Southwest Airlines said Monday it will buy AirTran for about $1.42 billion. The move will put Southwest in head-to-head competition with Delta Air Lines in Delta's home base of Atlanta.
The buyout, funded mostly with debt, will also give Southwest a bigger slice of the market in cities like Boston and New York, where it has been expanding.
Dallas-based Southwest carries more passengers than any other airline in the United States. Besides its base in Atlanta, AirTran has hubs in Milwaukee and Orlando.
Southwest customers applauded the deal Monday.
"I think it would help the passengers get to more places faster and quicker, and they always offer free luggage, so it's a good deal," Sandra Chambers said.
Kelly Cash, another traveler, said she thought the buyout will be very beneficial for travelers in the Metroplex.
Southwest flight attendants also came out in support of the deal.
"We're just happy to see the opportunity for Southwest Airlines to grow," said Thom McDaniel, president of Transport Workers Union Local 556. "It gives our employees great opportunities, and it also gives our customers (the opportunity) to go to markets that we don't serve yet."
But Southwest's pilots said they are cautious about the future.
"How the company fully intends to integrate the operation, what impact it has on our pilots -- that's the ultimate determining factor whether it's really good for the pilot group or not," said Capt. Carl Kuwitsky, president of Southwest Airlines Pilots' Association.
Rick Seaney, CEO of Farecompare.com, said some markets could see higher ticket prices.
"For Dallas, it doesn't mean much, because AirTran only has a few flights a day out of Dallas," he said. "But cities like Baltimore, Orlando, Milwaukee where they have significant overlap, they just lost a pretty heated competition."
The announcement continues the airline industry's move to consolidate. Continental Airlines and United Airlines parent UAL Corp. will formally combine at the end of this week and become the world's largest, toppling Delta. Delta claimed that spot when it acquired Northwest Airlines two years ago.
While Southwest will be about 25 percent larger when the deal is complete, it will remain the fourth-largest by traffic, just after Fort Worth-based American Airlines. American Airlines was once the world's largest airline.
"There's just not a lot of choice out there to merge with, and everybody has a dance partner, and American is sort of sitting on the sidelines," Seaney said. "American sort of sits there, and they have to compete in a place they've probably never been before."
American Airlines isn't commenting on the Southwest deal, but company executives previously said they don't feel compelled to consolidate.
Southwest tried unsuccessfully last year to buy Frontier Airlines out of bankruptcy. Republic Airways Holdings won the auction for Frontier last August, buying the Denver-based carrier for almost $108.8 million.
Southwest's acquisition of AirTran is expected to close in the first half of next year. It requires both regulatory and shareholder approval. The airlines expect to fully blend their operations in 2012.
Based on Southwest Airlines' closing share price on Friday, the deal is worth $7.69 per AirTran share. That's a 69 percent premium over its closing price of $4.55. In premarket trading, AirTran shares jumped 61 percent to $7.31, while Southwest shares rose 12 cents to $12.40.
Southwest will pay about $670 million with available cash. Southwest will assume $2 billion in AirTran debt.
Southwest and AirTran said the new airline will operate from more than 100 different airports and serve more than 100 million customers.
The combined company will keep the Southwest name and be headquartered at Dallas Love Field. The carrier will also keep most of Southwest's trademarks -- free bags, open seating and no first class.
AirTran currently charges $20 for the first checked bag and $25 for the second. The baggage fees will be dropped when the airlines combine in 2012.
In April, AirTran Holdings Inc. CEO Robert Fornaro signaled his interest in making a deal, saying the airline would consider a combination with another carrier if approached and if such a deal made sense for the company and shareholders.
But when asked by The Associated Press who might be a potential suitor for AirTran, Fornaro said, "I'm not sure that we're necessarily a natural fit to be gobbled up by somebody else."
NBCDFW's Kevin Cokely and AP business writer Michelle Chapman contributed to this report.
