Rogue5
Adult Swim junkie
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April 22, 2006
www.nytimes.com
AirTran's Scrappy Rise in Atlanta
By JEFF BAILEY
In the battle for Atlanta — between the upstart AirTran Airways and the long-dominant Delta Air Lines — routes and air fares are not always weapons enough.
Last month, Delta issued a statement crowing that its recent on-time performance had beaten AirTran's. The smaller airline shot back, "AirTran Airways would like to congratulate Delta on its accomplishment, but why stop there?" AirTran went on to list other measures of performance — canceled flights, lost bags, bumped passengers — on which it said Delta had done more poorly.
The competition is among the most spirited in the airline industry. It promises to become only more so now that Delta, operating under Chapter 11 bankruptcy protection, has reached a tentative labor agreement with its pilots that averted a strike that could have driven Delta out of business.
Written off as doomed nearly a decade ago, when it was known as Valujet, AirTran is one of the most unlikely success stories in the airline industry. It has eaten into Delta's position in Atlanta, the country's busiest airport, and is adding to its already sizable 15 percent market share there.
Delta, said David Cush, a senior vice president in charge of global sales at American Airlines, has "got a hub on their hands in Atlanta being taken apart by AirTran."
AirTran has done it with a sampler of airline strategies. It has low costs, like Southwest Airlines. But unlike Southwest, AirTran offers both business and coach classes, with assigned seating, striving to appeal to business travelers. AirTran has newer planes, like JetBlue Airways, but is not buying so many that rapid growth stretches its financial resources. And like Delta, AirTran operates an old-fashioned hub, with nearly 70 percent of its traffic passing through Atlanta's airport.
Even if bankruptcy allows Delta to shed some problems — wages it says are too high, underfunded pension obligations and a substantial amount of debt — AirTran's growing strength could limit Delta's ability to recover quickly.
The airlines' battle has been waged mostly with low fares, one big reason Delta piled up $12.3 billion of losses in the last five years. AirTran reported profits in four of those five years, though mostly meager ones.
AirTran's chairman and chief executive, Joseph B. Leonard, hopes the competition turns less destructive. "We would much prefer to compete with a profitable Delta," Mr. Leonard, 64, said in a telephone interview. "Delta has run itself into bankruptcy trying to run us out of business. When you're losing $1 billion a year, it doesn't matter if you lose $1.1 billion or $1.2 billion" by cutting fares to punish a competitor like AirTran, Mr. Leonard asserted.
"If you've got a chance to make $300 million, you work pretty hard to make $350 million," he said, and that probably means raising fares rather than lowering them.
That prospect and AirTran's low costs and steady growth have pushed its shares up about 50 percent in the last 15 months. They closed yesterday at $14.61, down 41 cents.
Ten years ago next month, a Valujet DC-9 crashed in the Everglades, killing all 110 people aboard. The airline was grounded by the government for three months. After restarting operations, it tried for a year to restore public confidence. In 1997, it merged with tiny AirTran and dropped the Valujet name.
Mr. Leonard joined the company in 1999, raised capital and acquired an entirely new fleet of Boeing 717's and, more recently, 737's.
Before 1999, he said, AirTran entered some markets, met stiff resistance as bigger airlines added flights and reduced fares on its routes, and retreated with its tail between its legs. That only encouraged the bigger airlines to think they could run AirTran out of a market, he said.
So, in 1999, "we made a blood oath to ourselves: if we ever enter a market, we would never withdraw," Mr. Leonard said. Mr. Leonard estimated that AirTran, now in about 50 cities, had withdrawn from only four. "We made our point."
AirTran, of course, is not immune to problems. Rising fuel prices are pinching its profits. Increasingly, it competes not just against Delta and other older airlines but also against low-cost carriers like Southwest and JetBlue. And any economic downturn could sap demand for air travel and send the entire industry into a decline.
Along with JetBlue, which also competes against Delta on the East Coast, AirTran represents the new generation of low-cost airlines: well capitalized, with new planes rather than old, and with service that sometimes exceeds that found on traditional carriers.
Last Sunday night, David Spurlock, chief executive of EOS Airlines, a new luxury carrier that flies from New York to London, took AirTran from Atlanta to White Plains, he said, sitting in business class. "It was a tremendous, smooth experience."
For the low-cost airlines, growth itself helps keep costs down because new planes and new employees are less expensive than older ones. Low-cost airlines are approaching a combined 30 percent share of domestic air travel and compete with traditional airlines on about 85 percent of domestic routes.
