AirTran
Airways
2005
A Strategic Management Case Study
Graphics are the property of
AirTran Airways
® 2008, Danielle Boucher, Matt Bouchard, Darius Parker,
Takefumi Kawahara, UMFK
1
Overview - “Getting to know a low-fare leader “
•A brief history of AirTran Airways
•EOY 2004
oMission, Objectives, Strategies
•2005
oNew Vision and Mission
•External Analysis
oOpportunities & Threats
oCPM
oEFE
•Internal Analysis
oFinancial Data
oStrengths and weaknesses
oIFE
oFinancial ratios
•Strategic Analysis
oSWOT Matrix
oSPACE
oIE matrix
oGrand Strategy Matrix
oMatrix Analysis
•Possible alternative strategies
•Our Recommendation
oStrategies
oLong range objectives
oEPS/EBIT
•Implementation Issues
•Proposed annual objectives
(goal) and polices
•Proposed procedures for
evaluation
•Epilogue
•Current Performance
•Questions
•Resources Utilized
2
History of AirTran Airways
•In 1992, the predecessor airline, ValuJet Airlines was founded
•ValuJet Airlines started with two former Delta Air Lines' DC-9 aircraft
•First commercial flight occurred between Atlanta and Tampa on October 26,
1993.
•The airline was the first to launch ticketless travel in 1993.
•In the spring of 1994, barely eight months after launching service between
Atlanta and three Florida cities, the airline went public by listing its stock on
the NASDAQ and trading under the ticker symbol VJET.
•In late 1995, the airline placed an order to be the launch customer for the
Boeing 717. ValuJet was the youngest airline ever to serve as a launch
customer for an aircraft type.
3
History of AirTran Airways
•At the end of 1995, ValuJet was named as the top company in the famed
Georgia 100 as published by the Atlanta Journal-Constitution
• and the airline posted high margins with a $67 million net profit
• revenues of $367 million.
•The publicly traded airline stock was increasing in value on a seemingly
weekly basis.
•The original AirTran Airways, a Boeing 737 operator with service to/from
Orlando, was founded by AirTran Corporation, the holding Company of
Mesaba Airlines of Minneapolis, Minnesota, operating as a Northwest Airlink
carrier with hubs in Minneapolis and Detroit. In 1994,
•AirTran Holdings purchased a start up 737 operator named Conquest Sun
and renamed the airline AirTran Airways.
4
History of AirTran Airways
•Conquest Sun, similar to ValuJet, was an airline started by former Eastern
Air Lines employees.
•The original AirTran Airways moved its headquarters to Orlando, Florida,
and grew to 11 Boeing 737 aircraft serving 24 cities in the East and Midwest
providing low-fare leisure travel to Orlando.
•In 1995, AirTran Airways was spun off by Mesaba and formed its own
independent holding company named Airways Corporation.
•On July 10, 1997, ValuJet, Inc., the holding company for ValuJet Airlines,
Inc., announced plans to acquire Airways Corporation, Inc., the holding
company for AirTran Airways, Inc. of Orlando, Florida. The deal was
scheduled to close on November 17, 1997.
•On September 24, 1997, ValuJet Airlines changed its name to AirTran
Airlines. While the hub remained in Atlanta, the headquarters of the new
entity was combined in Orlando, Florida, on January 28, 1998.
5
History of AirTran Airway’s
Management
January 1999
• A new management team led by Joe Leonard, a veteran of Eastern Air
Lines, and Bob Fornaro, of US Airways, took the reins at the airline.
• Leonard, Chairman and CEO, improved operating efficiencies while
Fornaro, President and COO, built a sustainable route network which
increased the presence of the Atlanta hub while adding focus cities in
Baltimore/Washington, Philadelphia and Chicago.
•On August 15, 2001, Leonard and Fornaro joined twelve Crew Members
in ringing the opening bell at the New York Stock Exchange where the
company's stock began trading under the ticker symbol AAI.
6
History of AirTran Airway’s
Management
January 1999
• The airline grew quickly under Leonard and Fornaro's leadership and
has transformed itself into a strong competitor operating:
• the youngest all Boeing fleet in the nation
• to more than 56 cities coast-to-coast
• more than 700 flights per day
• over 9,000 Crew Members
• serving nearly 20 million passengers per year.
