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Midwest and AirTran: Huh?

The more I think about the AirTran/Midwest merger, the more confused I am.  Why exactly is AirTran buying them?  Because putting new aircraft on Midwest’s routes will save money?  If Midwest’s Kansas City and Milwaukee-based routes were so prime, why wouldn’t AirTran just open routes from those cities, rather than paying a 30something percent premium over the current value of the stock for those routes?  I’m obviously missing something…I welcome your thoughts…

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  1. I haven’t yet studied this that carefully, but I think part of the reasoning is that about half the purchase price is covered by Midwest’s cash-on-hand that AirTran would inherit. AirTran then believes it can operate Midwest’s route at significantly lower cost. And, obviously, the unit revenue in taking over Midwest’s routes — instead of competing against them for the same customers — is likely to be far, far higher.

  2. If this means that Airtran will serve those cookies, I’m all for it. Business synergies be damned!

  3. Hey, we can laugh about the cookies, but it might not be a bad idea to roll them out across the Airtran system. As far as I can tell, Airtran’s biggest problem is that they have no pizazz. I guess they’ve got that XM radio these days, but big deal. If they became the “cookie airline,” it might boost their name recognition and loyalty. Heck, I remember Doubletree as the “cookie hotel.” And what does a cookie cost?

  4. As always, great insight from IAHPHX. I hadn’t thought about the cash angle (and I’m not sure reporters have mentioned it). Basically paying half that price for Midwest, may make it a good deal…

  5. Article in this business journal indicates that Midwest’s shareholders have now realized AirTran is using Midwest’s cash to pay for half the outstanding shares (I guess they’re not rubes!). On the otherhand, the largest Midwest shareholder seems receptive to a sweetened offer. And AirTran seems receptive to sweeting their offer. So there seems to be a reasonable chance this will work out. It will be interesting to see if Southwest (or another airline) tries to crash the party.

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