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http://www.ajc.com/services/content...airtran_fleet.html?cxtype=rss&cxsvc=7&cxcat=6
AirTran takes unusual course
Rather than parking unused planes, the discount airline prefers to sell off pieces of its relatively young fleet, thereby holding down expenses.
By KELLY YAMANOUCHI
The Atlanta Journal-Constitution
Published on: 07/31/08
As AirTran Airways cuts flight capacity, it's not grounding planes — it's selling them.
It's a somewhat uncommon strategy in the struggling U.S. airline industry. Many carriers are reacting to fuel-driven capacity cuts by parking planes.
even if they're grounded or flying less. And that doesn't fit AirTran's business model, which strives for the kind of hyper-efficiency that keeps low-cost carriers in the air.
"We'd like to be highly efficient. We'd like to do it with fewer aircraft," AirTran Chief Executive Bob Fornaro told Wall Street analysts during a conference call Tuesday.
In the call, he outlined AirTran's plans to cut flight capacity by up to 8 percent next year. He said he would like to cut even more — by as much as 10 percent — if the airline can sell enough planes.
One of AirTran's advantages is keeping overhead and fixed costs low, he said. "Our goal is to maintain our industry-leading costs over time." Plus, selling some of AirTran's 143 planes would produce much-needed cash for the airline, which needs to cushion the blow of continued high jet fuel costs.
AirTran has a relatively young fleet, much of it updated, fuel-efficient models of the marketable stalwart 737-700 jet.
That puts AirTran in "a very enviable position," said Port Washington, N.Y.-based airline consultant Robert Mann.
The 737 could be sold anywhere, Mann said, but he warned that AirTran might avoid selling a plane to its biggest rival: Atlanta-based Delta Air Lines. "In general, you try not to have it competing with you," he said.
AirTran sold two Boeing 737-700 aircraft in April to undisclosed buyers for undisclosed sums. The airline said it has deals to sell four more and an agreement in principle for a fifth sale.
Fornaro said the number of interested buyers could grow if the price of oil continues to go down, freeing cash for airlines.
If oil goes below $120 a barrel, other carriers will start thinking about replacing aircraft, he said.
Selling a plane doesn't eliminate only its ownership costs. Every aircraft amounts to work for about 60 employees at AirTran, said Chief Financial Officer Arne Haak.
The airline already plans to cut its work force by at least 480 employees in coming weeks.
AirTran also has delayed deliveries of new aircraft. The airline had been scheduled to get 41 more Boeing 737s from 2009 through 2011. But it reached agreements with Boeing to defer 22 of those deliveries until 2013, 2014 or 2015.
"We were fortunate that we were able to strike a deal with Boeing," Fornaro said.
Boeing has an incentive to keep customers like AirTran out of financial trouble, according to a report from Credit Suisse analyst Daniel McKenzie.
Richard Aboulafia, vice president of analysis at Teal Group in Fairfax, Va., said AirTran's plane-shedding is a good move. "Restraint might be a very smart strategy," he said.
And if the airline industry's prospects improve, AirTran likely wouldn't have difficulty getting quick deliveries from Boeing, FTN Midwest Securities senior analyst Michael Derchin said.
"I think Boeing is there ready, willing and able to get them planes back, so I don't think it's a problem," he said.
ON THE HORIZON FOR AIRTRAN
AirTran is shedding up to 25 flights from its Atlanta hub this fall. The airline also is cutting jobs and plans to lower employee pay. What do these cost-cutting measures mean?
For customers
• AirTran's capacity cuts will lead to fewer flights available on some routes. That, in turn, is expected to drive up fares. Leisure travelers paying the lowest fares may decide they can't afford to fly as much. And with fewer — and possibly lower-paid — employees, passengers may see a change in customer service.
For employees
• The company plans to cut 180 pilots and 300 flight attendants. It's trying buyouts first: Today is the deadline for workers to sign up. If too few raise their hands, AirTran will start layoffs or furloughs. Flight attendants also are being offered leaves of absence. AirTran wants to cut employee pay by 5 percent to 15 percent, but the mechanics union has rejected the cut, according to the company, and pilot and flight attendant unions have not reached pay-cut agreements.
For investors
• AirTran is trying to preserve cash and return to profitability. It announced additional capacity cuts Tuesday, in conjunction with reporting a $13.5 million loss in the second quarter, and shares rose nearly 20 percent. Wednesday the stock closed at $3.03, down 6.19 percent.