And they are forcing older airlines — Delta, Northwest Airlines, United Airlines and American — to shed billions of dollars in labor and other costs to compete. Older carriers have also reduced the size of their fleets, cutting supply in the industry and helping all carriers raise fares.
AirTran operates mostly short-haul flights around the Southeast, but it also flies into the Midwest, New York and the West Coast. In its markets, estimated David Strine, an analyst at Bear Stearns, competitors' capacity in the first quarter was about 16 percent below year-earlier levels. Delta's domestic capacity, the number of seats available, was 13.5 percent lower for the quarter, as it gave up some planes to lenders and shifted others overseas.
Mr. Leonard of AirTran said, "All of these things are really helping."
After Delta emerges from bankruptcy, Mr. Strine said, AirTran will still have a substantial operating cost advantage. He went on, "There will be a pricing umbrella for AirTran to operate under and continue to grow." He said he doubted that Delta would start a fare war. AirTran's operations are large enough that it can defend itself competitively, Mr. Strine said.
Mr. Leonard said: "Somebody wants to come in and lose another $1 billion a year, I guess they can do that. We're still here and the other guy is in Chapter 11."
Mr. Strine said he expected profit of about $54 million this year at AirTran, or 60 cents a share, versus roughly break-even results last year. Mr. Leonard would not comment on profit projections.
Growth also makes for a happier work force that can focus more on customers rather than worry about pay and job cuts.
The travel manager at a large Atlanta employer, asking not to be identified because the company does business with both AirTran and Delta, said the company's fliers generally preferred AirTran.
AirTran operates only 717's, similar to the old DC-9, on some routes on which Delta flies a combination of larger jets and smaller regional jets, the manager said. And AirTran workers are friendly. "There's just a feeling that they want the business more," the travel manager said.
Delta would not comment on AirTran. A spokeswoman, Chris Kelly, said Delta plans to "compete vigorously" after it emerges from bankruptcy. "Nowhere is this commitment stronger than in our hometown of Atlanta," she said.
Mr. Leonard enjoys the fray. In October, he publicly praised rising fuel prices for "forcing these inefficient carriers to get capacity out."
An AirTran ad promises, "Our planes are newer than most airlines' snacks."
www.nytimes.com
AirTran's Scrappy Rise in Atlanta
By JEFF BAILEY
In the battle for Atlanta — between the upstart AirTran Airways and the long-dominant Delta Air Lines — routes and air fares are not always weapons enough.
Last month, Delta issued a statement crowing that its recent on-time performance had beaten AirTran's. The smaller airline shot back, "AirTran Airways would like to congratulate Delta on its accomplishment, but why stop there?" AirTran went on to list other measures of performance — canceled flights, lost bags, bumped passengers — on which it said Delta had done more poorly.
The competition is among the most spirited in the airline industry. It promises to become only more so now that Delta, operating under Chapter 11 bankruptcy protection, has reached a tentative labor agreement with its pilots that averted a strike that could have driven Delta out of business.
Written off as doomed nearly a decade ago, when it was known as Valujet, AirTran is one of the most unlikely success stories in the airline industry. It has eaten into Delta's position in Atlanta, the country's busiest airport, and is adding to its already sizable 15 percent market share there.
Delta, said David Cush, a senior vice president in charge of global sales at American Airlines, has "got a hub on their hands in Atlanta being taken apart by AirTran."
AirTran has done it with a sampler of airline strategies. It has low costs, like Southwest Airlines. But unlike Southwest, AirTran offers both business and coach classes, with assigned seating, striving to appeal to business travelers. AirTran has newer planes, like JetBlue Airways, but is not buying so many that rapid growth stretches its financial resources. And like Delta, AirTran operates an old-fashioned hub, with nearly 70 percent of its traffic passing through Atlanta's airport.
Even if bankruptcy allows Delta to shed some problems — wages it says are too high, underfunded pension obligations and a substantial amount of debt — AirTran's growing strength could limit Delta's ability to recover quickly.
The airlines' battle has been waged mostly with low fares, one big reason Delta piled up $12.3 billion of losses in the last five years. AirTran reported profits in four of those five years, though mostly meager ones.
AirTran's chairman and chief executive, Joseph B. Leonard, hopes the competition turns less destructive. "We would much prefer to compete with a profitable Delta," Mr. Leonard, 64, said in a telephone interview. "Delta has run itself into bankruptcy trying to run us out of business. When you're losing $1 billion a year, it doesn't matter if you lose $1.1 billion or $1.2 billion" by cutting fares to punish a competitor like AirTran, Mr. Leonard asserted.
