US budget carrier Southwest Airlines is to buy rival airline AirTran Airways for $1.4 billion.
The Texas-based carrier said it had entered into a "definitive agreement" to acquire all outstanding stock of AirTran Holdings Inc, the parent company of AirTran.
Gary Kelly, chairman, president and chief executive of Southwest Airlines, said the deal would give the airline access to new markets.
The purchase will increase the carrier's domestic network, giving it presence in and out of Atlanta for the first time.
Its profile at Ronald Reagan National Airport,Washington, will also be boosted by the deal.
"It is exciting for our employees, our Customers, the communities we serve, and our Shareholders," said Kelly.
"As we approach our 40th Anniversary of providing exceptional customer service at everyday low fares, the acquisition of AirTran represents a unique opportunity to grow Southwest Airlines' presence in key markets we don't yet serve and takes a significant step towards positioning us for future growth.
"This acquisition creates more jobs and career opportunities for our combined employee groups, as a whole.
"It allows us to better respond to the economic and competitive challenges of our industry, and fits perfectly within our strategy for our fifth decade of service.
The deal will also see Southwest expand in key markets, New York LaGuardia, Boston Logan, and Baltimore/Washington."
Some reports in the US have predicted that the consolidation will lead to an increase in ticket prices, though Southwest insisted it will continue to provide the lowest possible fares..
The chief executive recently told delegates at the National Business Travel Association convention in Houston that consolidation and expansion were inevitable.
He also said there was a chance that Southwest would start international long-haul services in the future, possibly to Europe.