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AirTran Airways

2005A Strategic Management Case

Study

Graphics are the property of AirTran

Airways

® 2008, Danielle Boucher, Matt Bouchard, Darius Parker, Takefumi Kawahara, UMFK

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Overview - “Getting to know a low-fare leader “

•A brief history of AirTran Airways•EOY 2004

oMission, Objectives, Strategies•2005

oNew Vision and Mission•External Analysis

oOpportunities & Threats oCPMoEFE

•Internal AnalysisoFinancial DataoStrengths and weaknesses oIFEoFinancial ratios

•Strategic Analysis oSWOT MatrixoSPACEoIE matrixoGrand Strategy MatrixoMatrix Analysis

•Possible alternative strategies•Our Recommendation

oStrategies oLong range objectivesoEPS/EBIT

•Implementation Issues•Proposed annual objectives (goal) and polices•Proposed procedures for evaluation•Epilogue•Current Performance•Questions •Resources Utilized

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History of AirTran Airways•In 1992, the predecessor airline, ValuJet Airlines was founded

•ValuJet Airlines started with two former Delta Air Lines' DC-9 aircraft

•First commercial flight occurred between Atlanta and Tampa on October 26, 1993.

•The airline was the first to launch ticketless travel in 1993.

•In the spring of 1994, barely eight months after launching service between Atlanta and three Florida cities, the airline went public by listing its stock on the NASDAQ and trading under the ticker symbol VJET.

•In late 1995, the airline placed an order to be the launch customer for the Boeing 717. ValuJet was the youngest airline ever to serve as a launch customer for an aircraft type.

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History of AirTran Airways•At the end of 1995, ValuJet was named as the top company in the

famed Georgia 100 as published by the Atlanta Journal-Constitution

• and the airline posted high margins with a $67 million net profit

• revenues of $367 million.

•The publicly traded airline stock was increasing in value on a seemingly weekly basis.

•The original AirTran Airways, a Boeing 737 operator with service to/from Orlando, was founded by AirTran Corporation, the holding Company of Mesaba Airlines of Minneapolis, Minnesota, operating as a Northwest Airlink carrier with hubs in Minneapolis and Detroit. In 1994,

•AirTran Holdings purchased a start up 737 operator named Conquest Sun and renamed the airline AirTran Airways.

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History of AirTran Airways•Conquest Sun, similar to ValuJet, was an airline started by former

Eastern Air Lines employees.

•The original AirTran Airways moved its headquarters to Orlando, Florida, and grew to 11 Boeing 737 aircraft serving 24 cities in the East and Midwest providing low-fare leisure travel to Orlando.

•In 1995, AirTran Airways was spun off by Mesaba and formed its own independent holding company named Airways Corporation.

•On July 10, 1997, ValuJet, Inc., the holding company for ValuJet Airlines, Inc., announced plans to acquire Airways Corporation, Inc., the holding company for AirTran Airways, Inc. of Orlando, Florida. The deal was scheduled to close on November 17, 1997.

•On September 24, 1997, ValuJet Airlines changed its name to AirTran Airlines. While the hub remained in Atlanta, the headquarters of the new entity was combined in Orlando, Florida, on January 28, 1998.

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History of AirTran Airway’s Management

January 1999

• A new management team led by Joe Leonard, a veteran of Eastern Air Lines, and Bob Fornaro, of US Airways, took the reins at the airline.

• Leonard, Chairman and CEO, improved operating efficiencies while Fornaro, President and COO, built a sustainable route network which increased the presence of the Atlanta hub while adding focus cities in Baltimore/Washington, Philadelphia and Chicago.

•On August 15, 2001, Leonard and Fornaro joined twelve Crew Members in ringing the opening bell at the New York Stock Exchange where the company's stock began trading under the ticker symbol AAI.

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History of AirTran Airway’s Management

January 1999

• The airline grew quickly under Leonard and Fornaro's leadership and has transformed itself into a strong competitor operating:

• the youngest all Boeing fleet in the nation

• to more than 56 cities coast-to-coast

• more than 700 flights per day

• over 9,000 Crew Members

• serving nearly 20 million passengers per year.