"If you've got a chance to make $300 million, you work pretty hard to make $350 million," he said, and that probably means raising fares rather than lowering them.
That prospect and AirTran's low costs and steady growth have pushed its shares up about 50 percent in the last 15 months. They closed yesterday at $14.61, down 41 cents.
Ten years ago next month, a Valujet DC-9 crashed in the Everglades, killing all 110 people aboard. The airline was grounded by the government for three months. After restarting operations, it tried for a year to restore public confidence. In 1997, it merged with tiny AirTran and dropped the Valujet name.
Mr. Leonard joined the company in 1999, raised capital and acquired an entirely new fleet of Boeing 717's and, more recently, 737's.
Before 1999, he said, AirTran entered some markets, met stiff resistance as bigger airlines added flights and reduced fares on its routes, and retreated with its tail between its legs. That only encouraged the bigger airlines to think they could run AirTran out of a market, he said.
So, in 1999, "we made a blood oath to ourselves: if we ever enter a market, we would never withdraw," Mr. Leonard said. Mr. Leonard estimated that AirTran, now in about 50 cities, had withdrawn from only four. "We made our point."
AirTran, of course, is not immune to problems. Rising fuel prices are pinching its profits. Increasingly, it competes not just against Delta and other older airlines but also against low-cost carriers like Southwest and JetBlue. And any economic downturn could sap demand for air travel and send the entire industry into a decline.
Along with JetBlue, which also competes against Delta on the East Coast, AirTran represents the new generation of low-cost airlines: well capitalized, with new planes rather than old, and with service that sometimes exceeds that found on traditional carriers.
Last Sunday night, David Spurlock, chief executive of EOS Airlines, a new luxury carrier that flies from New York to London, took AirTran from Atlanta to White Plains, he said, sitting in business class. "It was a tremendous, smooth experience."
For the low-cost airlines, growth itself helps keep costs down because new planes and new employees are less expensive than older ones. Low-cost airlines are approaching a combined 30 percent share of domestic air travel and compete with traditional airlines on about 85 percent of domestic routes.
And they are forcing older airlines — Delta, Northwest Airlines, United Airlines and American — to shed billions of dollars in labor and other costs to compete. Older carriers have also reduced the size of their fleets, cutting supply in the industry and helping all carriers raise fares.
AirTran operates mostly short-haul flights around the Southeast, but it also flies into the Midwest, New York and the West Coast. In its markets, estimated David Strine, an analyst at Bear Stearns, competitors' capacity in the first quarter was about 16 percent below year-earlier levels. Delta's domestic capacity, the number of seats available, was 13.5 percent lower for the quarter, as it gave up some planes to lenders and shifted others overseas.
Mr. Leonard of AirTran said, "All of these things are really helping."
After Delta emerges from bankruptcy, Mr. Strine said, AirTran will still have a substantial operating cost advantage. He went on, "There will be a pricing umbrella for AirTran to operate under and continue to grow." He said he doubted that Delta would start a fare war. AirTran's operations are large enough that it can defend itself competitively, Mr. Strine said.
Mr. Leonard said: "Somebody wants to come in and lose another $1 billion a year, I guess they can do that. We're still here and the other guy is in Chapter 11."
Mr. Strine said he expected profit of about $54 million this year at AirTran, or 60 cents a share, versus roughly break-even results last year. Mr. Leonard would not comment on profit projections.
Growth also makes for a happier work force that can focus more on customers rather than worry about pay and job cuts.
The travel manager at a large Atlanta employer, asking not to be identified because the company does business with both AirTran and Delta, said the company's fliers generally preferred AirTran.
AirTran operates only 717's, similar to the old DC-9, on some routes on which Delta flies a combination of larger jets and smaller regional jets, the manager said. And AirTran workers are friendly. "There's just a feeling that they want the business more," the travel manager said.
Delta would not comment on AirTran. A spokeswoman, Chris Kelly, said Delta plans to "compete vigorously" after it emerges from bankruptcy. "Nowhere is this commitment stronger than in our hometown of Atlanta," she said.
Mr. Leonard enjoys the fray. In October, he publicly praised rising fuel prices for "forcing these inefficient carriers to get capacity out."
An AirTran ad promises, "Our planes are newer than most airlines' snacks."
). But just because the loads are "good" out of BWI,it doesn't mean that the run is profitable. The thing you have to consider is the "yield" out of BWI The ticket must be priced to cover the cost of the product, which hopefully is the case for you guys. If not you can fly full airplanes until the cows come home and you won't make one thin dime.
