evolution of the airline industry since deregulationtop airlines in 1978 – post deregulation 1....

Evolution of the Airline IndustryEvolution of the Airline IndustrySince DeregulationSince DeregulationggRobinson Economic Forecasting Conference at Georgia State UniversityNovember 2008Robinson Economic Forecasting Conference at Georgia State UniversityNovember 2008

C t i f th t t t t i d h i h ld b id d “f d l ki t t t ” i l di ithi th i f th P i t

Safe Harbor

Certain of the statements contained herein should be considered “forward-looking statements,” including within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may”, “will”, “expect,” “intend,” “indicate,” “anticipate,” “believe,” “forecast,” “estimate,” “plan, “ “guidance,” “outlook,” “could, “ “should,” “continue” and similar terms used in connection with statements regarding the outlook of AirTran Holdings, Inc., (the “Company” or “AirTran”). Such statements include, but are not limited to, statements about the Company’s: expected financial performance and operations, expected fuel costs, the revenue and pricing environment, future financing plans and needs, overall economic condition and its business plans, objectives, expectations and intentions. Other forward-looking statements that do not relate solely to historical facts include, without limitation, statements that discuss the possible future effects of current known trends or uncertainties or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. Such statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties that could cause the Company’s actual results and financial position to differ materially from the Company’s expectations. Such risks and uncertainties include, but are not limited to, the following: the Company’s ability to grow new and existing markets, the Company’s ability to maintain or expand cost advantages in comparison to various competitors, the impact of high fuel costs; significant disruptions in the supply of aircraft fuel and further significant increases to fuel prices; the Company’s ability to attract and retain qualified personnel; labor costs and relations with unionized employees generally and the impact and outcome of labor negotiations; the impact of global instability, including the current instability in the Middle East, the continuing impact of the U.S. military presence in Iraq and Afghanistan and the terrorist attacks of September 11, 2001 and the potential impact of future hostilities, terrorist attacks, infectious disease outbreaks or other global events that affect travel behavior; adequacy of insurance coverage; reliance on automated systems and the potential impact of any failure or disruption of these systems; the potential impact of future significant operating losses; the Company’s ability to obtain and maintain commercially reasonable terms with vendors and service providers and its reliance on those vendors and service providers; security-related and insurance costs; changes in government legislation and regulation; competitive practices in the industry, including significant fare restructuring activities, capacity reductions and in-court or out-of-court restructuring by p y, g g g , p y g ymajor airlines and industry consolidation; interruptions or disruptions in service at one or more of the Company’s hub or focus airports; weather conditions; the impact of fleet concentration and changes in fleet mix; the impact of increased maintenance costs as aircraft age and/or utilization increases; the Company’s ability to maintain adequate liquidity; the Company’s ability to maintain contracts that are critical to its operations; the Company’s fixed obligations and its ability to obtain and maintain financing for operations, aircraft financing and other purposes; changes in prevailing interest rates; the Company’s ability to operate pursuant to the terms of any financing facilities (particularly the financial covenants) and to maintain compliance with credit card agreements; the Company’s ability to attract and retain customers; the cyclical nature of the airline industry; economic conditions; risks associated with actual or potential acquisitions or other business y y; ; p qtransactions including the Company’s ability to achieve any synergies anticipated as a result of such transactions and to achieve any such synergies in a timely manner, and other risks and uncertainties listed from time to time in the Company’s reports to the Securities and Exchange Commission. There may be other factors not identified above of which the Company is not currently aware that may affect matters discussed in the forward-looking statements, and may also cause actual results to differ materially from those discussed. All forward-looking statements are based on information currently available to the Company. Except as may be required by applicable law, AirTran assumes no obligation to publicly update or revise any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting such estimates. Additional factors that may affect the future results of the Company are set forth in the section entitled “Risk

33

factors affecting such estimates. Additional factors that may affect the future results of the Company are set forth in the section entitled Risk Factors” in the Company’s Annual Report on Form 10-K for the period ended December 31, 2007, which is available at www.sec.gov and at www.AirTran.com.

