QUOTE AND NEWS
The Hindu Business Line  Aug 4  Comment 
State-owned Airports Authority of India (AAI) paid an interim dividend of Rs 145 crore to the government for the previous fiscal.AAI Chairman Alok Sinha presented the dividend cheque to the...
The Hindu Business Line  Jul 16  Comment 
Airports Authority of India (AAI) plans to apply to the Civil Aviation Ministry to be appointed as a Regulated Agent (RA) at the Chennai airport, as was indicated by its chairman at the recent Air...
The Hindu Business Line  Jul 3  Comment 
The Ministry of Civil Aviation has directed the Airports Authority of India to clear consignments on a 24x7 basis without any “restrictions” from today at the Chennai airport.The Civil Avia...
The Hindu Business Line  Jul 3  Comment 
Airports Authority of India (AAI) has made arrangements for the handling of Hajj pilgrims at Mangalore International Airport. A press statement from Airport Director JT Radhakrishn...
The Hindu Business Line  Jul 3  Comment 
The Hindu Business Line  Jul 1  Comment 
Will give views on projects involving more than ₹50-cr investment
WA Business News  Jun 23  Comment 
Perth innovation and design company Orbital Corporation has reached a settlement with AAI Corporation over a dispute relating to past contracts that resulted in AAI withholding payment on outstanding invoices.
The Times of India  May 28  Comment 
In a bid to tap alternative sources of energy, Airports Authority of India has decided to build solar power plants at about 30 of its airports across the country.
The Economic Times  May 15  Comment 
State-run Airports Authority of India (AAI) has increased its revenue by 15 per cent and net profit by over eight per cent in the last financial year.
The Times of India  Mar 29  Comment 
The corporation has rejected 44 applications filed by RJIL for installing mobile towers in the city, citing that they did not include a no-objection certificate (NOC) from the Airports Authority of India (AAI).     
The Hindu Business Line  Mar 15  Comment 
Employees of Airports Authority of India (AAI) have warned of an agitation to protest Civil Aviation Ministry’s moves to put the process of privatisation of six major airports on “fast track”, esp...




 

AirTran Holdings (Nasdaq:AAI) is one of America’s largest low-fare passenger airlines. The airline has managed to achieve low operating costs despite relying on a hub-and-spoke system, in which most of its flights originate and terminate at its hub in Atlanta, Georgia. The point to point system is less expensive due to the fact that it allows for utilization of minor airports that are in close proximity to major cities. Conversely, the hub and spoke system forces legacy airlines to direct their traffic through major airports that have both high landing and rental fees.

Given AirTran's continued reliance on the hub and spoke system, airline management has cited other operational factors as cause for the airline having a cost structure that is among the lowest in the industry. By using only two aircraft types, the Boeing Company (BA) 737 and 717, [1] AirTran is able to spend less on training its pilots and its maintenance technicians. Additionally, it has a smaller inventory of spare parts because the parts are interchangeable. AirTran also has one of the youngest fleets, with average age of only 4.5 years. [2] In addition to delaying replacement costs, a major problem faced by other airlines, the relative youth of its fleet translates into greater fuel efficiency. Moreover, AirTran's status as a low fare carrier means that its customers are more sensitive to fare increases than those of other airlines, limiting AAI's ability to pass along increases in operating costs. The company is also more vulnerable to U.S economic downturns than some of its legacy competitors because it lack an international presence.

Business Overview

Business & Financial Metrics

In 2009, AAI generated a net income of $134.7 million on revenues of $2.34 billion. this represents a significant turnaround from 2008, when the company lost $266.3 million on $2.55 billion in revenues.[3]

Key Trends and Forces

More fuel efficient fleet helps company control fuel costs

Fuel is the company’s largest expenditure. Like most airlines, AirTran’s balance sheet is largely affected by volatility in the price of oil. Increases in the price of fuel are hard to pass on to consumers due to the competitive nature of the airline industry; however, AirTran does benefit from its new fuel efficient Boeing jets which assist in mitigating the volatility. AirTran has also begun to install winglets on its Boeing 737’s to help improve the fuel efficiency of the planes.

AirTran has relatively high liquidity for an airline company. This liquidity lets AirTran lock in the price of fuel when it is low (airlines with poor balance sheets have had less success hedging fuel because they cannot afford the hedges) and use these hedges to lessen the blow of fuel expenses to the balance sheet.

===AirTran takes advantage of industry consolidation===AirTran The airline industry is enduring a period of consolidation after the merger of Northwest Airlines and Delta Airlines. These mergers are a result of the industry attempting to cope with historically high fuel prices. [4] AirTran Holdings would actually benefit from the Delta-Northwest merger as it will trim excess domestic capacity, reduce competition in some of the nation’s busiest airports, and let airline companies to keep fares firm. [5] In Orlando, one of AirTran’s hubs, Northwest and Delta are the No. 1 and No. 3 airlines for route coverage between the markets that AirTran serves. As Delta and Northwest attempt to cut flights on overlapping routes, AirTran will be able to use its low-cost service to appeal to a new customer base.

