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Southwest Acquisition of Airtran

In: Business and Management

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SOUTHWEST’S PENDING ACQUISITION OF AIRTRAN:

ANALYSIS OF THE CASE AND STRATEGIC CONSIDERATION

BMA 5013: Corporate Strategy

Jacob Dreizin Rudiger Hesse Robert Martinez Lee Vu Hoang Nhat Victor Ka Sing Tsui

Executive Summary On September 27th, 2010, Southwest Airlines announced its intention to buy AirTran Airways for $1.4 billion, with the merger being effected within two years. Although by number of planes, AirTran is just slightly more than one-quarter the size of Southwest, the number of routes that each airline presently flies is the same. We anticipate that the intended merger will thus affect the latter far more than might be suggested by the fleet size indicator. Indeed, if the U.S. Government approves the merger, Southwest would become a different entity. It would transform from a primarily regional airline into a national one, becoming America’s third-largest carrier by number of passengers flown. Its fleet would increase by over 25 percent, and it would fly two airplane types—the Boeing 717 and 737—rather than just one. Moreover, having acquired AirTran’s hub operations in Atlanta, currently the world’s busiest airport, Southwest would, for the first time, come into direct competition with Delta, the number two U.S. airline by number of passengers flown, which also claims Atlanta as its main hub. It would also take over AirTran’s Caribbean routes, thus gaining its first international operations. Our analysis will first provide a background of the U.S. airline industry, so as to illustrate the setting for this acquisition.We will then review the sources of both Southwest’s and AirTran’s present competitive advantages, with a particular focus on their lower cost structure and geographic concentration. Then, we will show what impact Southwest’s pending acquisition of AirTran is likely to have on its cost structure, market position, and

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