Historical PerspectiveIndustry Evolution & ChangeIndustry Evolution & Change

Top Airlines in 1978 – Market Share

1. United 16.9% Domestic U.S.2. American 12.4% Domestic U.S.

TWA 11 6% D ti / T tl ti3. TWA 11.6% Domestic / Transatlantic4. Eastern 10.8% Eastern U.S. 5. Delta 10.0% Southeastern U.S.5. Delta 10.0% Southeastern U.S.6. Pan Am 9.0% International 7. Western 4.4% Western U.S.8. Braniff 4.1% Domestic / Latin9. Continental 3.7% Domestic10 National 3 4% Eastern U S10. National 3.4% Eastern U.S.11. Northwest 3.0% North & Pacific12. Allegheny (US) 1.7% Northeast

5

* Source: DOT Form 41

Top Airlines in 1978 – Post Deregulation

1. United Exited Chapter 11 in 20062. American

TWA B k t A i d b A i3. TWA Bankrupt: Acquired by American4. Eastern Liquidated 5. Delta Exited Chapter 11 in 20075. Delta Exited Chapter 11 in 20076. Pan Am Bankrupt: Parceled out 7. Western Acquired by Delta8. Braniff Liquidated9. Continental Multiple bankruptcies10 National Acquired by Pan Am10. National Acquired by Pan Am11. Northwest Merged with Delta12. US Air Multiple bankruptcies / mergers

6

* Source: DOT Form 41

Top Airlines Today – Market Share

1. Delta / Northwest 25.4%2. American 17.6%

U it d 15 6%3. United 15.6%4. Continental 11.8%5. Southwest 9.5%5. Southwest 9.5%6. US Airways 9.1%7. jetBlue 3.2%8. Alaska 2.8%9. AirTran 2.5%10 Frontier 1 3%10. Frontier 1.3%

7

* Source: DOT Form 41, 2Q08 RPMs

What Happened?

Events that Restructured the Industry

MergersMergers

DeregulationDeregulation

19781978

PATCOPATCO 9/119/11 FuelFuel

19811981 20012001 TodayToday19781978 19811981 20012001 TodayToday

InternetInternet

9

Many Airlines Have Struggled to Adapt

Airline Bankruptcies Since Deregulation

14

16

18

17 168

10

12

46

12

5

10

6

911

7 6 53

5 4 4 46

46 5

11

2

4

6

2 3 2 2 2 2 1 20

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

10

Why the Failure to Adapt?

Inefficiencies carried over from regulatory environment― High costs in a commodity-like business

Cyclical business prone to excess capacity― Low barriers to entry, high to exit

Inexpensive asset financing has created too much capacity― Inexpensive asset financing has created too much capacity― Too many hubs

Historically a market share focus

Most mergers have not produced intended results― Temporary revenue gains― The most inefficient work rules typically survive

1111

U.S. Airlines “Earnings” – Actually a Cumulative Loss

$28$30

Net Profit ($Billions)

Cumulative Lossof $12 Billion

$15

$20

$25$

$5

$10

$1$3$5

$10

($6) ($7) ($6)($4)

-$10

-$5

$0

Industry D l ti ($11)

($13) ($12)-$15

$

1971-1978

1979-1989

1990-1994

1995-2000

2001 2002 2003 2004 2005 2006 2007 1H08

Deregulation

12

* Source: Air Transport Association

Was Warren Buffet Right?

“…I like to think that if I’d been at Kitty Hawk in 1903 when Orville Wright took off, I would have been farsighted enough, and public spirited enough – I owed this to future capitalists –to shoot him down ”to shoot him down.

