Article
Southwest's acquisition of AirTran: An analysis of short-term stock performance
World Review of Intermodal Transportation Research
(2013)
Abstract
Southwest Airlines completed its stock acquisition of AirTran Airways on 2 May 2011. This paper examines the short-term stock performance of Southwest Airlines and AirTran Airways using time series data consisting of daily and cumulative abnormal returns ± 60 trading days around the merger announcement and merger completion dates. The impact of Southwest's announcement to acquire AirTran is positive. The daily abnormal returns of Southwest and AirTran, using the S&P 500 as index, are highly significant on the merger announcement date. The impact of the merger completion is mixed, however. Southwest's share price drifted lower up to the merger date, underperforming the S&P 500, while the share price of AirTran generally drifted higher in a very narrow range. Southwest and AirTran, nevertheless, outperformed the AMEX Airline Index, suggesting that the higher fuel prices at the time of the merger may have influenced investor reaction to the merger, resulting in lower share prices of major airlines. The beta of Southwest improved after the merger announcement and completion of the merger, suggesting shareholder confidence in the merger and in Southwest's financial performance, at least in the short-term.
Keywords
- abnormal returns; airline mergers; event study; short-term stock performance; Southwest Airlines; AirTran Airways; mergers and acquisitions; M&A; fuel prices; investor reaction; shareholder confidence.
Disciplines
Publication Date
October, 2013
DOI
http://dx.doi.org/10.1504/WRITR.2013.059840
Citation Information
Wilfred S. Manuela Jr. and Dawna L. Rhoades. "Southwest's acquisition of AirTran: An analysis of short-term stock performance" World Review of Intermodal Transportation Research Vol. 4 Iss. 4 (2013) p. 227 - 246 ISSN: 1749-4729 Available at: http://works.bepress.com/wilfred_s_manuela_jr/8/