BREAKING NEWS: Southwest Airlines will buy AirTran for $1.4 billion

by McLean Robbins on

Southwest Airlines (NYSE: LUV) announced today that it has entered into a definitive agreement to acquire all of the outstanding common stock of AirTran Holdings, Inc. (NYSE: AAI), the parent company of AirTran Airways (AirTran), for a combination of cash and Southwest Airlines’ common stock.

“Today is an exciting day for our Employees, our Customers, the communities we serve, and our Shareholders,” said Gary C. Kelly, Chairman, President, and CEO of Southwest Airlines. “As we approach our 40th Anniversary of providing exceptional Customer Service at everyday low fares, the acquisition of AirTran represents a unique opportunity to grow Southwest Airlines’ presence in key markets we don’t yet serve and takes a significant step towards positioning us for future growth.

“It offers Customers more low-fare destinations as we extend our network and diversify into new markets, including significant opportunities to and from Atlanta, the busiest airport in the U.S. and the largest domestic market we do not serve, as well as Washington, D.C. via Ronald Reagan National Airport. The acquisition also allows us to expand our presence in key markets, like New York LaGuardia, Boston Logan, and Baltimore/Washington. It presents us the opportunity to extend our service to many smaller domestic cities that we don’t serve today, and provides access to key near-international leisure markets in the Caribbean and Mexico. Finally, this accelerates our goal to boost profits and achieve our financial targets,” he continued.

The agreement has been unanimously approved by the boards of directors of each company, and closing is subject to the approval of AirTran stockholders, receipt of certain regulatory clearances, and fulfillment of customary closing conditions.

Based on an economic analysis by Campbell-Hill Aviation Group, LLP, retained by the airline to conduct market analysis, Southwest Airlines’ more expansive low-fare service at Atlanta, alone, has the potential to stimulate over two million new passengers and over $200 million in consumer savings, annually. These savings would be created from the new low-fare competition that Southwest Airlines would be able to provide as a result of the acquisition, expanding the well-known “Southwest Effect'” of reducing fares and stimulating new passenger traffic wherever it flies.

Bob Fornaro, AirTran Airways’ Chairman, President and CEO said, “This agreement is great news for our Crew Members, our shareholders, our customers and the communities we serve. Joining Southwest Airlines will give us opportunities to grow, both professionally as individuals and as a group, in ways that simply would not be possible without this agreement. This agreement with Southwest is a testament to the success and hard work of the more than 8,000 AirTran Crew Members who have built this airline. I am tremendously proud of the things we have accomplished together and look forward to continuing that great work during this next exciting chapter of our history.”Under the agreement, each share of AirTran common stock will be exchanged for $3.75 in cash and 0.321 shares of Southwest Airlines’ common stock, subject to certain adjustments, based on Southwest Airlines’ share price prior to closing. Including the existing AirTran net indebtedness and capitalized aircraft operating leases, the transaction value is approximately $3.4 billion. At Southwest Airlines’ closing stock price of $12.28 on September 24, 2010, the transaction values AirTran common stock at $7.69 per share, or approximately $1.4 billion in the aggregate, including AirTran’s outstanding convertible notes. This represents a premium of 69 percent over the September 24, 2010 closing price of AirTran stock.

Based on current operations, the combined organization would have nearly 43,000 Employees and serve more than 100 million Customers annually from more than 100 different airports in the U.S. and near-international destinations.

Until closing, Southwest Airlines and AirTran will continue to operate as independent companies. Southwest Airlines plans to integrate AirTran into the Southwest Airlines Brand by transitioning the AirTran fleet to the Southwest Airlines livery, developing a consistent Customer Experience, and consolidating corporate functions into its Dallas headquarters. The carriers’ frequent-flyer programs will be combined over time, as well.

The company has launched a website, www.lowfaresfarther.com, to detail more information about the acquisition.