The benefits of a merger in the airline industry include the opportunity to cut costs and to pursue a larger route system to better serve customers. By getting rid of duplicate operations and taking advantage of stronger pricing power, AirTran would be able to increase its marketshare and reduce many of its costs. Since 2005, AirTran has been pursuing a merger with Midwest airlines : a mid-sized carrier headquartered in Milwaukee. This merger offered AirTran the opportunity to combine two strong regional networks. On August 12, 2007 AirTran offered over $16.25 per share. In the short term, the merged carriers have the ability to enhance revenue through a broader product offering. However, these mergers are also subject to various regulatory obstacles in addition to difficulties in seeking to successfully integrate the two distinct carrier cultures.

Newer fleet makes it easier for AirTran to comply with government regulation

AirTran can expect stricter regulation in the industry from government agencies after the FAA announced that it will play a larger role in safety inspections. This increase is a direct result of testimonies from FAA inspectors that airlines reported safety problems voluntarily, sometimes without follow-up government safety inspections. [6] AirTran has already had to perform intensive work on the hardware of its entire fleet of Boeing 737-700s after a fire destroyed a China Airlines Boeing 737-800 in Japan. [7] AirTran was given 10 days to complete the inspections and 24 days to complete the technical services. Both jobs were completed in seven days. [8]

Targeted marketing aimed at college students

AirTran has tried to stand out in the airline industry through attempting to target a generally ignored crowd. Although most airline companies attempt to reach business travelers and adult consumers, AirTran is going after the college age crowd in its attempt to foster consumer loyalty. [9]. The company has introduced fare specials which alllow college students to fly standby on any flight for $99 or less.

Airtran missing out on international market

Despite the fact that AirTran has 737’s that are capable of reaching South American destinations from its Atlanta hub, the company has thus far decided to focus only on domestic destinations. This does not follow the trend with most airlines in the industry considering the larger margins available from international flights. Delta Air Lines, which has said that more than 40 percent of its flying will be in international traffic by this summer, will start nine new international routes. [10] Other low-cost airlines such as Spirit and JetBlue have already expanded their offering in terms of flights available to the Carribean and Latin America.

Competition

AirTran faces heavy competition from JetBlue, especially considering the announcement that JetBlue will be making Orlando one of its focus cities. This move not only positions JetBlue as a direct challenge to AirTraden in one of its focus cities, but also gives JetBlue a gateway for trips to its various international destinations. JetBlue provides the only service from Orlando, Florida to Cancun, Mexico. The airline has also received tentative approval to begin daily nonstop trips to Bogotá Colombia. These international destinations offer much higher margins and pose a threat to AirTran in one of its largest developing markets. [11]

Southwest announced in May 2008 that it needs to raise its revenue through higher ticket prices. The company has been forced to add $10 to $30 to its highest fares for the right to choose early on its flights. It has also increased, to 15, the number of fares it might have on any one flight, nearly double the old number, permitting more effective competition against hub-and-spoke carriers that list as many as 26 fares.[12]

AirTran has a less immediate need for cash, given that it raised $140 million through public offerings of stock and convertible notes. [13] This cushion of capital permits the company to deal with its rising fuel costs without having to significantly raise its prices and thus lose its standings with consumers as a cheap alternative to large carriers. In addition to this accumulation of capital, AirTran also has initiated plans to suspend capacity growth in order to move more assertively against rising fuel prices.

AAI's other competitors include:

References

  1. 2007 10K, Item 1, pg. 3
  2. Airsafe.com Average Fleet Age for Selected U.S. Carriers
  3. AAI 2009 10-K pg. 31  
  4. CNN Money.com "Atlanta tops in population growth" Apr. 27, 2007
  5. Marketwatch "AirTran could profit from a Northwest-Delta merger" Jan. 29 2008
  6. The Washington Times "FAA to play bigger role in safety inspections" Apr. 19 2008
  7. PrNewswire "AirTran Airways completes Boeing 737 Inspections Early, Airline Completes FAA Safety Review Ahead of Schedule" Sep. 4, 2007
  8. 10-K Item I Business. pg. 8.
  9. Adweek "Air Tran Caters to College Crowd" Apr. 9 2008
  10. New York Times "Memo Pad" Jun. 3, 2008
  11. Jet Blue Press Release "JetBlue Plans New Focus City At Orlando International Airport" Mar 19, 2008
  12. The New York Times "Southwest is Waiting in the Wings" May 6,2008
  13. Wall Street Journal "Airlines Sweat Whether to Merge" May 16, 2008
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