09-15-2003, 07:42 AM
Join Date: Aug 2003
Sky's the Limit for AirTran
Sky's the limit for AirTran |
Airline keeps on growing at the expense of its rivals
By RUSSELL GRANTHAM and KIRSTEN TAGAMI
The Atlanta Journal-Constitution
Joe Leonard used to complain about hardball tactics by AirTran Airways' rivals. Back in 1999, when his carrier was struggling, the AirTran CEO griped that Atlanta foe Delta Air Lines should "quit investing in trying to kill us."
These days Leonard dares Delta and other big airlines to bring it on.
"We can put our business model where we want it, and there's not much our competitors can do about it," Leonard, AirTran's chairman and chief executive, told about 100 cheering employees at Hartsfield International Airport in July.
They were celebrating AirTran's order for up to 110 new Boeing 737 and 717 jets -- one of the biggest plane orders in years in the beleaguered airline industry.
If Leonard sounds a bit cocky, it's not without some justification. While Delta and other giants have racked up huge losses and struggled to restructure since 2001, the smaller and more nimble AirTran has cemented a remarkable comeback. Once stained by its heritage as ValuJet, and mired in red ink while the rest of the industry prospered in the late '90s, AirTran now flies high.
• The Orlando-based airline, which has its flight hub in Atlanta, made money in five of the past eight quarters -- a period of historic losses for most large carriers.
• AirTran's stock is up more than 350 percent this year. At $1.3 billion, its market capitalization -- stock price multiplied by outstanding shares -- rivals or exceeds that of Continental and Northwest airlines.
• Employment is up 50 percent from two years ago, with 5,600 workers total and 4,000 in Atlanta.
• Once limited to the Eastern Seaboard, AirTran launched its first flights this spring to the western United States, and the new 737s will double its fleet and enable it to build a nationwide route system.
One analyst even sees AirTran flying across the Atlantic before the decade's over.
"They're going to be one of the most profitable carriers in the industry," said James Parker, of Raymond James. "I don't know whether it's going to be five years or seven years, but they're going to probably be flying to Europe."
The big question: Can AirTran pull off its audacious growth plans, or will its success prove to be an aberration created by the unusual conditions of the past three years?
Those conditions have played right into the hands of Leonard, who has run AirTran since January 1999.
AirTran's low cost structure -- it spends 8.5 cents to fly one seat one mile, vs. about 10 cents at Delta -- enables profits amid falling fares and slumping business travel. A lack of overseas routes limits exposure to terrorism fears. A discount image and heavy reliance on Internet bookings fit with current travel habits.
AirTran and other discounters, such as JetBlue and Southwest, have about 20 percent of the U.S. market, and the number is rising. That means big carriers like Delta have to match their lower fares on more routes and more flights.
Delta, which has lost $2.8 billion, cut thousands of jobs and grounded dozens of large jets since 2001, has been compelled to try its own hand at the discount game.
Earlier this year it started a low-fare subsidiary, Song, to fly mainly between Florida and the Northeast. Delta also faces new competition on key routes such as Atlanta to Los Angeles and San Francisco.
Discount carriers have seen "a major boom period," acknowledges Delta CEO Leo Mullin. He calls AirTran "a very serious competitor" but also vows Delta will fight back through Song and other internal changes.
"We intend to be a strong competitor to all the low-cost carriers," Mullin said in an interview.
Delta's marketing chief, Vicki Escarra, told an employees meeting in Dallas recently that she tosses darts at a picture of Leonard on her office door. On a more serious note, she also told them the proportion of Delta passengers in Atlanta who fly only Delta has dropped from 75 percent to 55 percent, a Dallas newspaper reported.
Leonard seems bemused by AirTran's newfound star status.
"We're the overnight success that's taken 10 years to build," he said.