Airlines continued to cut jobs – 25 months in a row

by Tom Johansmeyer on

There’s a reason why airlines have positioned themselves for a solid performance in 2010: in addition to charging all those extra fees, they have been cutting positions (and thus expenses). In July alone, the industry in the United States trimmed 2.3 percent of its workforce relative to July 2009. That made 25 consecutive months of net job losses in the domestic airline sector.

According to the Department of Transportation‘s Bureau of Transportation Statistics, 378,100 people were employed full-time by the airline industry in the United States in July 2010, a decline of 8,700 from July 2009. Five of the six network carriers cut positions, with Delta adding headcount only because of its Northwest acquisition. Only two low-cost carries reported net cuts for this period (Southwest and AirTran).

According to the Associated Press, maintenance and ticket agent positions are getting hit most:

While the number of in-flight airline employees like pilots and flight attendants is regulated by the Federal Aviation Administration, the bulk of airline employees-maintenance crews, reservations and ticket agents-work on the ground and aren’t subject to federal minimums. Airlines are operating with less staff to save money, but they’re also outsourcing maintenance and other work to other countries where labor is cheaper.

[photo by aflcio via Flickr]

Five reasons passengers looking for more than just a ride

by Tom Johansmeyer on

As airlines cut routes and amenities while increasing fees, travel through the skies became a true labor. Sure, the cuts came as the result of market pressures that led to compensation reductions and other changes, but it also brought a problematic perspective. Somewhere along the way, it became acceptable for airline employees to claim that “you get what you pay for.” With low fares, essentially, you can expect substandard service.

Indeed, there is some truth to this. If you buy cheaper furniture, for example, you may be sacrificing quality to save a few bucks in the near term. We make these tradeoffs every day, and there’s no reason why a purchase from an airline should be any different. It’s clear that the standard has been set: you’ll pay less, and you’ll get a much lower level of service.

Take this concept to its ultimate conclusion, of course, is paying for physical movement, and you’re entitled to nothing else, despite the presence of beverage carts and headphones … not to mention employees who should provide a certain amount of customer service. I saw an interesting tweet to this effect not too long ago, claiming that transportation from Point A to Point B safely is what you’re paying those low, low fares for. But, I’m not so sure about that. There is so much more that’s explicit and implied in the air travel experience, and it’s delivered often enough that it should be expected.

So, why should we expect more than simply being taken from Point A to Point B? Well, here are five reasons why airlines are more than long-distance taxi services:

1. The airlines promise more than physical movement: Drinks are served on flights. Food is sold (or offered, depending on class and destination). There are movies and headphones and blankets and pillows, either free or for a fee. Whether you have to pay, in this regard, is irrelevant. The offering of amenities means that there is more involved in the transaction than the delivery of a seat from one place to another. So, something more than safe movement from Point A to Point B is implied.

2. Nobody wants substandard service: Basic customer service, which you can find on airlines only inconsistently, is expected in virtually every business transaction. While it doesn’t seem like much, this is an increase above the “physical movement” included in the price of a ticket.

3. A mere ride would (theoretically) cost less: Given that there are some services that could be sacrificed, a genuine low-cost, no-frills experience would cost less than existing flights. There would be no in-flight entertainment, no beverage service and no magazines tucked behind the seats. Rather than flight attendants, you’d have “safety professionals” (like lifeguards) who would only spring into action in the event of an emergency.

4. Low fares can still mean big money for passengers customers: While airline industry employees may drive home how cheap it is to travel these days, let’s not forget that unemployment is still through the roof, even if the recession did end more than a year ago. There are still plenty of mortgages at risk of delinquency and foreclosure. Simply put, the economic situation in this country is still dicey, and a little money is a lot when you don’t know how long you’ll have your job. Every dollar matters more to the consumer than it used to.

5. We’ve seen the possibilities: For everyone who has had a problem with a nasty flight attendant or a gate agent with a horrible attitude, you can find a story about one who helped someone out of a bind. I’ve had fantastic service on airlines that have reputations for anything but. And, some carriers have differentiated themselves through service (JetBlue and Southwest come to mind). We know it’s possible for airlines to do better; we’d just like to see it more.

