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.

'A little scrappier'

"Size-wise, with their aggressive growth it would nearly impossible to surpass them, but we can surpass them in customer experience," she said. "For a strong No. 2 like Caribou or AirTran, we have to differentiate ourselves, be a little scrappier."

AirTran customers would agree. Tom Dikeman, a salesman flying on AirTran this week from Baltimore to Boston, echoed other passengers who said the airline had "good prices," "good service" and flew directly to Boston, while Southwest does not.

AirTran was founded in 1993 and bought by the bigger ValuJet in 1997 after a fatal crash a year earlier nearly put ValuJet under. It took on AirTran's name, moved from Atlanta to Orlando, brought on new managers and made an investment in new planes and new markets to shed its damaged reputation.

Today, it continues to add flights in cities it serves from its hub in Atlanta. It now offers almost 700 daily flights to 52 cities and plans to add five more cities this year. Southwest, by comparison, serves 63 cities and has 3,200 daily flights.

AirTran uses only Boeing 717s and 737s, fuel-efficient midsize planes, to keep maintenance bills down. It aims to cut costs and improve efficiencies each year, a tough goal with fuel prices skyrocketing over the past few years.

The fuel bill contributed to a fourth-quarter loss of $3.3 million. But cost cuts elsewhere helped AirTran report income of $15.5 million for 2006. It will use the money to help pay for the 22 new fuel-efficient airplanes it took delivery of last year. It has dozens more on order, some of which could be used to replace a portion of Midwest's aging fleet if the merger proceeds.

Merger promoted

AirTran is determined to make the merger happen because it would gain more than some extra airports, said Fornaro, the company president. It would gain a new hub in Milwaukee, which would take pressure off Atlanta, the nation's busiest airport and often the one with the most delays.

In Milwaukee, he sees another Baltimore. Baltimore-Washington International Thurgood Marshall Airport saw fares drop and passenger numbers jump after 2001 when Southwest began expanding and AirTran launched service.

Midwest has won over customers with roomy seats and cookies baked aboard each plane -- something AirTran said it would maintain. But customers would defect to a new rival that offers lower fares, said Marisa E. Thompson, an analyst for independent research firm

"Eventually, a low-cost carrier will move in and [Midwest] will have to abandon the premium strategy because only a handful of people will be willing to pay if they have a choice," she said.

Discounters are the fastest- growing segment of the industry, and merging is a way for smaller carriers to compete, said David Swierenga, an airline consultant and economist. Airlines seeking mergers, however, are often criticized for trying to force together divergent cultures and work forces and failing to realize promised efficiencies.

US Airways withdrew its hostile bid to merge with Delta Air Lines last week after creditors said Delta would be better off emerging from bankruptcy alone. Midwest officials also say they would rather try to grow as an independent airline.

Conflicts likely

AirTran says it's not shying away from the Midwest merger -- and it's likely to face other conflicts as it continues to grow.

It's already had one recent high- profile clash with Southwest. When AirTran sought to take over gates abandoned by ATA Airlines at Chicago Midway in 2004, Southwest stepped in. It had the means to outbid AirTran and now controls about 73 percent of the airport's traffic to AirTran's 7 percent.

Some analysts thought, however, that it was at least in part to stunt competition from AirTran that made Southwest pursue the gates. Analysts said Southwest also may have launched service at Washington's Dulles International Airport last year to keep the likes of AirTran and fellow discounter JetBlue Airways from growing rapidly there.

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