Southwest Airlines (NYSE:LUV) scooped up discount airliner AirTran (NYSE:AAI) on Monday in a $1.04 billion acquisition that continues the industry’s consolidation movement.

Southwest, which is the largest U.S. carrier by domestic passengers, said the deal values Orlando-based AirTran at about $7.69 a share, which is a 69% premium to the company’s share price on Friday.

The transaction calls for AirTran shareholders to receive $3.75 in cash and 0.321 Southwest share for each AirTran share.

“This agreement is great news for our crew members, our shareholders, our customers and the communities we serve. Joining Southwest Airlines will give us opportunities to grow, both professionally as individuals and as a group, in ways that simply would not be possible without this agreement," AirTran CEO Bob Fornaro said in a statement. "I am tremendously proud of the things we have accomplished together and look forward to continuing that great work during this next exciting chapter of our history."

The airlines see the deal creating annual synergies of more than $400 million by 2013 and adding to Southwest’s non-GAAP EPS in its first year. Southwest said it sees $300 million to $500 million in acquisition and integration costs.

Southwest and AirTran plan to continue to operate as independent companies. Combined the two airlines serve 106 communities, have 685 all-Boeing (NYSE:BA) aircraft and almost 43,000 employees.

"We believe this deal can benefit all stakeholders through an expansion of low fares for customers, opportunities for employees of both companies and for suppliers and vendors, and favorable returns for shareholders,” Southwest CEO Gary Kelly said. “Ultimately, we want to spread low fares farther and look forward to working together with AirTran's crew members to realize the new opportunities we expect to achieve from this deal."

The airlines see the deal closing in the first half of 2011, pending regulatory and shareholder approvals. Commercial and operating integration is tentatively scheduled to begin in 2012.
The AirTran acquisition comes amid a pattern of consolidation in the airline industry. United Airlines parent UAL Corp. (NASDAQ:UAUA) and Continental Airlines (NYSE:CAL) are expected to close their merger that will create the world’s largest airline.

Shares of AirTrain surged 60.4% to $7.30 in the wake of the deal. Southwest’s stock was up 0.8% to $12.38.