At the time the merger was announced Southwest stressed there was little route overlap, and concluded that AirTran’s smaller 717s would allow it to access small to medium sized markets not viable for its fleet of Boeing 737s. Data from CAPA and OAG show that as of 1 Southwest operates to 93 non-stop destinations. Southwest estimated that in Apr-2011 it served 72 airports and AirTran operated from 69 airports. I would argue to you that it essentially accelerated the completion of our route system for the 48 states into a two-to-three year time period”. Mr Kelly also concluded that the AirTran acquisition added “21 new cities, with seven of those international. See related report: Southwest Airlines draws questions about raising return targets after posting strong 3Q2014 results Southwest's eagerness to access AirTran’s smaller markets wanes We were able to improve on that profitability with the synergies, and clearly it was very meaningful and very helpful in us achieving our ROIC target and achieving a lifetime high with Southwest stock.”Īfter missing its targets for a pre-tax ROIC of 15% during the last couple of years, Southwest recorded a 19% return for the 12M ending Sep-2014. See related report: Southwest, AirTran plan merger, Atlanta and revenue, the storyĪs Southwest embarked on its merger with AirTran, Delta was completing its merger integration with Northwest and United and Continental had just announced their intent to merge, so the combination of those four airlines into two also affected ASM allocation among the consolidated airlines.Īlthough consolidation among the major US airlines and its own pursuit of AirTran has kept Southwest’s position in the market place relatively stable, the merger achieved, “depending on what measure you use, somewhere between 20% and 25% capacity increase for Southwest Airlines,” company CEO Gary Kelly concluded in late 2014. Source: CAPA - Centre for Aviation and OAG United States of America capacity by airline (% of ASMs): 1 to 1 At the time Southwest announced its intentions to purchase its smaller rival, CAPA estimated that Southwest’s share of US domestic capacity was approximately 18.7%, and AirTran’s share was roughly 3.5%.ĭata from CAPA and OAG show that for the week of 1 to 1 Southwest represents about 18.8% of US domestic ASMs. Southwest’s position in the US market place measured by capacity deployment does not appear to be measurably different today from when it opted to acquire AirTran. The AirTran merger helps Southwest Airlines sustain its domestic position and grow ROIC It is tough to determine if Southwest would be worse off if it had not opted to participate in US consolidation but its financials are no worse for wear after closing the AirTran chapter, with a very decent 19% ROIC for the 12M to Sep-2014. The merger integration was a lengthy four year process, reflective of Southwest’s historically slow approach to such huge undertakings.Īt the time it unveiled its acquisition of AirTran, Southwest outlined three major benefits it would derive from the purchase of its smaller rival – access to Atlanta, an ability to tap small markets and instant access to international markets in Latin America and the Caribbean operated by AirTran.Īs the merger unfolded, Southwest’s objectives in some of those areas changed, particularly in its small market philosophy and the decisions it made to alter operations in Atlanta. But Southwest began 2015 with a celebration: completing the integration of AirTran Airways after the latter’s final service flight in late Dec-2014. Southwest Airlines is starting to show some middle aged girth, with its cost base climbing and employee relations not what they used to be.
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