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NYSE Ticker: AAI

www.airtran.com

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“The year of new planes, new people, and new

determination.” AirTran CEO, Joe Leonard

AirTran Airways 2004

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2004 Mission

Innovative people dedicated to delivering the best flying experience to smart

travelers. Every day.

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Guiding Principals•We celebrate bringing people together through:•Safety Taking personal responsibility for the safety of each traveler and every Crew Member. •Courtesy Showing respect and providing caring customer service to travelers and Crew Members. •Pride In our work, in one another and in contributing to the success of our airline. •Teamwork Supporting one another and valuing our diverse contributions to meet every traveler's needs. •Innovation Acting with an empowered "can do" spirit to continuously improve our airline. •Cleanliness Of work areas and our equipment says everything to our customers – pick it up, keep it clean. •Anticipation Of customer, crew member and business needs is a key requirement of every position. Look ahead – be ready! •Results Every crew member is expected to contribute to our success through measurement and • continuous improvement. Know your numbers!

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Our Values•A Total Commitment to Safety In every decision and every action, every time, every day. •Compliance with Regulatory Standards In every decision and every action, every time, every day. •Technical Excellence and Continuous Learning We do it right, then we improve to do it better. •Honesty, Trust and Integrity In all actions with one another, our suppliers and our customers. •Respectful Communication and Constructive Disagreement To get to the best result, together. •Personal Responsibility for Resolving Issues We do not pass the buck or quit on a Crew Member. •Acting with Purpose and Urgency We make decisions to do the right thing and then act on it. •Hard Work We take pride in doing the difficult things that make our airline better than the others. •Fun We are positive people who celebrate success, learn from mistakes and enjoy our work. •Profit We deliver a sustainable profit to support the growth and improvement of our company.

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2004 Strategies•Introducing the newest fleet of Boeing 737 to appeal to customers safety concern

•Develop flights to Mexico

•Preservation of good relations with our employees (46% represented by union)

•Low-fare price point

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2004 Objectives•Remain profitable despite increased fuel prices

•To satisfy the transportation needs of our target customers, but also to provide customers with a travel experience worth repeating.

•Minimize rising expenses while increasing revenues.

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2004 Issues•Lost the bid to a major expansion of 14 gates at ATA airlines to Southwest Airlines.

•Increased fuel prices

•Labor costs (government mediation)

•4 Hurricanes hit Orlando

•Negotiations between US and Mexico

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A New Vision

AirTran Airway’s vision is to become the leading affordable, safe and enjoyable short distance airline in the nation.

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A New Mission The mission of AirTran Airways is to

provide safe, clean, and affordable short distance flights for business and leisurely travelers as well as crew members. We are focused on innovative ideas to provide for profitable growth for our shareholders, while being mindful of compliance and regulatory standards. We believe that employees should have a respectful, courteous, and fun experience while being part of AirTran Airways. AirTran is committed to improving the quality of life of others and improving communities through a diverse range of charitable activities.

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New Mission Evaluation The new mission fulfills the following questions:•Customers: Who are the firm’s customers?•Products or services: What are the firm’s major products?•Markets: Geographically, where does the firm compete?•Technology: Is the firm technologically current?•Concern for survival, growth, and profitability: Is the firm committed to growth and financial soundness?•Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the firm?•Self-concept: What is the firm’s distinctive competence or major competitive advantage?•Concern for public image: Is the firm responsive to social, community, and environmental concerns?•Concern for employees: Are employees a valuable asset of the firm?

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External Audit: Opportunities

•Appeal to public due to new “safe” planes•Negotiations between Mexico and United States may allow in more opportunities for service to Mexico from U.S. airlines•$950,000 federal grant to advertise the new AirTran service and $1 million from Greater Richmond Chamber of Commerce.•International and nationwide flights.•Allow for computer reservations•Delta and U.S. Airways of reduced services and capacity in the eastern United States

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External Audit: Threats•Unionized and subject to union actions as collective bargaining agreement expire•Society’s view of flying after September 11, 2001•Rising fuel costs (66% from 2003 to 2004)•Major competitor Delta is #1 in Atlanta (AirTran’s main hub)•Flight delays and cancellations due to weather on eastern and southeastern coasts.•Outsourced maintenance may compromise safety•More intense competition as they broaden their geographic locations

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AirTran Airways CPMAir Trans Delta Southwest