AirTran takes unusual course
Rather than parking unused planes, the discount airline prefers to sell off pieces of its relatively young fleet, thereby holding down expenses.
By KELLY YAMANOUCHI
The Atlanta Journal-Constitution
Published on: 07/31/08
As AirTran Airways cuts flight capacity, it's not grounding planes — it's selling them.
It's a somewhat uncommon strategy in the struggling U.S. airline industry. Many carriers are reacting to fuel-driven capacity cuts by parking planes.
even if they're grounded or flying less. And that doesn't fit AirTran's business model, which strives for the kind of hyper-efficiency that keeps low-cost carriers in the air.
"We'd like to be highly efficient. We'd like to do it with fewer aircraft," AirTran Chief Executive Bob Fornaro told Wall Street analysts during a conference call Tuesday.
In the call, he outlined AirTran's plans to cut flight capacity by up to 8 percent next year. He said he would like to cut even more — by as much as 10 percent — if the airline can sell enough planes.
One of AirTran's advantages is keeping overhead and fixed costs low, he said. "Our goal is to maintain our industry-leading costs over time." Plus, selling some of AirTran's 143 planes would produce much-needed cash for the airline, which needs to cushion the blow of continued high jet fuel costs.
AirTran has a relatively young fleet, much of it updated, fuel-efficient models of the marketable stalwart 737-700 jet.
That puts AirTran in "a very enviable position," said Port Washington, N.Y.-based airline consultant Robert Mann.
The 737 could be sold anywhere, Mann said, but he warned that AirTran might avoid selling a plane to its biggest rival: Atlanta-based Delta Air Lines. "In general, you try not to have it competing with you," he said.
AirTran sold two Boeing 737-700 aircraft in April to undisclosed buyers for undisclosed sums. The airline said it has deals to sell four more and an agreement in principle for a fifth sale.
Fornaro said the number of interested buyers could grow if the price of oil continues to go down, freeing cash for airlines.
If oil goes below $120 a barrel, other carriers will start thinking about replacing aircraft, he said.
Selling a plane doesn't eliminate only its ownership costs. Every aircraft amounts to work for about 60 employees at AirTran, said Chief Financial Officer Arne Haak.
The airline already plans to cut its work force by at least 480 employees in coming weeks.
AirTran also has delayed deliveries of new aircraft. The airline had been scheduled to get 41 more Boeing 737s from 2009 through 2011. But it reached agreements with Boeing to defer 22 of those deliveries until 2013, 2014 or 2015.
"We were fortunate that we were able to strike a deal with Boeing," Fornaro said.
Boeing has an incentive to keep customers like AirTran out of financial trouble, according to a report from Credit Suisse analyst Daniel McKenzie.
Richard Aboulafia, vice president of analysis at Teal Group in Fairfax, Va., said AirTran's plane-shedding is a good move. "Restraint might be a very smart strategy," he said.
And if the airline industry's prospects improve, AirTran likely wouldn't have difficulty getting quick deliveries from Boeing, FTN Midwest Securities senior analyst Michael Derchin said.
"I think Boeing is there ready, willing and able to get them planes back, so I don't think it's a problem," he said.
ON THE HORIZON FOR AIRTRAN
AirTran is shedding up to 25 flights from its Atlanta hub this fall. The airline also is cutting jobs and plans to lower employee pay. What do these cost-cutting measures mean?
For customers
• AirTran's capacity cuts will lead to fewer flights available on some routes. That, in turn, is expected to drive up fares. Leisure travelers paying the lowest fares may decide they can't afford to fly as much. And with fewer — and possibly lower-paid — employees, passengers may see a change in customer service.
For employees
• The company plans to cut 180 pilots and 300 flight attendants. It's trying buyouts first: Today is the deadline for workers to sign up. If too few raise their hands, AirTran will start layoffs or furloughs. Flight attendants also are being offered leaves of absence. AirTran wants to cut employee pay by 5 percent to 15 percent, but the mechanics union has rejected the cut, according to the company, and pilot and flight attendant unions have not reached pay-cut agreements.
For investors
• AirTran is trying to preserve cash and return to profitability. It announced additional capacity cuts Tuesday, in conjunction with reporting a $13.5 million loss in the second quarter, and shares rose nearly 20 percent. Wednesday the stock closed at $3.03, down 6.19 percent.
