest has simultaneously undertaken three new challenges:

1. Operate a multi-aircraft fleet. In addition to its 52 737-700s, AirTran brings 86 717-200s—and two-class configurations—to Southwest's all-737 fleet. All indications are that Southwest fully intends to keep the smaller 717s, and, moreover, that some smaller AirTran markets would not be viable without the flexibility afforded by the smaller aircraft. But make no mistake: adding a second aircraft to a fleet is no small matter. Maintenance, aircraft and crew scheduling, and revenue management procedures and systems are all in for upheaval. And there's no "differences course" for pilots seeking to transition between aircraft; they must add on a new type rating. Southwest wouldn't even consider taking on these hurdles if it weren't serious about retaining the bulk of AirTran's service footprint.

2. Serve international destinations. "But they're domestic only" is one of the few remaining "buts" with which legacy carriers can comfort themselves in comparisons to Southwest. With the release of June's domestic traffic data, Southwest finally surpassed American (AMR) in domestic revenue passenger miles for a 12-month period, having long ago eclipsed the pre-merger legacies in total number of domestic passengers. AirTran's experience serving Aruba, Cancun, Montego Bay, Nassau, and Punta Cana will greatly assist their new colleagues through this important learning curve. Chief among the limitations of Southwest's current reservation system—already marked for replacement—is its inability to handle international operations Does AirTran's use of Navitaire's New Skies seal the deal for the Accenture company?

3. Attract more business travelers. An airline won't win a customer if it doesn't fly where he needs to go. And while Southwest CEO Gary Kelly highlighted Atlanta as a "gaping hole" in their current destinations for business travelers, AirTran brings signiificant and much-needed presence in Milwaukee, Boston, LaGuardia, Indianapolis, and DC's Reagan National. With this move, Southwest has a shot to increase its share of the business travel spend where it's already strong, like Chicago, Baltimore, Denver, Houston, and Dallas. Just don't expect the airline without assigned seats to retain AirTran's Business Class.

Much of what will be written about this merger in the days to come will no doubt focus on Atlanta—and rightly so. The drama couldn't be higher with giants Delta (DAL) and Southwest battling it out at the world's busiest airport. But the real story is how this merger helps Southwest transform for its next phase of growth.