Critical Success factors 

Weight

Rating Weighte

d Score

Rating Weighted

Score

Rating Weighte

d Score0.0 to 1.0 1 to 4 1 to 4 1 to 4

Airline Quality Rating 0.15 4 0.60 1 0.15 3 0.45

Domestic/National Expansion 0.15 3 0.45 4 0.60 3 0.45

International Expansion 0.05 1 0.05 4 0.20 2 0.10

Operating Expenses per available seat mile (ASM) 0.15 2 0.30 3 0.45 3 0.45

Market Share 0.10 2 0.20 4 0.40 4 0.40

Age of Fleet 0.05 4 0.20 2 0.10 2 0.10

Passenger Accommodations / Business Class 0.06 3 0.18 3 0.18 2 0.12

Low Outsourced Maintenance Costs 0.10 2 0.20 4 0.40 1 0.10

Customer Prices 0.12 3 0.36 2 0.24 3 0.36

Executives / Management 0.07 4 0.28 3 0.21 3 0.21

Totals 1   2.82   2.93   2.74

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AirTran Airways EFE

Key External Factors

Weights Rating

Weighted Score0.0 to

1.0 1 to 4

Opportunities      

Appeal to public due to new "safe" planes. 0.05 2 0.1

Increased international flights. 0.13 2 0.26

Increased domestic flights throughout the United States. (additional hubs) 0.16 3 0.48

Allow for computer reservations. 0.05 1 0.05

$950,000 fed. Grant / $1,000,000 from Greater Richmond C of C 0.1 3 0.3

Threats    

Unionized workers / possible union actions. 0.05 2 0.1

Rising fuel costs (66% from 2003 to 2004) 0.2 3 0.6

Major Competitors in same market (Delta) 0.15 2 0.3

Sciety's view of flying after September 11 0.07 2 0.14

Eastern / Southeastern U.S. Weather Conditions 0.04 2 0.08

Totals 1   2.41

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2004 Consolidated Balance Sheet

December 31,

2004

2003

ASSETS Current Assets:

Cash and cash equivalents $ 307,493

$ 338,707

Restricted cash 7,854 9,798 Short-term investments 26,975 — Accounts receivable, less allowance of $627 and $603 at December 31, 2004 and 2003, respectively 19,376 17,454 Inventories, less allowance for obsolescence of $987 and $733 at December 31, 2004 and 2003,

respectively 28,311 19,345

Deferred income taxes - current 7,442 52,054 Prepaid expenses and other current assets 14,613 15,209

Total current assets 412,064

452,567

Property and Equipment:

Flight equipment 294,966

229,927

Less: Accumulated depreciation (34,03

6 ) (26,610 )

260,930

203,317

Purchase deposits for flight equipment 69,833 49,991 Other property and equipment 82,854 45,425

Less: Accumulated depreciation (29,682

) (22,272 )

53,172 23,153

Total property and equipment 383,935

276,461

Other Assets:

Intangibles resulting from business acquisition 8,350 8,350 Trademarks and trade names 21,567 21,567 Debt issuance costs 7,607 7,293 Deferred income taxes – noncurrent 16,708 — Other assets 55,500 42,126

Total assets $ 905,731

$ 808,364

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2004 Consolidated Balance Sheet

December 31,

2004

2003

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Accounts payable $ 20,988 $ 18,498

Accrued and other liabilities 85,047 69,233

Air traffic liability 87,571 78,746

Current portion of lease obligations 886 627

Current portion of long-term debt 12,950 4,388

Total current liabilities 207,442 171,492

Long-term lease obligations 14,559 796

Long-term debt 285,575 241,025

Deferred income taxes — 26,100

Other liabilities 64,119 66,738

Stockholders’ Equity:

Preferred stock, $.01 par value per share, 5,000 shares authorized, no shares issued or outstanding

— —

Common stock, $.001 par value per share, 1,000,000 shares authorized, and 86,617 and 84,209 shares issued and outstanding at December 31, 2004 and 2003, respectively

87 84

Additional paid-in capital 361,063 337,145

Unearned compensation (4,624 )

) —

Accumulated other comprehensive loss — (271 )

Accumulated deficit (22,490 ) (34,745 )

