Connecting dots in '04, "Massive Expansion" in '05

[haze]

Most of what I've been saying about AirTran's expansion plans has just been confirmed by Joe Leonard in an article from today's AJC. Adding capacity to the current routes this year with a vast expansion to new cities in 2005 utilizing the new 737-7. Always nice when my credibility gets reafirmed by the CEO's own words

The discount carrier, which has its flight hub and employee base in Atlanta, said its fleet of nearly new, more fuel-efficient aircraft helped reduce fuel costs even as prices soared.

Fuel prices in January and February were almost 11 percent higher than in the same period last year, according to the Air Transport Association.

Adding to the challenges in the first quarter, usually one of the weakest travel periods of the year, were raging fare wars in many domestic markets.

But falling fares tend to hurt big carriers more than discounters such as AirTran, which have simpler operations and lower unit costs.

"Having one of the youngest Boeing fleets in the world has paid huge dividends in a period of high energy prices," said AirTran Chairman Joe Leonard.

AirTran phased out its last gas-guzzling DC-9 in January and now operates a fleet of 75 newer Boeing 717s that burn 24 percent less fuel. The airline hopes to realize similar cost savings in fuel and maintenance costs when it begins taking delivery of larger, longer-range Boeing 737s in June.

AirTran, which last year ordered up to 110 new jets, plans to take delivery of eight 737s and four 717s this year.

Leonard said AirTran has no plans to add new cities to its network this year. The carrier will instead add more flights on existing routes and "connect the dots" within its network, he said.

"We've really just been focused on tightening up the network, sort of hunkering down trying to get more efficient," he said in a conference call with securities analysts.

"If we do that this year, we think we'll really be set up ... for some massive expansion next year with the 737s," he added.

The airline said it expects to boost capacity 21 percent this year.

Now I have no insider info to offer, of course. But count on new routes to Montreal, Toronto, Vancouver, Seattle, Portland, Sacramento, San Diego, Hawaii (via LAX), Salt Lake City, Phoenix, Albuquerque, San Antonio, Mexico, and the Caribbean to be added to their existing longer range routes of Denver, Las Vegas, San Fransisco, and Los Angeles.

He did say "massive" didn't he? You can pretty much count on those routes I mentioned, but I'm anxious to find out just how "massive" an expansion Leonard is speaking of. And whether that entails South America and/or even Europe as they've mentioned before. You'd think expansion on that scale would necessitate the purchase of an even larger, longer range aircraft a few years down the road. And with AirTran's demonstrated penchant for highly efficient new models from Boeing, could that spell a handful of 7E7s in AirTran's future for those South American and European routes? I wouldn't be suprised at all

[haze]

Originally Posted by haze

You'd think expansion on that scale would necessitate the purchase of an even larger, longer range aircraft a few years down the road. And with AirTran's demonstrated penchant for highly efficient new models from Boeing, could that spell a handful of 7E7s in AirTran's future for those South American and European routes? I wouldn't be suprised at all

Sound silly? Well don't laugh it off and readily dismiss the idea just yet. I found this article today which touches on that very same topic. Didn't read it until a day after I wrote the above quoted post, mind you. I was just speculating that the 7E7 would fit right into AirTran's "long range" plans because it's a Boeing product, it will be highly efficient, it will have the range to cover those distant routes AirTran is looking toward, and Boeing/AirTran have already traveled down this "discount-for-helping-launch-a-new-model" road before. This article confirms that Boeing has AirTran (and Southwest, and JetBlue, and so on) in it's crosshairs for the 7E7. With first flights of the 7E7 not scheduled until 2006 and entry into service not until 2008, four years is ample time for AirTran to digest it's 737-7 order and be in a position in 2008-09 to take on the 7E7.

Boeing's Dream Comes True
By Brian Gorman
April 27, 2004


Boeing (NYSE: BA) announced yesterday that its dream will become a reality: The 7E7 Dreamliner airplane will go into production, thanks to an order for 50 of the planes from Japan's All Nippon Airways. Perhaps more importantly, the aerospace giant appears convinced that the deal will be just the first of many.


Notably, All Nippon's launch order was the largest ever for a new Boeing jet. The company indicated that the deal is worth $6 billion at list prices, although press reports suggest All Nippon probably received a discount as an initial buyer.


It's not surprising that a Japanese carrier became the first buyer, as Boeing enjoys a dominant market position in Japan. But with major American carriers like American Airlines' AMR (NYSE: AMR), Continental Airlines (NYSE: CAL), and Delta Air Lines (NYSE: DAL) sporting losses and worsening balance sheets, many investors might be wondering if domestic outfits will bite on the 7E7.


In a conference call yesterday, Boeing Senior Vice President Mike Bair seemed to be brimming with confidence. Bair said global interest in the 7E7 has been "extraordinary" and noted that of the additional 12 firm offers Boeing has extended, "a couple" are with U.S. carriers, although he declined to comment on whether "a couple" actually meant two. The firm's financing arm, Boeing Capital Corp., which late last year shifted its strategy from growing its loan portfolio to financing Boeing sales, is no doubt working to grease the wheels in negotiations.


With its promise of 20% fuel efficiency over the comparably sized 767, the 7E7 may be impossible to pass up. Fuel costs surely will remain a major factor in profitability in the years ahead, and airlines need all the help they can get in the margins department. In fact, as passenger traffic builds in coming years, buying 7E7s may make more sense than returning old planes in storage back to service.


Further, if major carriers don't buy, they risk more setbacks at the hands of cut-rate competitors such as Southwest Airlines (NYSE: LUV), JetBlue (Nasdaq: JBLU), and AirTran (NYSE: AAI). Boeing repeatedly has expressed its belief that the 7E7 would allow discount airlines to compete effectively in long-haul markets. It's an argument low-cost players may find hard to resist.

You heard it here first

[Delta7203]

If AirTran were to take on 7E7s I would, seriously, quit my job at Delta and come work for AirTran!

- John