U.S. DOT Adds AirTran to List of Major Carriers

Airlines added to the Dept. of Transportation list of major carriers must have $1 billion or more in annual revenue.

But analysts have expressed concern that AirTran may be growing too rapidly, starting service on three or four new routes a year without undertaking as meticulous a job of traffic projection as Southwest does in markets it enters. AirTran president Robert Fornaro said that the airline might add flights between Philadelphia and Chicago and Akron/Canton, Ohio, two places where it wants to build up service.

AirTran's fleet is growing because of an order for 100 new 737s it placed with Boeing in July 2003. The airline has retired all of its old DC-9s. By contrast, Southwest, the largest discount carrier, with more than six times AirTran's annual revenue, had 417 jets in its fleet at the end of 2004.

"AirTran appears increasingly challenged to find a home for its new aircraft," JP Morgan Chase & Co. analyst Jamie Baker said in an investors' report, leading him to express hope that the airline chooses "slower growth" over "sloppy growth."

AirTran, like fellow low-cost airlines Frontier, JetBlue, Southwest and Spirit, has lower operating costs than older carriers for a variety of reasons, including having a younger workforce, no traditional pensions, and newer jets. Even with recent cuts in labor costs at US Airways, AirTran spends about 25 percent less for each airplane seat it puts in the air than do US Airways and other older carriers.

AirTran executives say the analysts shouldn't fret about its growth plans.

"Our new aircraft order was a key part of our strategy for the next 10 years," chief financial officer Stan Gadek said. "New planes carry warranties, just like new cars," which reduces maintenance costs.

Leonard said it was impossible to overstate how much a new fleet helps the airline's reputation. "The image of a low-cost carrier with old planes, that's in the past," he said.

As eager as AirTran executives are to talk about new planes and good service, some customers say what's impossible to overstate is the airline's effect on East Coast airfares.

AirTran has "had a huge impact here," said Chris McGinnis, director of the Travel Skills Group, an Atlanta-based business travel consultancy. "It's brought fares down to a reasonable level... . If it weren't for AirTran, we'd still be paying $2,000 round-trip to go to California. Today, you can do it for $600 or $700 for a full-coach or first-class ticket."

At Black & Decker Corp., the tool-maker based in Towson, Md., travel and meetings director Peter Buchheit said after AirTran entered the Baltimore-Atlanta market, his company's average cost of a round-trip ticket on the route dropped from $800 to $330. Now he is eager to see AirTran's effect on fares on the Baltimore-Charlotte route, where the average round-trip flight costs $720.

"We've had the feeling we've been held hostage," Buchheit said. "Our prayers are answered."

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