7
NYSE Ticker: AAI
www.airtran.com
8
AirTran Airways 2004
“The year of new planes, new
people, and new determination.”
AirTran CEO, Joe Leonard
9
2004 Mission
Innovative people dedicated to delivering the
best flying experience to smart travelers. Every
day.
10
Guiding Principals
•We celebrate bringing people together through:
•Safety
Taking personal responsibility for the safety of each traveler and every Crew Member.
•Courtesy
Showing respect and providing caring customer service to travelers and Crew Members.
•Pride
In our work, in one another and in contributing to the success of our airline.
•Teamwork
Supporting one another and valuing our diverse contributions to meet every traveler's needs.
•Innovation
Acting with an empowered "can do" spirit to continuously improve our airline.
•Cleanliness
Of work areas and our equipment says everything to our customers – pick it up, keep it clean.
•Anticipation
Of customer, crew member and business needs is a key requirement of every position. Look
ahead – be ready!
•Results
Every crew member is expected to contribute to our success through measurement and
•
continuous improvement. Know your numbers!
11
Our Values
•A Total Commitment to Safety
In every decision and every action, every time, every day.
•Compliance with Regulatory Standards
In every decision and every action, every time, every day.
•Technical Excellence and Continuous Learning
We do it right, then we improve to do it better.
•Honesty, Trust and Integrity
In all actions with one another, our suppliers and our customers.
•Respectful Communication and Constructive Disagreement
To get to the best result, together.
•Personal Responsibility for Resolving Issues
We do not pass the buck or quit on a Crew Member.
•Acting with Purpose and Urgency
We make decisions to do the right thing and then act on it.
•Hard Work
We take pride in doing the difficult things that make our airline better than the others.
•Fun
We are positive people who celebrate success, learn from mistakes and enjoy our work.
•Profit
We deliver a sustainable profit to support the growth and improvement of our company.
12
2004 Strategies
•Introducing the newest fleet of Boeing 737 to appeal to customers
safety concern
•Develop flights to Mexico
•Preservation of good relations with our employees (46%
represented by union)
•Low-fare price point
13
2004 Objectives
•Remain profitable despite increased fuel prices
•To satisfy the transportation needs of our target customers,
but also to provide customers with a travel experience worth
repeating.
•Minimize rising expenses while increasing revenues.
14
2004 Issues
•Lost the bid to a major expansion of 14 gates at ATA airlines to
Southwest Airlines.
•Increased fuel prices
•Labor costs (government mediation)
•4 Hurricanes hit Orlando
•Negotiations between US and Mexico
15
A New Vision
AirTran Airway’s vision is to become the leading
affordable, safe and enjoyable short distance airline
in the nation.
16
A New Mission
The mission of AirTran Airways is to provide
safe, clean, and affordable short distance flights for
business and leisurely travelers as well as crew
members. We are focused on innovative ideas to
provide for profitable growth for our shareholders,
while being mindful of compliance and regulatory
standards. We believe that employees should have
a respectful, courteous, and fun experience while
being part of AirTran Airways. AirTran is
committed to improving the quality of life of others
and improving communities through a diverse
range of charitable activities.
17
New Mission Evaluation
The new mission fulfills the following questions:
•Customers: Who are the firm’s customers?
•Products or services: What are the firm’s major products?
•Markets: Geographically, where does the firm compete?
•Technology: Is the firm technologically current?
•Concern for survival, growth, and profitability: Is the firm
committed to growth and financial soundness?
•Philosophy: What are the basic beliefs, values, aspirations, and
ethical priorities of the firm?
•Self-concept: What is the firm’s distinctive competence or major
competitive advantage?
•Concern for public image: Is the firm responsive to social,
community, and environmental concerns?
•Concern for employees: Are employees a valuable asset of the
firm?
18
External Audit: Opportunities
•Appeal to public due to new “safe” planes
•Negotiations between Mexico and United States may allow in
more opportunities for service to Mexico from U.S. airlines
•$950,000 federal grant to advertise the new AirTran service and
$1 million from Greater Richmond Chamber of Commerce.
•International and nationwide flights.
