NEW YORK (AP) — Southwest Airlines agreed to buy AirTran in a $1.4 billion deal that will combine two of the country's largest low-fare carriers and give Southwest a bigger slice of the market in the Northeast and in Atlanta, the busiest airport in the nation.
The acquisition announced Monday moves Southwest, which already carries more passengers than any other American airline, into 37 new cities.
It gains a foothold in cities such as New York and Boston, where it already has been expanding, and adds to its push to expand internationally. Southwest gains routes to Mexico and the Caribbean, where remaining discount airline JetBlue has a big presence.
Southwest has been targeting Atlanta, where AirTran currently competes with Delta Air Lines, because it is a hub for business travelers, who tend to pay higher fares.
The buyout is the latest in a wave of consolidation in the airline industry. Continental Airlines and the parent of United will combine this week to topple Delta as the largest airline in the world. Delta got the title when it bought Northwest Airlines in 2008.
For fliers, it could mean higher airfares in cities where competition is already fierce, such as Boston, New York and Baltimore.
Fares probably won't leap dramatically any time soon, said fare expert George Hobica, because JetBlue Airways competes on many of the routes where AirTran and Southwest overlap in the East.
But travelers also should be prepared for fewer fare sales when Southwest and AirTran combine, Mr. Hobica said. Locked in a constant battle with Delta in Atlanta and other discounters on the East Coast, AirTran puts fares on sale nearly every week. The acquisition by Southwest will take out a competitor and make fare sales less important for the combined airline.
Passengers in smaller cities such as Moline, Ill., and Wichita, Kan., will have more options for flights and connections, which mean more opportunities to avoid delays and cancellations.
In welcome news for weary travelers, Southwest said it will drop AirTran's bag fees when the pair combine in 2012. Right now, AirTran charges $20 for the first checked bag, $25 for the second.
Some major airlines charge even more. Southwest claims it has lured passengers by refusing to charge for bags, and it has built a marketing campaign around the policy, with baggage handlers shouting declarations of love to suitcases on the tarmac.
Southwest will remain the No. 4 airline by traffic. AirTran is the nation's eighth largest airline.
Last year, Southwest tried unsuccessfully to buy Frontier Airlines out of bankruptcy. Republic Airways Holdings won the auction for Frontier in August 2009, buying it for about $109 million.
Southwest's acquisition of AirTran is expected to close in the first half of next year. It requires both regulatory and shareholder approval.
Based on Southwest's 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. AirTran shares jumped 62 percent to $7.36, while Southwest shares rose $1.73 to $14.01.
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 airports and serve more than 100 million customers.
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, Mr. Fornaro said, "I'm not sure that we're necessarily a natural fit to be gobbled up by somebody else."
AirTran would be Southwest's largest acquisition by a wide margin. The company, which began with a handful of planes hopping among three Texas cities in the early 1970s, bought Morris Air and Muse Air in the mid-1980s. Two years ago, Southwest bought assets of ATA Airlines out of bankruptcy, which gave Southwest an opening to serve New York with ATA's takeoff and landing slots at LaGuardia Airport.
AP airlines writer David Koenig in Dallas and business writer Michelle Chapman in New York contributed to this report.