13

Challenges Facing the Industry Today

Cost: Unprecedented run up in fuel

C dit B ki i i d it’ i t dit k tCredit: Banking crisis and it’s impact on credit markets

Revenue: Weakening economy and recessionRevenue: Weakening economy and recession

1414

Recent Fuel Volatility Has Forced Dramatic Change

147.00

130

140

150

(Cost per Barrel)

90

100

110

120

130

66.0272.34

67.00

56.48

50

60

70

80

90

24.5018.43

22.15 20.6014.40

19.25

30.3025.92 26.10

31.14

41.44

21.4817.19

20.56 18.46

10

20

30

40

50

0

10

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 July'08

Today

15

*West Texas Intermediate at CushingSources: Air Transport Association, Energy Information Administration, PIRA Energy Group, Deutsche Bank

Airlines Have Reacted Quickly to the Fuel Run Up

All airlines announced mainline domestic capacity reductions― Industry domestic capacity down approximately 10% in Q408― Delta capacity will be down 10-11% in Q408Delta capacity will be down 10 11% in Q408― AirTran capacity will be down 6-7% in Q408 after original plans for 10% growth

Because of high fuel, airlines are probably six months in front of many industries in addressing economic weakness

1616

Since World War Two, Ex-9/11, Annual U.S. Airline Revenue Has Only Declined Twice

25%

Annual U.S. Airline Operating Revenue Growth(Revenue Growth)

15%

20%

25%

?

0%

5%

10%

-10%

-5%

-15%1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009E

17

* Source: Air Transport Association

AirTran’s View of Today’s Challenges

AirTran: Demonstrated Record of Adapting

• Emerged stronger from 9/11 by lowering costs and capitalizing on legacy domestic retrenching

• Continued to lower non-fuel unit costs to the best in industry

• Continued to increase revenues

• Under new management AirTran restores profitability in 1999

domestic retrenching• Capitalized on continued legacy domestic restructuring and expanded network into the West• Completed re-fleeting to

all 717 fleet

• Negotiated 737 deal at market bottom

20001999 2002 2004 20062001 2003 2005 2007 2008

market bottom

• Increased cash balance to $100MM from low of $10MM in 1999

• Successfully recapitalized the Company with $230MM

• Transformed business to become highly regarded low-cost airline

• Expanded network into Baltimore and Florida

Remained profitable post 9/11

• Proactive response to increase in fuel from $75 to $140 per barrel

• Focused on reducing capacity growth, increasing unit revenues, continuing to lower non-fuel costs, limiting fuel exposure, and successfully raising p y

in debt maturities due 2Q01 • Remained profitable post 9/11 g p y gcapital

• Low costs will allow us to further capitalize on capacity reductions

1919

Strong Fundamentals: Unique Product

Business Class on every flight― Only major U.S. airline with Business Class on

every flight

Assigned seating

Over 150 channels of free digital XM RadioOver 150 channels of free digital XM Radio

Oversized luggage bins

Friendly Crew Members

Broad distribution― AirTran.com― Reservations― Travel agencies

2020

Strong Fundamentals: #1 in Quality

Airline Quality Rating for Major Carriers

200520042003 2006 2007

AirTran

JetBlue

Southwest

JetBlue

Alaska

Southwest

JetBlue

AirTran

Independence

JetBlue

AirTran

Frontier

JetBlue

AirTran

Southwest

1.

2.

3 Southwest

Northwest

Frontier

Southwest

America West

US Airways

Independence

Southwest

United

Frontier

Northwest

Southwest

Southwest

United

Alaska

3.

4.

5.

Continental

Alaska

United

Northwest

Continental

AirTran

America West

Northwest

Continental

Continental

United

Alaska

America West

Northwest

American

6.

7.

8.

American

Delta

United

ATA

Alaska

American

American

ATA

Continental

ATANotes: (1) Source: Wichita State University / University of Nebraska, Omaha.

9.

10.

2121

( ) y y(2) Based on DOT reports for on-time performance, denied boardings, mishandled baggage, and customer complaints(3) AirTran not ranked prior to 2003

Strong Fundamentals: Low Cost Structure

(Cents Per Mile)

AirTran’s Non-Fuel Unit Cost Trend

7.00

7.25

6.50

6.75

6.00

6.25

5.752001 2002 2003 2004 2005 2006 2007 2008

22

* Excludes non-recurring special items* 2008 is for the first nine months ended

Strong Fundamentals: Low Cost Structure

11(Cents)