[photo by UggBoy via Flickr]

Four reasons airlines blame passengers for their current woes

by Tom Johansmeyer on

It would be so much easier if we’d just pay more, right? That’s what the airlines seem to believe. It’s impossible for them to turn consistent profits because we just won’t accept higher prices. And, kicking the poor off the plane doesn’t seem to be an option.

I got up this morning and read George Hobica’s hilarious “interview” with Wilbur Flywright, CEO of BrokenWings Airways. In it, I was treated to one airline industry cliché after another. To see them all in one place, it was either eye-opening or strangely reminiscent of an ambitious gate agent’s Twitter account.

Here are the four reasons, according to “Flywright,” airlines blame us – the people who pay their bills – for their inability to run well, despite the fact that some (e.g., Southwest and JetBlue) have actually found a way to thrive.1. We won’t pay more: Of course, I don’t know any industry in which customers pay more than is necessary … at least, not purposefully. You may get suckered at the used car lot, but you don’t go to your local grocery store, demand to see the manager and explain to him, as though he ate too much paste in his youth, that eggs really should cost 34 percent more.

2. We have alternatives: When air travel is inconvenient or expensive, we can take any number of cheap bus services or even drive. Frankly, it takes a strange turn of events to get me on a plane to Boston or Washington, DC.

3. “We” deregulated the industry: It’s the law of the land, and in theory, passengers are voters (we’re indirectly responsible). So, we “imposed” a free market on the airline industry … the nerve of voters in a free society! It may have happened more than 30 years ago, but we still hear airline people gripe about it, even if they were of single-digit age when the transformation occurred.

Hint to airlines: Don’t blame passengers for deregulation – I was only a year old at the time. I assure you, I had nothing to do with it, likewise most of my friends. If we could have done something about it we would have. Also, don’t talk about it as something that killed (or at least maimed) your industry. It was 30 years ago, you need a new lamentation. How about poor customer service levels?

4. We made the airlines cut stuff: Since we won’t pay a “fair” fare, the airlines have had to make cuts. Routes, employee compensation, amenities (if you can call them that) … we now have to pay for what we want in the form of fees.

Taking fees and deregulation together, I just loved this:

So what did we do? We eliminated service. We cut salaries and benefits. No more little plastic wings for the kiddies; if you remember those, then you remember that the cheapest roundtrip coach fare from New York to Los Angeles in 1959 was $231, or about $1,800 in today’s dollars. And if you remember that, then could you please shut up about the fees?

And occasionally, there’s a good point:

Ah, the fees. Can we agree on just one thing? If your neighbor moves, you aren’t going to pay for it, right? No, of course not. Not unless you really wanted him gone. So why should you pay for the jet fuel consumed by some moron who’s flying a 100-pound steamer trunk across the country in our baggage compartment?

[photo by leafar. via Flickr]

Southwest Airlines crew takes baby from abusive parents mid-flight

by Scott Carmichael on

MSNBC is reporting that the crew of Southwest Airlines flight 879 from Dallas to Albuquerque are credited with removing a baby from its parents mid-flight after witnessing her parents slap her.

Southwest Airlines spokesman Brad Hawkins confirmed the incident, and said “Our flight attendants do great customer service. In this case, it was a baby that was upset, and the flight attendant asked the mother if she wanted help with the baby.”

Upon arrival at Albuquerque, local police were waiting for the flight and questioned the parents. According to the airport police chief, removing the baby calmed everyone down and neutralized the situation. The parents have not been cited for the incident.

Kudos to the Southwest Airlines crew – even though we do not have all the details about the situation, when a child is being hit by his or her parents, I feel it is very easy to justify removing the child from their parents to calm things down.

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[Photo credit: AP Photo/Ted S. Warren]