AirTran Posts Record Quarter

Carried record number of passengers during period

Nov. 1--TAMPA -- For once, the chief executive of AirTran Airways had Southwest Airlines co-founder and chairman Herb Kelleher right where he wanted him.

"This is where I've always wanted to be," Joe Leonard said at an aviation banquet in Tampa last week. "I'm up here on the stage, looking down at Herb Kelleher, and I have the microphone."

Leonard acknowledged applause for his joke with praise for Southwest Airlines, which he characterized as America's leading carrier.

These days, AirTran's top official can afford to compliment competitors. Like many U.S. commercial airlines, AirTran has posted its best financial performance in recent years, with record revenue and ridership despite rising fuel prices and widespread news about air service complaints.

But behind the scenes, AirTran and other U.S. carriers are less cheerful as they brace for prospects of higher fuel and labor costs now that they have nearly run out of cost-saving measures.

AirTran executives on Tuesday announced record third-quarter operating income of $38.5 million while carrying a record 6.4 million passengers from July through September.

But AirTran outlined an even stronger focus on cost-reduction. Those steps could include:

--Slower aircraft climb and cruise speeds to save fuel

--Reducing flights in the nonpeak months of January, February and September

--Slowing down fleet expansion by delaying the addition of three new Boeing 737s from 2008 to 2011 to balance growth and keep airliners flying full

AirTran also said it will continue to reposition aircraft for peak season flights, which has paid off with more transcontinental service, in particular during the summer, to balance the airline's north-south routes.

"We are going to be more aggressive in 2008 to try not to fly inefficiently with $90-a-barrel fuel," Leonard said in Tuesday's conference call with financial analysts. "We have always tweaked our schedules. We cannot give back money we make in other months."

Airlines have done about all they can do with cutting costs in recent years, said David Castelveter, vice president of communications for the Air Transport Association of America in Washington.

"Fuel is now the No. 1 cost, followed by labor," he said. "There isn't much more they can do on fuel conservation costs so they need to find ways to generate more revenue."

AirTran has raised ticket prices twice since September, from $2 to $12 per one-way segment. Last month, United Airlines raised round-trip fares by $20 on domestic flights, an increase that Continental Airlines and Delta Air Lines followed.

To save on personnel costs, AirTran has promoted Internet and automated ticket purchase and check-in technology that has achieved 47 percent customer usage of automated services.

It has converted use of auxiliary power units for aircraft parked at gates from those that cost $150 an hour to ground power units that cost $5 an hour to operate.

Airlines went through stringent cost-cutting earlier this decade following the recession and terrorist attacks that reduced travel demand and sent all airlines except Southwest into financial quarters with red ink.

JetBlue last year trimmed six seats from its Airbus A320 fleet to 150 per aircraft to save weight and the costs of an extra flight attendant. FAA rules mandate one flight attendant per 50 aircraft seats.

But the current cost-cutting measures are taking place amid positive financial reports such as AirTran's.

US Airways last week reported a $177 million quarterly profit compared with a $78 million loss for the year-ago period. At the same time, JetBlue reported its first third-quarter profit in two years, earning $23 million compared with losing $500,000 over summer 2006. United Airlines' third-quarter profit increased 76 percent this year to $334 million.

Carriers will always try to add to those profits by growing where appropriate. AirTran, for instance, may add Caribbean routes in 2008 from Atlanta and Orlando, while JetBlue is applying to serve Canadian routes.

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