Total stockholders’ equity 334,036 302,213

Total liabilities and stockholders’ equity $ 905,731 $ 808,364

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Consolidated Statement of Operations

Year ended December 31,

2004

2003

2002

Operating activities:

Net income $ 12,255 $ 100,517 $ 10,745 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,982 15,741 19,967 Amortization of deferred gains from sales/leaseback of aircraft (4,385 ) (4,961 ) (5,979 ) Provisions for uncollectible accounts 709 510 1,009 Deferred debt discount/issuance cost amortization — 12,257 — Loss on asset disposal — — 858 SFAS 133 adjustment — — (5,857 ) Deferred income taxes 7,618 (13,608 ) — Other 2,829 — — Changes in current operating assets and liabilities:

Restricted cash 1,944 24,375 (7,633 ) Accounts receivable (2,631 ) 1,156 (9,657 ) Government grant receivable — — 4,333 Inventories (1,391 ) (9 ) (2,141 ) Prepaid aircraft fuel (8,055 ) (10,952 ) 330 Prepaid aircraft rent (13,691 ) (18,899 ) (8,118 ) Other assets (4,740 ) 3,665 (653 ) Accounts payable, accrued and other liabilities 22,850 1,888 (9,575 ) Air traffic liability 8,825 21,566 18,723

Net cash provided by operating activities 38,119 133,246 6,352

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Internal Audit: Strengths•Classified by U.S. Department of Transportation as a “major carrier”•$1 billion or more annual revenue•Average plane age is 2.5 years (youngest fleet in the country)•Consumes 24% less fuel than old planes•Joe Leonard’s (CEO) credibility•Additional seating in place of galleys since meals are not served on the ”short-haul” planes •XM Satellite Radio•2004 “Best Airline Website” by the Web Marketing Associates•Business class is available (not common on short-distance flights)

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Internal Audit: Weaknesses

•Most flights originate from AirTran’s Atlanta, Georgia hub causing a heavy reliance on Atlanta•Strictly domestic flights•Primarily east coast flights•Net income dropped from 100.5 in 2003 to 12.3 million in 2005•High labor costs•AirTran’s fleet of Boeing 717s are made only for efficient short-haul services•Rated in 2003 by Airline Quality Report:

°Among the lowest for on time-performance°among the highest in denied boarding°above industry average for passenger complaints

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AirTran Airways IFEKey Internal Factors

Weights Rating

Weighted Score0.0 to

1.01, 2, 3 or 4

Internal Strengths   3 or 4  

$1 billion or more annual revenue 0.09 3 0.27

Average plane age is 2.5 years (youngest fleet in the country) 0.16 4 0.64

Consumes 24% less fuel than old planes 0.13 4 0.52

2004 “Best Airline Website” by the Web Marketing Associates 0.07 3 0.21

Business class is available (not common on short-distance flights) 0.07 4 0.28

Internal Weaknesses   1 or 2  

Net income dropped from 100.5 in 2003 to 12.3 million in 2005 0.12 1 0.12

Most flights originate from AirTran’s Atlanta, Georgia hub causing a heavy reliance on Atlanta 0.10 1

0.10

Strictly domestic flights 0.08 2 0.16

Primarily east coast flights 0.08 1 0.08

High labor costs 0.10 2 0.20

Totals 1   2.58

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Financial Ratio Analysis

Key Raito AirTran Industry Current Ratio 2.0 1.4 Quick Ratio 1.9 1.2 Net Sales to Working Capital

5.1 12.4

Interest Coverage Ratio 1.5 7.4 Total Asset Turnover 1.2 1.7 Inventory Turnover 36.8 9.7 Debt to-Total-Assets Ratio Ratio

34.7% 69.7%

Return on Total Assets 0.8% 15.5% Return on Equity 2.2% 41.0% Profit Margin 0.7% 7.3%

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Financial TrendsDate Avg P/E Price/ Sales Price/ Book Net Profit Margin (%) 2007 18.80 0.32 1.47 2.3 2006 84.60 0.57 2.82 0.8 2005 129.50 NA 4.03 0.5 2004 150.00 0.92 2.79 0.7 2003 8.70 1.12 3.32 10.9 2002 33.70 0.39 5.35 1.5 2001 -247.80 0.67 13.74 -0.3 2000 7.00 0.80 60.71 7.6 1999 NA NA NA - 19.0 1998 NA NA NA -9.3

