AirTran Holdings raised its offer for Midwest Air Group by almost 18% to about $345 million after its earlier bid for the regional airline was rejected last month.
The new offer is equivalent to $13.25 for each Midwest share, based on the closing price of AirTran common stock on Monday. The offer consists of $6.625 in cash and 0.5884 shares of AirTran common stock for each Midwest share.
"We've been working for over a year with the management of Midwest hoping we could sit down and negotiate an agreement that would put together AirTran and MidWest and create a nationwide, low-cost, high-quality airline," AirTran Chairman and Chief Executive Joe Leonard told CNBC's "Squawk Box." "They've basically stonewalled us up to this point, so we decided the best course would be to go directly to the shareholders."
The offer through subsidiary Galena Acquisition was due to expire Feb. 8.
AirTran, based in Orlando, had first bid $11.25 per share on Oct. 20 for the Milwaukee-based carrier, but had said it was prepared to increase its offer.
Leonard said in a letter to Midwest's board that it wasn't easy to increase the offer.
"However, we are willing to take this step because we fully believe that a combined AirTran and Midwest, whose shareholder base will consist of holders of both of our companies, will generate the value needed to justify our increased offer," he said.
Leonard has said a combined company would reach $3.5 billion in revenues and have some 15,000 employees by the end of this year.
"Consolidation has begun in the industry and will continue," Leonard told CNBC. "A combination of AirTran and Midwest gives us a very, very strong defendable airline that can stand up to any consolidation effort that occurs around us."
Leonard told CNBC that he believes Midwest is in a vulnerable position because its revenue is overly concentrated in too few markets. He said that 58% of its revenue comes from 20 markets, with half of that coming from the top five markets.
"That is a very dangerous way to play the game in the event that you get low-cost competition," he told CNBC.