AirTran Lapping the Field
[ The Atlanta Journal-Constitution: 8/2/03 ]
AirTran shares on the climb
By DAVE HIRSCHMAN
The Atlanta Journal-Constitution
It's no secret discount airlines are riding a tailwind of profits while bigger carriers struggle.
But AirTran Airways has quietly lapped the field -- including other discounters -- when it comes to stock performance during this year's market upturn.
AirTran's shares are up 224 percent over the past seven months, from $3.90 at the end of 2002 to a close of $12.62 Friday. Last week, AirTran's share price eclipsed archrival Delta Air Lines' for the first time.
Most other airlines have seen shares rise since the start of the year, rewarding investors who took a chance when prices tanked last winter.
Continental shares are up about 99 percent for the year, and JetBlue is up 71 percent. Stock in American Airlines parent AMR Corp., which barely averted a bankruptcy filing, is up about 36 percent, while shares of low-fare giant Southwest are up 17 percent.
Atlanta-based Delta, however, has logged a 7 percent decline. Its shares began 2003 at $12.10 and closed Friday at $11.23.
Ray Neidl, transportation analyst for Blaylock & Partners, said discount carriers like AirTran are Wall Street's fair-haired children because they've shown that they can expand profitably through tough economic times while network carriers like Atlanta-based Delta cannot.
They've fared better because they have lower cost structures, a natural appeal to budget-minded travelers and less international exposure.
"AirTran is growing, and Delta is shrinking," Neidl said. "AirTran is profitable, and Delta is losing money. Delta and the other legacy carriers are going to have to get some help from the economy to return to profitability again. They're doing their best to cut costs -- but that's not going to be enough."
Some transportation industry experts caution that the discounters are riding an unsustainable bubble that's sure to burst. Growth rates are sure to taper off. And cost and capacity cuts among major carriers are likely to make them tougher competitors in the future.
In other words, now may be too late to throw money into discount airline shares.
But AirTran spokesman Tad Hutcheson insists the recent run-up in his company's shares is no fluke.
"I don't see what's happening now as a bubble at all," he said. "We're on a roll with five consecutive profitable quarters, and we're expanding with new planes and new routes to the West Coast. The market sees it, and investors realize this isn't an anomaly. This is sustainable."
For long-term AirTran shareholders, the rise is long-awaited. The airline's stock was largely moribund in the late '90s when other carriers were thriving and AirTran was struggling to recover from a 1996 safety shutdown at its forerunner, ValuJet.
The airline has been mostly profitable since 1999 and has kept growing since the 2001 terror attacks that forced cutbacks at bigger airlines.
AirTran expects to have a fleet entirely comprised of efficient Boeing 717 jets at the end of this year. It recently placed an order for up to 100 larger Boeing 737s capable of flying nonstop from AirTran's hub at Hartsfield International Airport to virtually any major city in North America.
Most U.S. airlines made money in the quarter that ended June 30 when government reimbursements for security costs were added. But those reimbursements expire Sept. 30 and mask a continuing major airline slump.
Delta and fellow network carriers American, Continental and Northwest lost a combined $778 million in the second quarter before the government checks arrived.
By contrast, AirTran, JetBlue and Southwest earned a combined $151 million without factoring in federal assistance. With taxpayer help, they pocketed $341 million.