AirTran upgraded

[RIDETHELIGHTING]

http://biz.yahoo.com/ap/080125/apfn_airlines_sector_snap.html?.v=1


Among the sector's biggest gainers was AirTran Holdings Inc., which jumped more than 3 percent after JPMorgan analyst Jamie Baker raised his rating on the stock to "Overweight" from "Neutral."

"With an industry-leading cost structure, AirTran is expected to remain profitable at current fuel prices even when coupled with a weak economy -- after all, it survived the entirety of this decade's downturn without a single annual loss," Baker wrote in a client note.
We need to keep our eye on the ball.:beer:

 

[CitationLover]

http://biz.yahoo.com/ap/080125/apfn_airlines_sector_snap.html?.v=1


Among the sector's biggest gainers was AirTran Holdings Inc., which jumped more than 3 percent after JPMorgan analyst Jamie Baker raised his rating on the stock to "Overweight" from "Neutral."

"With an industry-leading cost structure, AirTran is expected to remain profitable at current fuel prices even when coupled with a weak economy -- after all, it survived the entirety of this decade's downturn without a single annual loss," Baker wrote in a client note.
We need to keep our eye on the ball.:beer:

The only way to maintain this is the rapid growth model. Air Tran needs the growth or its cost structure will increase. What are the rumblings regarding TA#3? Has the new leadership talked to mgmt yet?

 

[Secret Squirrel]

I have never understood this theory. The only way to remain profitable is with rapid growth formula? What the hell kind of reasoning is that? It is very expensive and takes years to make profits when starting new routes. So what you are saying is that by taking on huge start up costs and trying to compete in new markets makes us profitable. But if we were to just stop taking aircraft and expanding we would all of a sudden loose money? Silly.

 

[CitationLover]

I have never understood this theory. The only way to remain profitable is with rapid growth formula? What the hell kind of reasoning is that? It is very expensive and takes years to make profits when starting new routes. So what you are saying is that by taking on huge start up costs and trying to compete in new markets makes us profitable. But if we were to just stop taking aircraft and expanding we would all of a sudden loose money? Silly.

You're missing the point. The highlighted part was regarding the "industry leading cost structure". If Air Tran were to stop taking deliveries then all of its labor costs shift simply one column on the pay scale (ie costs go way up) while their revenue remains constant. So if profit is defined simplistically as Revenue - Cost and cost goes up, profits must come down.

Growth allows business to spread the costs out more (it ain't simply in the airline business, but every business). You have cheaper (on average) seniority rates for pilots, fa's, mechanics, etc. As growth increases thus economies of scale develop and further cheapens the costs of introducing new routes. Air Tran introduces a lot of new routes and I am sure has a process the follow (they don't wing it as you make it sound). Air Tran's "new routes" are really about a new O feeding their existing D's.

Thus when the deliveries start to slow down, reality will set in and costs will go up.

 

[maxblast72]

The growing part helps us keep our non-fuel CASM down as we continue to hire new people at lower wages providing an average lower cost per employee. Having 90% of our FO's on year 3 pay or less, 1/2 of our CA's on year 4-7 pay, and over 70% of our FA's on year 5 or less definitely helps us keep our non-fuel CASM down compared to other more senior airlines. I also believe we have very few people in upper management when compared to other airlines (not counting our 30+ inflight supervisors).

However, on the RASM side of the equation, by us not taking airplanes is Q4 2007 allowed some of our new markets of the last couple years to mature. I think that is why you see our load factor up about 5% year over year (which combined with better ticket prices is supposed to be a positive 6-8% RASM for the quarter). Also, no new cities recently has cut down on the startup costs and route development cost that you talk about.

I guess we will see how well we did on Tuesday. Do you think we schedule our earnings release to be on the same day as Jetblue or do you think they schedule the same day as us to one up us?

 

[maxblast72]

Thus when the deliveries start to slow down, reality will set in and costs will go up.

It is a little more complicated than that. We slowed down our growth over the last 2 years and still decreased our non-fuel CASM as we have increased our average stage length (I believe up to 20% of our ASM are now in the Trans-con markets). You can still grow ASM's while taking a smaller number of airplanes. Obviously a larger number of ASM helps bring down the CASM as some costs are fixed.

 

[RIDETHELIGHTING]

I think we our going to loose 2 million in the 4th.

 

[CitationLover]

It is a little more complicated than that. We slowed down our growth over the last 2 years and still decreased our non-fuel CASM as we have increased our average stage length (I believe up to 20% of our ASM are now in the Trans-con markets). You can still grow ASM's while taking a smaller number of airplanes.

absolutely, you will see it at MEH this summer with 0 new deliveries, but 12.5% capacity growth. our unit costs will go down, but this is a contract year and I am sure a "fudge" will occur. but even though our CASM will decrease, our costs still increase because wages and benefits increase. the industry can play it's unit cost/revenue argument all it wants, but it still comes down to the sum of the parts.

just remember now that the denominator is higher it must REMAIN in that position. your argument is proving that growth is needed to increase the average stage length. no more new 737's no more increases in average stage length.

 

[gt1900]

Ride.... Thats what the website was saying as of 1/16/08... Looks like a $2 million loss for Q4. -9 Million for Q1 in 08.. But we beat the 07 Q1 estimate by about 10 million this year. Originally I believe the were forecasting a $7 million loss but we ended up making 3 million. So who knows, but Id bet a loss of 2 million is pretty close... Still a gain of $56 million for the year...

This upgrade goes hand in hand with what JL and BF have said in the past. They said that one of the best things for AAI would be high fuel costs since AAI could handle it with there low CASM costs. It would force airlines to fold or into consolidation which would benefit us in the future by reducing capacity..

 

[Secret Squirrel]

We do not operate in a vacuum. Every year every other carrier's costs increase also. We have industry leading cost structure not just because of our pilot pay rates. Pilot costs compared between companies make very little difference in CASM. Look at Southwest. They have some of the highest costs when you consider labor. Their third year FO rates are higher than most companies FO rates top out at, same for Captain. And some of it is their fuel hedges but not all of it. Economies of scale (or growth as you stated) happens when you utilize your aircraft better, not just adding aircraft. People get so tied up into pay rates but at a certain point it makes very little difference in costs.

I believe we have a industry leading costs structure because the company runs lean, 1/3 the numbers of managers and vice presidents of other companies. Our management bought new aircraft (lower MX costs) at a time when most companies were getting rid of aircraft and canceling orders so our aircraft /engine costs are much lower than many. A contract that allows a much better (for the company) utilization of crews. Reduced training costs by only having two aircraft and a single pay rate which reduces the training events of people going between aircraft. Negotiating cheaper leases at airports as legacy carriers bailed out.

Growth is very expensive for an airline. Start up costs are HUGE when going into new markets. Competition is HUGE when you start competing with established carriers for market share. How come Frontier and Jetblue are slowing their expansion if expansion will lower their costs?