•Allow for computer reservations
•Delta and U.S. Airways of reduced services and capacity in the
eastern United States
19
External Audit: Threats
•Unionized and subject to union actions as collective bargaining
agreement expire
•Society’s view of flying after September 11, 2001
•Rising fuel costs (66% from 2003 to 2004)
•Major competitor Delta is #1 in Atlanta (AirTran’s main hub)
•Flight delays and cancellations due to weather on eastern and
southeastern coasts.
•Outsourced maintenance may compromise safety
•More intense competition as they broaden their geographic
locations
20
AirTran Airways CPM
Air Trans
Critical Success factors
Weight
Rating
0.0 to 1.0
1 to 4
Delta
Weighted
Score
Rating
1 to 4
Southwest
Weighted
Score
Rating
1 to 4
Weighted
Score
Airline Quality Rating
0.15
4
0.60
1
0.15
3
0.45
Domestic/National Expansion
0.15
3
0.45
4
0.60
3
0.45
International Expansion
0.05
1
0.05
4
0.20
2
0.10
Operating Expenses per
available seat mile (ASM)
0.15
2
0.30
3
0.45
3
0.45
Market Share
0.10
2
0.20
4
0.40
4
0.40
Age of Fleet
0.05
4
0.20
2
0.10
2
0.10
Passenger Accommodations /
Business Class
0.06
3
0.18
3
0.18
2
0.12
Low Outsourced Maintenance
Costs
0.10
2
0.20
4
0.40
1
0.10
Customer Prices
0.12
3
0.36
2
0.24
3
0.36
Executives / Management
0.07
4
0.28
3
0.21
3
0.21
Totals
1
2.82
2.93
2.74
21
AirTran Airways EFE
Key External Factors
Weights
Rating
0.0 to 1.0
1 to 4
Weighted Score
Opportunities
Appeal to public due to new "safe" planes.
0.05
2
0.1
Increased international flights.
0.13
2
0.26
Increased domestic flights throughout the United States.
(additional hubs)
0.16
3
0.48
Allow for computer reservations.
0.05
1
0.05
0.1
3
0.3
0.05
2
0.1
0.2
3
0.6
Major Competitors in same market (Delta)
0.15
2
0.3
Sciety's view of flying after September 11
0.07
2
0.14
Eastern / Southeastern U.S. Weather Conditions
0.04
2
0.08
$950,000 fed. Grant / $1,000,000 from Greater Richmond C of C
Threats
Unionized workers / possible union actions.
Rising fuel costs (66% from 2003 to 2004)
Totals
1
2.41
22
2004 Consolidated Balance Sheet
December 31,
ASSETS
Current Assets:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, less allowance of $627 and $603 at December 31, 2004 and 2003, respectively
Inventories, less allowance for obsolescence of $987 and $733 at December 31, 2004 and 2003,
Deferred
income taxes - current
respectively
Prepaid expenses and other current assets
Total current assets
Property and Equipment:
Flight equipment
Less: Accumulated depreciation
Purchase deposits for flight equipment
Other property and equipment
Less: Accumulated depreciation
Total property and equipment
Other Assets:
Intangibles resulting from business acquisition
Trademarks and trade names
Debt issuance costs
Deferred income taxes – noncurrent
Other assets
Total assets
2004
2003
$ 307,49
7,854
3
26,975
19,376
28,311
7,442
14,613
$ 338,70
9,798
7
—
17,454
19,345
52,054
15,209
412,06
4
294,96
(34,03
6)
6
260,93
69,833
0
82,854
(29,68)
2
53,172
452,56
7
229,92
(26,610
7)
383,93
5
8,350
21,567
7,607
16,708
55,500
276,46
1
8,350
21,567
7,293
—
42,126
$ 905,73
1
203,31
49,991
7
45,425
(22,272)
23,153
23
$ 808,36
4
2004 Consolidated Balance Sheet
December 31,
2004
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Accrued and other liabilities
Air traffic liability
Current portion of lease obligations
Current portion of long-term debt
$
Total current liabilities
Long-term lease obligations
Long-term debt
Deferred income taxes
Other liabilities
Stockholders’ Equity:
Preferred stock, $.01 par value per share, 5,000 shares authorized, no shares issued or
Common
