AirTran

Airways
2005
A Strategic Management Case Study

Graphics are the property of

AirTran Airways

1
2008, Danielle Boucher, Matt Bouchard, Darius Parker,
Takefumi Kawahara, UMFK
Overview - Getting to know a low-fare leader
A brief history of AirTran Airways
EOY 2004
oMission, Objectives, Strategies
2005 Possible alternative strategies
oNew Vision and Mission Our Recommendation
External Analysis oStrategies
oOpportunities & Threats oLong range objectives
oCPM oEPS/EBIT
oEFE Implementation Issues
Internal Analysis Proposed annual objectives
oFinancial Data (goal) and polices
oStrengths and weaknesses Proposed procedures for
oIFE evaluation
oFinancial ratios Epilogue
Strategic Analysis Current Performance
oSWOT Matrix Questions
oSPACE Resources Utilized
oIE matrix
oGrand Strategy Matrix
oMatrix Analysis

2
 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.

3
 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.

4
 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.

5
 History of AirTran Airways
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.

6
 History of AirTran Airways
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.

7
NYSE Ticker: AAI

www.airtran.com
8
 AirTran Airways 2004

The year of new planes, new

people, and new determination.
AirTran CEO, Joe Leonard

9
 2004 Mission

Innovative people dedicated to delivering the

best flying experience to smart travelers. Every
day.

10
 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!

11
 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

13
 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.

14
 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

15
 A New Vision

AirTran Airways vision is to become the leading

affordable, safe and enjoyable short distance airline
in the nation.

16
 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.

17
 New Mission Evaluation
The new mission fulfills the following questions:
Customers: Who are the firms customers?
Products or services: What are the firms 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 firms 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?

18
 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

19
 External Audit: Threats
Unionized and subject to union actions as collective bargaining
agreement expire
Societys view of flying after September 11, 2001
Rising fuel costs (66% from 2003 to 2004)
Major competitor Delta is #1 in Atlanta (AirTrans 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

20
 AirTran Airways CPM
Air Trans Delta Southwest

Critical Success factors Weight Rating Weighted Rating Weighted Rating Weighted
0.0 to 1.0 1 to 4 Score 1 to 4 Score 1 to 4 Score
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
Weights Rating
Key External Factors Weighted Score
0.0 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

22
 2004 Consolidated Balance Sheet
December 31,

2004 2003

ASSETS
Current Assets:
Cash and cash equivalents $ 307,49 $ 338,70
Restricted cash 7,854
3 9,798
7
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, 28,311 19,345
Deferred income taxes - current
respectively 7,442 52,054
Prepaid expenses and other current assets 14,613 15,209

Total current assets 412,06 452,56

Property and Equipment: 4 7
Flight equipment 294,96 229,92
Less: Accumulated depreciation (34,03
6) (26,610
7)
6
260,93 203,31
Purchase deposits for flight equipment 69,833
0 49,991
7
Other property and equipment 82,854 45,425
Less: Accumulated depreciation (29,68) (22,272)
2
53,172 23,153

Total property and equipment 383,93 276,46

Other Assets: 5 1
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 $ 905,73 $ 808,36

1 23 4
 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
Common stock, $.001 par value per share, 1,000,000 shares authorized, and 86,617 and
outstanding
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

25
 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 Leonards (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)

26
 Internal Audit: Weaknesses
Most flights originate from AirTrans 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
AirTrans 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
27
 AirTran Airways IFE
Weights Rating
Key Internal Factors Weighted Score
0.0 to 1.0 1, 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 AirTrans 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 28

Totals 1 2.58
Financial Ratio Analysis

Key Raito AirTran Industry

Current Ratio 2.0 1.4
Quick Ratio 1.9 1.2
Net Sales to Working 5.1 12.4
Capital
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 34.7% 69.7%
Ratio
Return on Total Assets 0.8% 15.5%
Return on Equity 2.2% 41.0%
Profit Margin 0.7% 7.3%

