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Southwest buys AirTran, grows even bigger

Southwest buys AirTran, grows even bigger
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Monday, May 2, 2011 - 6:33pm

DALLAS — Southwest Airlines is looking more and more like the big airlines it loves to needle.

The once-quirky upstart flies to the big, busy airports it used to shun. It lets travelers cut in front of the boarding line — for a fee. Its overhauled frequent-flier program is more complicated, like others in the industry.

Now comes Southwest's boldest move, its $1 billion purchase of AirTran Airways, completed Monday. All these changes are designed to help Southwest compete better for high-fare business travelers.

By acquiring AirTran, Southwest increases passenger traffic by 25 percent. It gains AirTran's hub in Atlanta, a business-travel center that had been missing from Southwest's route map. It gains a toehold at Washington's Reagan National and adds gates at New York's LaGuardia, two airports favored by business travelers over nearby Southwest locations.

It will rival Delta and the combined United and Continental as the biggest airline by passenger-carrying capacity within the U.S., according to aviation data firm OAG. It already flies more than 100 million domestic passengers per year, the most of any airline, but most of them are vacationers who pay lower fares than corporate travelers.

The new frequent-flier program was designed expressly to reward customers for buying more-expensive tickets, something business travelers do when they make last-minute travel plans. It sent the message that Southwest wants business travelers, even at the expense of angering longtime leisure customers. The average fare on Southwest has risen about 12 percent a year recently, but the airline would like to push that even higher.

Southwest is no longer the undisputed king of cheap flights. A new breed of ultra-low fare airlines have sprung up. Some mid-price competitors, such as JetBlue and Virgin America, have more amenities. Fare watchers say that, at times, United, Delta, American or US Airways offer lower fares on some routes.

Nor is Southwest the lowest-cost operator anymore. Spirit Airlines, Allegiant Air — and AirTran — have lower costs per mile, partly because they pay employees less, but also because Southwest's maintenance costs have risen as its fleet has aged. The big network airlines such as United and Delta have spent the past decade cutting labor and other costs and boosting efficiency.

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