stock, $.001 par value per share, 1,000,000 shares authorized, and 86,617 and
outstanding
84,209 shares issued and outstanding at December 31, 2004 and 2003, respectively
Additional paid-in capital
Unearned compensation
Accumulated other comprehensive loss
Accumulated deficit
20,988
85,047
87,571
886
12,950
$
18,498
69,233
78,746
627
4,388
207,442
14,559
285,575
—
64,119
171,492
796
241,025
26,100
66,738
—
Total stockholders’ equity
Total liabilities and stockholders’ equity
2003
$
—
87
361,063
(4,624)
— )
(22,490)
84
337,145
—
(271)
(34,745)
334,036
302,213
905,731
$
808,364
24
Consolidated Statement of Operations
Year ended December 31,
2004
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of deferred gains from sales/leaseback of aircraft
Provisions for uncollectible accounts
Deferred debt discount/issuance cost amortization
Loss on asset disposal
SFAS 133 adjustment
Deferred income taxes
Other
Changes in current operating assets and liabilities:
Restricted cash
Accounts receivable
Government grant receivable
Inventories
Prepaid aircraft fuel
Prepaid aircraft rent
Other assets
Accounts payable, accrued and other liabilities
Air traffic liability
Net cash provided by operating activities
$
12,255
2003
$
2002
100,517
$
10,745
15,982
(4,385)
709
—
—
—
7,618
2,829
15,741
(4,961)
510
12,257
—
—
(13,608)
—
19,967
(5,979)
1,009
—
858
(5,857)
—
—
1,944
(2,631)
—
(1,391)
(8,055)
(13,691)
(4,740)
22,850
8,825
24,375
1,156
—
(9)
(10,952)
(18,899)
3,665
1,888
21,566
(7,633)
(9,657)
4,333
(2,141)
330
(8,118)
(653)
(9,575)
18,723
38,119
133,246
6,352
25
Internal Audit: Strengths
•Classified by U.S. Department of Transportation as a “major
carrier”
•$1 billion or more annual revenue
•Average plane age is 2.5 years (youngest fleet in the country)
•Consumes 24% less fuel than old planes
•Joe Leonard’s (CEO) credibility
•Additional seating in place of galleys since meals are not served
on the ”short-haul” planes
•XM Satellite Radio
•2004 “Best Airline Website” by the Web Marketing Associates
•Business class is available (not common on short-distance flights)
26
Internal Audit: Weaknesses
•Most flights originate from AirTran’s Atlanta, Georgia hub
causing a heavy reliance on Atlanta
•Strictly domestic flights
•Primarily east coast flights
•Net income dropped from 100.5 in 2003 to 12.3 million in
2005
•High labor costs
•AirTran’s fleet of Boeing 717s are made only for efficient
short-haul services
•Rated in 2003 by Airline Quality Report:
°Among the lowest for on time-performance
°among the highest in denied boarding
°above industry average for passenger complaints
27
AirTran Airways IFE
Key Internal Factors
Weights
Rating
0.0 to 1.0
1, 2, 3 or 4
Internal Strengths
Weighted Score
3 or 4
$1 billion or more annual revenue
0.09
3
0.27
Average plane age is 2.5 years (youngest fleet in the country)
0.16
4
0.64
Consumes 24% less fuel than old planes
0.13
4
0.52
2004 “Best Airline Website” by the Web Marketing Associates
0.07
3
0.21
Business class is available (not common on short-distance flights)
0.07
4
0.28
Internal Weaknesses
1 or 2
Net income dropped from 100.5 in 2003 to 12.3 million in 2005
0.12
1
0.12
Most flights originate from AirTran’s Atlanta, Georgia hub causing a heavy reliance
on Atlanta
0.10
1
0.10
Strictly domestic flights
0.08
2
0.16
Primarily east coast flights
0.08
1
0.08
High labor costs
0.10
2
0.20
Totals
1
28
2.58
Financial Ratio Analysis
Key Raito
Current Ratio
Quick Ratio
Net Sales to Working
Capital
Interest Coverage Ratio
Total Asset Turnover
Inventory Turnover
Debt to-Total-Assets Ratio
Ratio
Return on Total Assets
Return on Equity
Profit Margin