29
 Financial Trends
Date 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

31
 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

32
 Strategic Analysis SWOT Matrix
Strengths S Weaknesses W
New planes consume 24% less Only domestic flights offered.
fuel than old planes Primarily east coast flights.
Has remained profitable despite Among lowest rated for on
AirTran Airways airline conditions time performance
SWOT Matrix Business class on all flights Heavy reliance on Atlanta,
Additional seating in place of Georgia
galley / no meals are served Net income dropped from 100.5
Average age of planes is 2.5 million to 12.3 million (2003-
years 2005 respectively)
Opportunities O
SO Strategies WO Strategies
Appeal to public due to new,
Expand more flights to west Expand domestically / West Coast
safe , planes.
coast / Mexico (S1, O3, O5) and Mexico (W1, W2, W4, O3,
International Expansion.
Advertise business class to firms O5)
Domestic Expansion.
throughout the country (S3, O3) Create another main hub other
Allow for computer reservations.
Advertise the number of than in southeast (W2, W4, O3)
Negotiations between United
available seats to all of North Create cost efficient computer
States and Mexico / possibly
America (S4, O3, O5) reservation system (W5, O4)
more flights to Mexico
Threats T
ST Strategies
Unionized workers / possible
Advertise shared cost savings
strikes.
due to fuel-efficient planes (S1,
Rising Fuel Costs WT Strategies
T2)
Major competitors in same Expand domestically (W1, W2,
Advertise new, safe planes (S5,
market. W4, T3, T5)
O4)
Society s view of flying after Relocate main hub (W4, T3, T5)
Expand short haul flights /
September 11
business class on west coast (S3, 33
Eastern / Southeastern weather
S4, T3, T5)
conditions.
 Strategic Analysis Space Matrix
Financial Strength rating is 1 (worst) to 6 (best) Ratings
1 Operating revenue increased $123.4 million (13.4 %) 2.0
2 Current ratio 2.0 2.0
3 Revenue passenger miles (RPMs) increased by 27.9 % 3.0
4 Debt to-total-assets ratio 34.7% 2.0
5 Net sales to working capital 5.1 2.0
Industry Strength rating is 1 (worst) to 6 (best) FS Total 11
1 Increase in online reservation 2.0
2 Increase demand for Latin and Europe travel 3.0
3 Expansion of international and nationwide flights 3.0
4 Air travel increasing 4.0
5 Favorable relationshipt with union 3.0
Environmental Stability rating is -1 (best) to -6 (worst) IS Total 15
1 Weather and natural disasters -5.0
2 Fuel Prices -6.0
3 Intense price competition by both long-time competitors and new entrants -6.0
4 Security inconvenience -5.0
5 Develop in computer and information technology (for reservations and others) -4.0
Competitive advantage rating is -1 (best) to -6 (worst) ES Total -26
1 Received top FAA recognition for maintenance excellence -3.0
2 Consumes 24% less fuel than old planes because of youngest fleet in the country -1.0
3 capacity, as measured by available seat miles (ASMs), increased 19.2 % -3.0
4 Named Best Low-Fare Airline by Entrepreneur Magazine for 2005 34 -2.0
5 Strong low-cost business model (one of only a few domestic airlines that are profitable in 2004) -1.0
Strategic Analysis Space Matrix (Contd)
SPACE Matrix
FS
Conservative Aggressive
+6
+5
+4
+3
+2
+1

CA IS
-6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6
-2
-3
(1, -3)
-4
-5
Defensive Competitive
-6
ES
Copyright 2007 Prentice Hall Ch 6 -75

AirTran is competing fairly well in an unstable industry

35
Strategic Analysis Grand Strategy Matrix
Rapid Market Growth

Weak Strong
Competitive Competitive
Position Position

Quadrant IV
1.Related Slow Market Growth
diversification
2.Unrelated
diversification 36
3.Joint ventures
Strategic Analysis IE Matrix

37
 Strategic Analysis QSPM
Domestic International Advertising to
Key factors Weight Expansion Expansion Businesses
AS TAS AS TAS AS TAS
Opportunities 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 0.2
Increased international flights 0.13 3 0.39 4 0.52 3 0.39
Increased domestic flights in the US 0.16 4 0.64 1 0.16 4 0.64
Allow for computer reservations 0.05 2 0.1 3 0.15 3 0.15
$950,000 fed. Grant / $1,000,000 from Greater Richmond 0.1 1 0.1 1 0.1 1 0.1
C of C

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

38
 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 0.18
Average plane age is 2.5 years (youngest fleet in the 0.16 4 0.64 4 0.64 4 0.64
country)
Consumes 24% less fuel than old planes 0.13 3 0.39 3 0.39 1 0.13
2004 Best Airline Website by the Web Marketing 0.07 2 0.14 2 0.14 4 0.28
Associates
Business class is available (not common on short- 0.07 2 0.14 1 0.07 4 0.28
distance flights)

Weaknesses
Net income dropped from 100.5 in 2003 to 12.3 million in 0.12 3 0.36 4 0.48 3 0.36
2005
Most flights originate from AirTrans Atlanta, Georgia hub 0.1 2 0.2 2 0.2 3 0.3
causing a heavy reliance on Atlanta
Strictly domestic flights 0.08 2 0.16 1 0.08 1 0.08
Primarily east coast flights 0.08 1 0.08 1 0.08 2 0.16
High labor costs 0.1 3 0.3 4 0.4 2 0.2

total should be 1.0 1 2.68 2.84 2.61

5.63 5.45 5.01

39
 Matrix Analysis
Alternative 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 x 1
Diversification
Conglomerate x 1

Diversification
Horizontal x 1

Diversification
Joint Venture x x 2

Retrenchment 0

Divestiture 0

Liquidation 0

40
Current Flight Routes

41
 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.

42
 Recommendations
Domestic 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/

43
 Recommendations
International 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

44
 Recommendations
Advertising for Businesss (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 businesss that would give them discounts on tickets if they
have all their employees fly with Air Tran
Estimated cost: $10 million

45
 EPS/EBIT
EPS / EBIT
Ammount Needed 1000
EBIT Range 12-36-72 All amounts are in
Interest Rate 5% millions except for
Tax Rate 38% percentages and stock
Stock Price 10.70 price.
# Shares
89
Outstanding

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
#
182 182 182 89 89 89
Shares
EPS .04 .12 .23 -.4 -.15 .15

46
 Implementation Issues
FFA regulations
Homeland Security
Current economy conditions
Rising fuel expenses

47
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 AirTrans
beliefs and values (culture of company)
Maximize passengers per flight

48
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

49
 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

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