Date Book Value/ Share Debt/ Equity Return on Equity (%) Return on Assets (%) Interest Coverage 2007 $4.86 2.37 11.8 2.6 2.1 2006 $4.16 2.14 3.9 0.9 1.1 2005 $3.98 1.34 2.1 0.6 NA 2004 $3.83 0.95 2.2 0.8 1.5 2003 $3.59 0.82 33.3 12.4 4.4 2002 $.73 4.05 20.7 2.3 1.1 2001 $.48 8.03 -6.3 -0.4 NA 2000 $.12 54.44 603.5 8.7 2.1 1999 -$.61 -10.38 248.3 -21.3 -2.6 1998 $.86 4.42 -73.2 -10.8 -0.7

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AirTran Airways Stock Performance

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AirTran Airways Net Worth (December 31, 2004 in

thousands)1. Stockholders’ Equity + Goodwill = $334,036 + $0 (No impairment of its trade name or of its goodwill) $ 334,036

2. Net Income x 5 = $12,255 x 5= $ 61,275

3. Share price = $10.70/EPS(0.14) = 76.4 x Net Income $12,255 = $ 936,282

4. Number of Shares Outstanding x Share Price = 89,523 x $10.70 = $ 957,896

Method Average $ 572,372

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Strategic Analysis SWOT Matrix

WT Strategies• Expand domestically (W1, W2,

W4, T3, T5)• Relocate main hub (W4, T3, T5)

ST Strategies• Advertise shared cost savings

due to fuel-efficient planes (S1,T2)

• Advertise new, “safe” planes (S5,O4)

• Expand short haul flights /business class on west coast (S3,S4, T3, T5)

Threats – T• Unionized workers / possible

strikes.• Rising Fuel Costs• Major competitors in same

market.• Society ’s view of flying after

September 11• Eastern / Southeastern weather

conditions.

WO Strategies• Expand domestically / West Coast

and Mexico (W1, W2, W4, O3,O5)

• Create another main hub otherthan in southeast (W2, W4, O3)

• Create cost efficient computerreservation system (W5, O4)

SO Strategies• Expand more flights to west

coast / Mexico (S1, O3, O5)• Advertise business class to firms

throughout the country (S3, O3)• Advertise the number of

available seats to all of NorthAmerica (S4, O3, O5)

Opportunities – O• Appeal to public due to new,

“safe”, planes.• International Expansion.• Domestic Expansion.• Allow for computer reservations.• Negotiations between United

States and Mexico / possiblymore flights to Mexico

Weaknesses – W• Only domestic flights offered.• Primarily east coast flights.• Among lowest rated for “on

time” performance• Heavy reliance on Atlanta,

Georgia• Net income dropped from 100.5

million to 12.3 million (2003-2005 respectively)

Strengths – S• New planes consume 24% less

fuel than old planes• Has remained profitable despite

airline conditions• Business class on all flights• Additional seating in place of

galley / no meals are served• Average age of planes is 2.5

years

AirTran AirwaysSWOT Matrix

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Strategic Analysis Space MatrixRatings

1 2.02 2.03 3.04 2.05 2.0

FS Total 111 2.02 3.03 3.04 4.05 3.0

IS Total 151 -5.02 -6.03 -6.04 -5.05 -4.0

ES Total -261 -3.02 -1.03 -3.04 -2.05 -1.0

CS total -10

Environmental Stability

Industry Strength rating is 1 (worst) to 6 (best)

rating is -1 (best) to -6 (worst)

Competitive advantage rating is -1 (best) to -6 (worst)

Fuel Prices

Intense price competition by both long-time competitors and new entrants

Current ratio 2.0

rating is 1 (worst) to 6 (best)Financial Strength

Operating revenue increased $123.4 million (13.4 %)

Develop in computer and information technology (for reservations and others)

Received top FAA recognition for maintenance excellence

Revenue passenger miles (RPMs) increased by 27.9 %

Debt to-total-assets ratio 34.7%

Net sales to working capital 5.1

Weather and natural disasters

Security inconvenience

Increase in online reservation

Increase demand for Latin and Europe travel

Expansion of international and nationwide flights

Air travel increasing

Favorable relationshipt with union

Named Best Low-Fare Airline by Entrepreneur Magazine for 2005

Strong low-cost business model (one of only a few domestic airlines that are profitable in 2004)

