Southwest Airlines Co. will purchase AirTran Holdings Inc. for $1.04 billion in cash and stock in a deal that will allow Southwest to expand its presence in major East Coast markets, Reuters reported after the airlines announced the merger today.

The merger is the first among leading low-cost airlines and the second notable deal this year after the one between UAL Corp. and Continental Airlines Inc., which is moving toward completion, Reuters said. Delta Air Lines bought Northwest Airlines in 2008.

Contraction in the U.S. market could lead to higher fares and less service over time but healthier balance sheets, according to analysts who agree that the industry is fragmented and cannot make money consistently.

Bloomberg said the deal gives Southwest access to Atlanta, home of the nation’s busiest airport.

The announcement also raised the question of whether Southwest might extend operations to Des Moines International Airport, where AirTran operates two flights a week to Orlando, Fla., and two flights a day to Milwaukee. AirTran is based in Orlando.

“We certainly assume that having AirTran here already puts us in a favorable position,” airport spokesman Roy Criss said.

Southwest CEO Gary Kelly said the deal with Atlanta-based AirTran would allow Southwest to expand in markets such as New York, Boston and the Washington, D.C., area, Reuters said.

The move by powerhouse Southwest puts pressure on all major rivals, who are still trying to strengthen their eastern U.S. markets to leverage more premium-paying business travel and cement an industry recovery after a severe two-year downturn, Reuters said.

The proposed merger is contingent on approval by shareholders at both companies and U.S. Department of Justice antitrust clearance. Bigger carriers in recent merger deals have pointed to the expanding low-cost sector, which would shrink by one airline if the proposal goes through.

Including AirTran’s existing net indebtedness and capitalized aircraft operating leases, the transaction value is about $3.4 billion, the carriers said.