Industry Cost ComparisonNon-Fuel Unit Costs at 734 Miles for 1H08

9

10

11

7

8

9

5

6

While legacy costs are down, gap remains large

2323

* Excludes fuel and special items

Strong Atlanta Hub

BurlingtonBurlington

SeattleSeattle

PortlandPortland

BostonBoston

S F iS F i

MinneapolisMinneapolis


Akron/Akron/CantonCanton

FlintFlint

MolineMoline

MilwaukeeMilwaukeeDetroitDetroit

ChicagoChicago

BuffaloBuffaloRochesterRochester

White PlainsWhite PlainsNew York City (LGA)New York City (LGA)HarrisburgHarrisburg

PhiladelphiaPhiladelphiaNewarkNewark

Las VegasLas Vegas

DenverDenver

San FranciscoSan Francisco

Kansas CityKansas City

WichitaWichita

BloomingtonBloomington

St LouisSt Louis

IndianapolisIndianapolis

ColumbusColumbusDaytonDayton

RichmondRichmondWashington, D.C. (IAD)Washington, D.C. (IAD)Newport NewsNewport News

Los AngelesLos Angeles

PittsburghPittsburghWashington, D.C. (DCA)Washington, D.C. (DCA)BaltimoreBaltimore

PhiladelphiaPhiladelphia

RaleighRaleigh//DurhamDurhamCharlotteCharlotte

Dallas/Ft. WorthDallas/Ft. Worth

MemphisMemphis

Gulfport/BiloxiGulfport/Biloxi

PhoenixPhoenix


San DiegoSan Diego

PensacolaPensacola

AtlantaAtlanta

JacksonvilleJacksonville

CharlotteCharlotte

CharlestonCharleston

Ft. LauderdaleFt. Lauderdale

San AntonioSan Antonio

West Palm BeachWest Palm Beach

MiamiMiami

OrlandoOrlandoNew OrleansNew Orleans

Gulfport/BiloxiGulfport/BiloxiHoustonHouston

PensacolaPensacola

SarasotaSarasotaFt. MyersFt. Myers

TampaTampa

2424

San JuanSan JuanCancunCancun

AirTran Operates the World’s Largest LCC Hub

CAL - HoustonAMR - DallasDAL - Atlanta

NWA - MinneapolisAMR - Miami

LUV - Las VegasAAI - Atlanta

LCC - CharlotteUAUA - Chicago

LCC - PhoenixUAUA - DenverAMR - ChicagoLUV - ChicagoCAL - NewarkNWA - Detroit

AAI - Atlanta (2000)UAUA - San Francisco

LCC - PhiladelphiaLUV - Baltimore

JBLU - New YorkLUV - Phoenix

225 departures in December 2008

0 100 200 300 400 500 600 700 800 900 1,000

Mainline Departures Regional Departures

2525

Flexible Strategy: Florida Point to Point


SeattleSeattle

PortlandPortland

BostonBoston

S F iS F i



FlintFlintRochesterRochester

MilwaukeeMilwaukee

HarrisburgHarrisburg

BuffaloBuffalo

ChicagoChicagoDetroitDetroit Akron/Akron/

CantonCantonWhite PlainsWhite PlainsNew York City (LGA)New York City (LGA)

NewarkNewarkPhiladelphiaPhiladelphiaMolineMoline

Las VegasLas Vegas

DenverDenver



DaytonDaytonColumbusColumbus PittsburghPittsburgh

RichmondRichmond

PhiladelphiaPhiladelphiaBaltimoreBaltimoreWashington, D.C. (DCA)Washington, D.C. (DCA)

Washington, D.C. (IAD)Washington, D.C. (IAD)Newport NewsNewport News

CharlotteCharlotteRaleighRaleigh//DurhamDurham

St LouisSt Louis

BloomingtonBloomingtonIndianapolisIndianapolis


WichitaWichita




CharlotteCharlotte

AtlantaAtlantaCharlestonCharleston

JacksonvilleJacksonvillePensacolaPensacola

MemphisMemphisPhoenixPhoenixSan DiegoSan Diego

San AntonioSan Antonio New OrleansNew OrleansHoustonHouston

Gulfport/BiloxiGulfport/Biloxi PensacolaPensacola

OrlandoOrlandoTampaTampaSarasotaSarasota

Ft. MyersFt. Myers

MiamiMiamiFt. LauderdaleFt. LauderdaleWest Palm BeachWest Palm Beach

2626


Opportunistic Mindset: Baltimore Focus City


SeattleSeattle

PortlandPortland

BostonBoston

S F iS F i



RochesterRochester

Akron/Akron/CantonCanton

DetroitDetroitFlintFlintMilwaukeeMilwaukee

MolineMolineChicagoChicago

BuffaloBuffalo

HarrisburgHarrisburgWhite PlainsWhite PlainsNew York City (LGA)New York City (LGA)

