No. 2 AirTran Grows Quietly in Shadow of No. 1 Southwest

AirTran's COO says the airline's formula puts it in an elite club of moneymakers, no matter its ranking.


Feb. 4 -- AirTran Airways is the nation's No. 2 discount airline, and it's not complaining.

The Orlando, Fla., airline has found a niche in mid-size markets such as Baltimore and Atlanta by offering routes and ticket prices that others can't match. It has agitated competitors such as low-cost leader Southwest Airlines as it has worked to expand its reach in places such as Chicago and Washington.

And now AirTran will spend the next month trying to persuade Midwest Airlines' shareholders to consent to its hostile buyout offer. If successful, AirTran would add more markets and become the top airline in Milwaukee.

Striving for No. 2 status has worked for businesses such as Avis Rent A Car and Caribou Coffee. And while AirTran executives acknowledge they're not coveting the top spots in the airline industry, they insist their strategy focuses on growing.

"Being No. 1 or No. 2 anywhere, we've never had a conversation about that," said Robert Fornaro, AirTran's president and chief operating officer. "There's no correlation between size and profitability. There's a correlation between efficiency and service and success."

He's quick to say the airline's formula puts it in an elite club of moneymakers, no matter its ranking. And that success where many others have failed has emboldened AirTran to come out of its shell somewhat by considering more new markets such as Phoenix and St. Louis.

Observers say AirTran's aggressiveness shows the mentality of a No. 2 making gains in its industry.

Smaller companies must move aggressively, faster and even unpredictably to compete with such industry giants as Starbucks and Southwest, said Ken G. Smith, professor of business strategy, management and organization at the University of Maryland, College Park's Robert H. Smith School of Business.

But Smith said if smaller companies don't have the size and resources of the top companies, they need to try to avoid direct competition.

AirTran is pursuing markets that are not in Southwest's portfolio, such as Milwaukee. But in this industry, an airline can't always avoid another carrier.

In Baltimore, for example, it has been able to compete with Southwest by flying to cities that the carrier doesn't directly serve, such as Boston and Atlanta. It also offers a few other things Southwest does not: a business class and assigned seats.

Industry consultant Robert Mann, president of R.W. Mann & Co. Inc., said AirTran -- No. 9 among all airlines in terms of passengers -- has adapted well to its role as the No. 2 discounter.

"Turning into Southwest wouldn't be the worst thing. It's just not their objective. They want to do a good job for customers, be profitable and stay off the competitive radar," Mann said.

A niche carrier

He said the carrier is like other small and medium-size airlines that seek to serve niches. These include Spirit Airlines, of Fort Lauderdale, Fla.; Allegiant Air, of Las Vegas, and Midwest of Milwaukee.

In the broader business world, Avis Rent A Car seemed proud to be second to Hertz when it debuted its "We Try Harder" marketing campaign in 1963.

And Target has long been second to Wal-Mart, although it has enjoyed better sales results of late compared with the world's largest retailer.

AirTran might be more like Caribou Coffee, the second-largest coffeehouse chain. It's growing rapidly, announcing deals with airports and Coca-Cola, but still trails Starbucks by thousands of stores.

Kathy Hollenhorst, Caribou's vice president of marketing, said the gourmet coffee chain benefited from Starbucks, which created deep demand for the product -- just as Southwest created demand in the discount airline market.

But both No. 2s have to act aggressively to identify markets with untapped potential and set themselves apart in increasingly crowded fields. Caribou's customers, she said, tell them the coffee is "smoother" and their shops are "less pretentious" than Starbucks.

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