WASHINGTON (Reuters) - Southwest Airlines Co (LUV.N) won U.S. government approval on Tuesday buy out AirTran Holdings Inc AAI.N in a deal that will add East Coast muscle to Southwest’s operations as it takes on bigger rivals.
Antitrust enforcers at the Justice Department signed off on the $1.04 billion deal with no conditions, concluding it would not hurt competition or raise fares.
“The merged firm will be able to offer new service on routes that neither serves today,” the agency said in a statement.
Government approval came hours after a Southwest Boeing Co (BA.N) 737-700 with 134 passengers ran off the runway at a rainy Midway airport in Chicago. The airline said no one was hurt.
Southwest is also in the midst of a federal safety investigation of older 737s after a hole opened up in one of its aircraft on April 1, forcing an emergency landing in Arizona. No one was hurt in that incident either and investigators are focusing on fuselage cracks.
Southwest hopes to close the AirTran cash and stock transaction on May 2. AirTran shareholders have approved the purchase that would create a company with nearly 43,000 employees.
The airline will fly all-Boeing aircraft. Southwest flies all 737s, while AirTran operates 737s and 717s.
The shares of both companies closed higher on the New York exchange on a day when big U.S. airlines concluded their quarterly earnings reports with stronger-than-expected results — although they lost money — despite pressure from sharply higher fuel costs.
Southwest reported a lower profit of $5 million for the quarter last week, with its fuel expenses rising 26 percent.
Southwest, a low-fare behemoth, is four times the size of AirTran. But Southwest coveted its smaller rival’s access to Atlanta and Washington and hopes to attract more premium paying business customers in those cities as well as Boston and New York.
Southwest, which has a base at Baltimore, is taking aim at Delta Air Lines Inc (DAL.N) and US Airways group Inc LCC.N, both of which have substantial East Coast operations.
Analyst Michael Derchin of CRT Capital said in a note to clients on Tuesday the acquisition is a “game changing event” with annual cost and revenue synergies of more than $400 million expected by 2013.
Southwest hopes to integrate AirTran fully and receive a single operating certificate from the Federal Aviation Administration FAA.L by the first quarter of 2012.
The merger is the first for big airlines this year following the linking of United Airlines (UAL.N) and Continental Airlines last year and Delta and Northwest in 2008.
Glenn Tilton, the chairman of United Continental Holdings Ind (UAL.N), the parent of the merged airline, told Reuters in Chicago on Tuesday the trend has benefited an industry in the midst of a financial recovery.
“I think there’s likely to be continued consolidation,” Tilton said, declining to speculate on potential deals, although American Airlines, a unit of AMR Corp AMR.N, is the only major carrier that has not have found a partner in the latest round of deals dating back to 2005.
Southwest shares closed up 1.5 percent, while AirTran shares gained nearly 1 percent in New York trading.
Reporting by Jeremy Pelofsky, Diane Bartz and John Crawley in Washington; Kyle Peterson in Chicago and Karen Jacobs in Atlanta; editing by Andre Grenon and Carol Bishopric