NewarkNewarkPhiladelphiaPhiladelphia

Las VegasLas Vegas

DenverDenver

San FranciscoSan Francisco ColumbusColumbus

RichmondRichmond


St LouisSt LouisKansas CityKansas City

WichitaWichita


PittsburghPittsburghDaytonDayton

PhiladelphiaPhiladelphiaBaltimoreBaltimore

RaleighRaleigh//DurhamDurhamCharlotteCharlotte

Washington, D.C. (DCA)Washington, D.C. (DCA)Washington, D.C. (IAD)Washington, D.C. (IAD)Newport NewsNewport News


MemphisMemphis


AtlantaAtlanta


PhoenixPhoenixSan DiegoSan Diego

CharlotteCharlotte


JacksonvilleJacksonvilleHoustonHouston

San AntonioSan Antonio


New OrleansNew Orleans

PensacolaPensacola


OrlandoOrlandoTampaTampa

Ft. MyersFt. MyersSarasotaSarasota

2727


Successful Diversification of Network


SeattleSeattle

PortlandPortland

BostonBoston

S F iS F i



FlintFlintRochesterRochester

MilwaukeeMilwaukee

ChicagoChicagoDetroitDetroit Akron/Akron/

CantonCantonWhite PlainsWhite PlainsNew York City (LGA)New York City (LGA)

NewarkNewarkPhiladelphiaPhiladelphiaMolineMoline

HarrisburgHarrisburg

BuffaloBuffalo

Las VegasLas Vegas

DenverDenver



DaytonDaytonColumbusColumbus PittsburghPittsburgh

RichmondRichmond

PhiladelphiaPhiladelphiaBaltimoreBaltimore

St LouisSt Louis



WichitaWichita

CharlotteCharlotteRaleighRaleigh//DurhamDurham

Washington, D.C. (DCA)Washington, D.C. (DCA)Washington, D.C. (IAD)Washington, D.C. (IAD)Newport NewsNewport News




AtlantaAtlanta

PensacolaPensacola

MemphisMemphisPhoenixPhoenixSan DiegoSan Diego

CharlotteCharlotte


JacksonvilleJacksonville

San AntonioSan Antonio New OrleansNew OrleansHoustonHouston


OrlandoOrlando


TampaTampaSarasotaSarasota

Ft. MyersFt. Myers

2828


AirTran Responded Quickly and Decisively

Reduced growth― Deferred 36 planned aircraft deliveries― Agreements to sell / return 11 aircraft

Reduced costs― Closed three cities― Cut non-aircraft CAPEX by 50%

Raised cash― Arranged over $375MM in financing / credit facilities

Limit fuel exposure― Active and disciplined hedging program

Increase revenues― Significant changes in ancillary revenues

Fare increases

2929

― Fare increases

Atlanta Has the Best of All Worlds in Aviation

World’s busiest airport― More flights to more destinations than any other airport in the world

Large global carrier in Delta / Northwest

AirTran and the world’s largest low cost hub

High level of competition forces efficiency and quality

R lt i i th i f G i b iResult is an economic growth engine for Georgia business

3030

Summary

2008 has been a difficult year

AirTran has moved quickly and decisivelyAirTran has moved quickly and decisively

Fundamentals remain strongFundamentals remain strong

Positioning the company to return to profitability and capitalize on opportunities― Airlines are six months in front of this current economic problem― AirTran is better positioned for this challenge

3131

evolution of the airline industry since deregulationtop airlines in 1978 – post deregulation 1....

Documents