Consumes 24% less fuel than old planes because of youngest fleet in the country

capacity, as measured by available seat miles (ASMs), increased 19.2 %

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Strategic Analysis Space Matrix (Cont’d)SPACE Matrix

Copyright 2007 Prentice Hall Ch 6 -75

FS+6

+1

+5+4+3

+2

-6

-5

-4

-3

-2

-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6

ES

CA IS

Conservative Aggressive

Defensive Competitive

(1, -3)

AirTran is competing fairly well in an unstable industry

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Strategic Analysis Grand Strategy Matrix

Rapid Market Growth

Slow Market Growth

Weak Competitive Position

Strong Competitive Position

Quadrant IV1.Related diversification2.Unrelated diversification3.Joint ventures

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AirT ran IE Matrix

I II III

IV V VI

VII VIII IX

IFE ScoresStrong Average Weak3-4 2-2.99 1-1.99

High3-4

Medium2-2.99

Low 1-

1.99

EFE

Sco

res

Grow and Build

Hold and Maintain

Harvest or Divest

EFE IFETotal Weighted Scores 2.41 2.45

Strategic Analysis IE Matrix

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Strategic Analysis QSPMDomestic

ExpansionInternationalExpansion

Advertising toBusinessesKey factors Weight

AS TAS AS TAS AS TASOpportunities 1 to 4 1 to 4 1 to 4

Appeal to public due to new "safe" planes 0.05 4 0.2 4 0.2 4 0.2Increased international flights 0.13 3 0.39 4 0.52 3 0.39Increased domestic flights in the US 0.16 4 0.64 1 0.16 4 0.64Allow for computer reservations 0.05 2 0.1 3 0.15 3 0.15$950,000 fed. Grant / $1,000,000 from Greater RichmondC of C

0.1 1 0.1 1 0.1 1 0.1

Threats 1 to 4 1 to 4 1 to 4Unionized workers / possible union actions 0.05 1 0.05 1 0.05 1 0.05Rising fuel costs (66% from 2003 to 2004) 0.2 4 0.8 4 0.8 1 0.2Major Competitors in same market (Delta) 0.15 3 0.45 3 0.45 3 0.45Society's view of flying after September 11 0.07 2 0.14 2 0.14 2 0.14Eastern / Southeastern U.S. Weather Conditions 0.04 2 0.08 1 0.04 2 0.08

total should be 1.0 1 2.95 2.61 2.4

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Strategic Analysis QSPM (Continued)

Strengths 1 to 4 1 to 4 1 to 4$1 billion or more annual revenue 0.09 3 0.27 4 0.36 2 0.18Average plane age is 2.5 years (youngest fleet in thecountry)

0.16 4 0.64 4 0.64 4 0.64

Consumes 24% less fuel than old planes 0.13 3 0.39 3 0.39 1 0.132004 “Best Airline Website” by the Web MarketingAssociates

0.07 2 0.14 2 0.14 4 0.28

Business class is available (not common on short-distance flights)

0.07 2 0.14 1 0.07 4 0.28

WeaknessesNet income dropped from 100.5 in 2003 to 12.3 million in2005

0.12 3 0.36 4 0.48 3 0.36

Most flights originate from AirTran’s Atlanta, Georgia hubcausing a heavy reliance on Atlanta

0.1 2 0.2 2 0.2 3 0.3

0.08 2 0.16 1 0.08 1 0.08Strictly domestic flightsPrimarily east coast flights 0.08 1 0.08 1 0.08 2 0.16High labor costs 0.1 3 0.3 4 0.4 2 0.2

total should be 1.0 1 2.68 2.84 2.615.63 5.45 5.01

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Matrix AnalysisAlternative Strategies IE SPACE GRAND COUNT

Forward Integration x 1

Backward Integration x 1

Horizontal Integration x 1

Market Penetration x x 2

Market Development x x 2

Product Development x 1

Concentric Diversification

x 1

Conglomerate Diversification

x 1

Horizontal Diversification

x 1

Joint Venture x x 2

Retrenchment 0

Divestiture 0

Liquidation 0

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Current Flight Routes

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Possible Alternative Strategies

Market Penetration o Go after Dell, Southwest, and US Airways market share

Market Development o Concentrate on major vacationers, cooperate company trips, tourists destinations

with the help of package deals (hotels plus flights) ect. Joint Venture

o Join with already established flight services in the West and then gain more presence in the area.

