Interesting.....

Southwest Airlines Co. (LUV)’s new acquisition, AirTran, initially will retain practices such as bag fees and seat assignments that have been shunned at the largest discount carrier.

Southwest got an initial look at proprietary AirTran data today when it closed the $1 billion purchase of the smaller airline and is deferring any shift in operations pending a more- thorough review, Chief Executive Officer Gary Kelly said.

“Today’s the beginning,” Kelly said on a flight to Atlanta from Southwest’s Dallas headquarters for a celebration with employees. “We have much we want to learn before we start to make changes. For some months, there won’t be any changes.”

Buying AirTran gives Southwest access to Atlanta, the world’s busiest airport. It also puts Southwest in the position of owning an airline that charges to check luggage and rebook flights, policies for which it has lampooned rivals in television commercials.

“We’re literally on a different system for everything,” said Bob Jordan, the Southwest executive vice president who has been appointed president of Orlando, Florida-based AirTran. “At some point, AirTran’s fees are going to go away.”

Southwest fell 14 cents, or 1.2 percent, to $11.61 at 4:02 p.m. in New York Stock Exchange composite trading. The shares have declined 13 percent since Sept. 27, when Southwest agreed to buy AirTran for $3.75 cash and 0.321 Southwest share for each share of AirTran Holdings Inc. (AAI)
Debt Ratings

Including AirTran debt and capitalized aircraft operating leases, the transaction is valued at about $3.2 billion, the airlines said. Standard & Poor’s cut Southwest’s credit rating today to BBB-, the lowest investment grade, from BBB, citing the assumption of AirTran debt and leases. S&P raised AirTran to BBB- from B-.

Passengers won’t start to see many changes until late 2011 or early 2012, according to Southwest. The airlines expect to receive regulatory approval to operate as one carrier early in 2012, and the most substantive changes will occur after that.

Southwest and AirTran will continue to operate separate flight schedules, reservation systems and websites. AirTran’s planes will retain a first-class section and their current paint scheme.
‘Support That Brand’

“AirTran continues to be a brand, and we will support that brand, just as we support the Southwest brand,” Kelly said.

While Southwest and AirTran have both focused on low fares as central to their appeal to travelers, their approaches differ. Southwest jets have only one class of service, for example, and AirTran has coach and business-class cabins. AirTran also charges extra for seats on the aisle, next to a window or with extra legroom.

Southwest will examine all of AirTran’s operations, learning things such as how the airline operates a hub-and-spoke flight system and its Boeing Co. (BA) 717s. Southwest flies an all Boeing 737 fleet, which it has long described as a pivotal move in holding down maintenance expenses.

Southwest will compete directly in Atlanta with Delta Air Lines Inc. (DAL), the world’s second-largest carrier. Delta controls 75 percent of passengers at Atlanta, now the biggest airport for AirTran.

The acquisition also will give Southwest more gates at New York’s LaGuardia and its first service at Washington’s Reagan National. Southwest is the fourth-largest U.S. airline by traffic, after United Continental Holdings Inc., Delta and AMR Corp. (AMR)’s American Airlines.

Buying AirTran will allow Southwest to resume growth in seating capacity for the first time since the end of 2008, and will add about $3 billion a year in revenue.

To contact the reporters on this story: Mary Schlangenstein in Dallas at [email protected]; Mary Jane Credeur in Atlanta at [email protected]

To contact the editor responsible for this story: Ed Dufner at [email protected]