We achieved $80 million in net pre-tax synergies in 2011 through our acquisition of AirTran.
On May 2, 2011, Southwest Airlines closed on the acquisition of AirTran. Based on the average of Southwest Airlines’ closing prices for the 20 trading days ending three trading days prior to May 2, 2011, of $11.90, the transaction valued AirTran common stock at approximately $7.57 per share.
At the time of purchase, AirTran had nearly 8,000 Employees operating a fleet of 140 Boeing 717-200 and 737-700 aircraft serving 69 destinations, including near-international destinations in Mexico and the Caribbean. With primarily hub-and-spoke service, as opposed to point-to-point, approximately half of AirTran’s flights originate or terminate at its largest hub in Atlanta. AirTran offers a business class product and charges fees for checking bags and changing flights.
We believe the AirTran acquisition supports our goal to achieve a 15 percent pre-tax return on invested capital and represents a unique opportunity for Southwest Airlines to take a significant step toward achieving our strategic goals over the next decade. We firmly believe that both AirTran and Southwest Airlines are stronger together and can accomplish more, faster than either could on its own.
We have started the process of integrating AirTran into Southwest Airlines and estimate that it will take two to three years to fully transition AirTran and become one airline. Ultimately, it is our plan that our Customers will only see the Southwest Airlines low-fare brand with one set of policies, our single-class configuration, and combined reservation and ticketing systems, web sites, and frequent flyer programs.
Our Southwest Airlines Customers are already experiencing some of the benefits of the AirTran acquisition , as we’re able to offer more low-fare destinations, including Atlanta, the largest domestic market Southwest Airlines had previously not served. We are expanding our presence in slot-controlled markets including New York LaGuardia; beginning service to Washington, D.C., via Ronald Reagan National Airport; and expanding our service in other key domestic markets, including Boston and Baltimore/Washington. Our acquisition of AirTran also provides access to near-international leisure markets in the Caribbean and Mexico.
In 2011, we accomplished the following key integration milestones:
- We moved most of AirTran’s headquarters functions to Southwest Airlines Headquarters in Dallas.
- We took initial steps toward integrating our frequent flyer programs.
- Southwest Airlines and AirTran Pilots overwhelmingly reached an agreement regarding seniority integration.
- We began optimizing AirTran’s network and released the first coordinated Southwest Airlines and AirTran flight schedules.
- We merged maintenance facilities in Orlando and Baltimore/Washington.
The key integration milestones from the first quarter of 2012 include:
- Flight Attendants and Flight Instructors reached agreements regarding seniority integration.
- The first group of AirTran Employees officially joined the Southwest Family in January 2012.
- Southwest Airlines began service to Atlanta on Feb. 13, 2012, with an initial schedule of 15 flights to five nonstop destinations.
- We completed 20 of 31 shared city transitions as of March 2012, co-locating our operations side-by-side.
- We received our Single Operating Certificate on March 1, 2012.
We incurred $134 million in pre-tax expenses associated with the acquisition and integration of AirTran during 2011, and we expect total acquisition and integration costs will be approximately $500 million upon completion of the integration.
In 2011, $80 million in net pre-tax synergies were attributable to the AirTran acquisition. Upon full integration, we expect to generate approximately $400 million in annual net pre-tax synergies, excluding acquisition and integration costs.
Now that we have obtained our Single Operating Certificate from the Federal Aviation Administration, we have the green light to work toward full integration. AirTran will begin transferring aircraft to Southwest Airlines in the first half of 2012 to be converted to the Southwest Airlines livery and configuration, including our new Evolve cabin design. In cities served by both carriers, we will continue to in-source below-the-wing operations to Southwest Airlines Ramp personnel, harmonize our Passenger services vendors and our deicing programs, and merge our Maintenance facilities. In 2012, Seattle will be the first joint city to fully be converted to Southwest Airlines operations. We will further integrate the Southwest Airlines and AirTran frequent flyer programs to allow Customers of both Southwest Airlines and AirTran to book flights on either carrier using either southwest.com or airtran.com .
Optimizing our joint network remains a priority. With persistently high fuel prices, we have made the difficult decision to close 15 of the smaller AirTran cities by August 2012 and redeploy available aircraft. Based on our joint schedules published through November 2012, we will serve 97 destinations in our combined networks.