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RecommendationsDomestic Expansion (Strategy 1)•Purchase 4 more Boeing 717 fuel efficient planes which will increase the number of Non-Stop flights•Create networks at various major tourist airport Hubs such as those in the Pacific, and Mountain regions of the United States of America•Increase the number of promotions, and packages to new, untapped markets in the Pacific, and Mountain regions of the country•Estimated cost: $275 million (includes increased advertising for flights to new domestic regions

http://www.boeing.com/commercial/prices/

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RecommendationsInternational Expansion (Strategy 2)•Purchase 4 Boeing 777 fuel efficient planes to travel international•Create contracts with international airports to allow Air Tran to land at their airport. As a new venture, Air Tran should expand to South America, Caribbean, Europe, then further international destinations will be established after Air Tran is stable in the international market•Get permission from international destinations to fly in their airspace, and make sure that all legalities such as customs are dealt with prior to operating internationally•Establish connections with international tourist destinations, and create promotional travel packages to introduce the new destinations that Air Tran will help promote the new services that Air Tran will be providing•Estimated cost: 1 billion (including contracts, and advertising costs

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RecommendationsAdvertising for Business’s (Strategy 3)•Provide freight-like services for companies shipping packages from one of our service hubs to another•Establish contracts with various businesses to opt to use Air Tran for their various business related tasks such as business trips, shipping etc. •Set up a plan with business’s that would give them discounts on tickets if they have all their employees fly with Air TranEstimated cost: $10 million

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EPS/EBITEPS / EBIT

Ammount Needed 1000 EBIT Range 12-36-72 Interest Rate 5% Tax Rate 38% Stock Price 10.70

All amounts are in millions except for

percentages and stock price.

# Shares Outstanding

89

Common Stock Debt Low Normal High Low Normal High EBIT 12 36 72 12 36 72 Interest 0 0 0 50 50 50 EBT 12 36 72 -38 -14 22 Tax 4.56 13.68 27.36 0 0 8.36 EAT 7.44 22.32 42.64 -38 -14 13.64 # Shares

182 182 182 89 89 89

EPS .04 .12 .23 -.4 -.15 .15

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Implementation Issues

• FFA regulations

• Homeland Security

• Current economy conditions

• Rising fuel expenses

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Proposed Annual Objectives and Policies

• Continue rapid growth

– Bidding on gates that become available at current hubs

– Expand into new hubs

• Increase revenues

– 25% per year

• Increase efficiency

– Cut expenses wherever possible while abiding by AirTran’s beliefs and values (culture of company)

–Maximize passengers per flight

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Proposed Procedures for Evaluation

· Airline Quality Report (AQR)· Quarterly financial reports

o Operating Performance- Available Seat Mile (ASM)

o Financial Performance- Revenue Passenger Mile

(RPM)· Quarterly meetings to evaluate current plan and respond necessary changes

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Epilogue

•2005

In June 2005, AirTran announced plans to launch services from Atlanta and Tampa to Cancun, Mexico.

•2006

AirTran Airways partnered with Frontier Airlines, allowing frequent flyers to earn airline miles in either AirTran's A+ Rewards, or Frontier's EarlyReturns frequent flyer program. In addition the airlines will refer customers to each other when appropriate.

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Epilogue•2007

–AirTran announced new daily nonstop service from Atlanta (ATL) to Phoenix Sky Harbor (PHX) along with many other additional routes–AirTran Airways' online survey which asked consumers, “Where do you want low fares next

–AirTran has shifted its attention to building up their operations at General Mitchell International Airport. The airline is now trying to compete directly with rival Midwest Airlines

–Failed in attempt to acquire Midwest Airlines

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Current Stock Performance

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Resources

•Case Notes

•Fred R. David, Francis Marion University

•AirTran Holdings 10-K, December 31, 2004

•www.AirTran.com

•MSN Money

•Almanac Business and Industry Financial Ratios 2008

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Questions

?