AirTran
2.0
1.9
5.1
Industry
1.4
1.2
12.4
1.5
1.2
36.8
34.7%
7.4
1.7
9.7
69.7%
0.8%
2.2%
0.7%
15.5%
41.0%
7.3%
29
Financial Trends
Date
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
Date
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
Avg P/E
18.80
84.60
129.50
150.00
8.70
33.70
-247.80
7.00
NA
NA
Book Value/ Share
$4.86
$4.16
$3.98
$3.83
$3.59
$.73
$.48
$.12
-$.61
$.86
Price/ Sales
0.32
0.57
NA
0.92
1.12
0.39
0.67
0.80
NA
NA
Debt/ Equity
2.37
2.14
1.34
0.95
0.82
4.05
8.03
54.44
-10.38
4.42
Price/ Book Net Profit Margin (%)
1.47
2.3
2.82
0.8
4.03
0.5
2.79
0.7
3.32
10.9
5.35
1.5
13.74
-0.3
60.71
7.6
NA
- 19.0
NA
-9.3
Return on Equity (%)
11.8
3.9
2.1
2.2
33.3
20.7
-6.3
603.5
248.3
-73.2
Return on Assets (%)
2.6
0.9
0.6
0.8
12.4
2.3
-0.4
8.7
-21.3
-10.8
Interest Coverage
2.1
1.1
NA
1.5
4.4
1.1
NA
2.1
-2.6
-0.7
30
AirTran Airways Stock Performance
31
AirTran Airways Net Worth
(December 31, 2004 in thousands)
1. Stockholders’ Equity + Goodwill = $334,036 + $0 (No impairment of its trade name or of its goodwill)
$ 334,036
2. Net Income x 5 = $12,255 x 5=
$ 61,275
3. Share price = $10.70/EPS(0.14) = 76.4 x Net Income $12,255 =
$ 936,282
4. Number of Shares Outstanding x Share Price = 89,523 x $10.70 =
$ 957,896
Method Average
$ 572,372
32
Strategic Analysis SWOT Matrix
Strengths – S
•
New planes consume 24% less
fuel than old planes
•
Has remained profitable despite
airline conditions
•
Business class on all flights
•
Additional seating in place of
galley / no meals are served
•
Average age of planes is 2.5
years
Weaknesses – W
•
Only domestic flights offered.
•
Primarily east coast flights.
•
Among lowest rated for “on
time ” performance
•
Heavy reliance on Atlanta,
Georgia
•
Net income dropped from 100.5
million to 12.3 million (20032005 respectively)
Opportunities – O
•
Appeal to public due to new,
“safe ”, planes.
•
International Expansion.
•
Domestic Expansion.
•
Allow for computer reservations.
•
Negotiations between United
States and Mexico / possibly
more flights to Mexico
SO Strategies
•
Expand more flights to west
coast / Mexico (S1, O3, O5)
•
Advertise business class to firms
throughout the country (S3, O3)
•
Advertise the number of
available seats to all of North
America (S4, O3, O5)
WO Strategies
•
Expand domestically / West Coast
and Mexico (W1, W2, W4, O3,
O5)
•
Create another main hub other
than in southeast (W2, W4, O3)
•
Create cost efficient computer
reservation system (W5, O4)
Threats – T
•
Unionized workers / possible
strikes.
•
Rising Fuel Costs
•
Major competitors in same
market.
•
Society ’s view of flying after
September 11
•
Eastern / Southeastern weather
conditions.
ST Strategies
•
Advertise shared cost savings
due to fuel-efficient planes (S1,
T2)
•
Advertise new, “safe” planes (S5,
O4)
•
Expand short haul flights /
business class on west coast (S3,
S4, T3, T5)
WT Strategies
•
Expand domestically (W1, W2,
W4, T3, T5)
•
Relocate main hub (W4, T3, T5)
AirTran Airways
SWOT Matrix
33
Strategic Analysis Space Matrix
Financial Strength
rating is 1 (worst) to 6 (best)
1 Operating revenue increased $123.4 million (13.4 %)
2 Current ratio 2.0
3 Revenue passenger miles (RPMs) increased by 27.9 %
4 Debt to-total-assets ratio 34.7%
5 Net sales to working capital 5.1
Industry Strength
rating is 1 (worst) to 6 (best)
1 Increase in online reservation
2 Increase demand for Latin and Europe travel
3 Expansion of international and nationwide flights
4 Air travel increasing
5 Favorable relationshipt with union
Environmental Stability
rating is -1 (best) to -6 (worst)
1 Weather and natural disasters
2 Fuel Prices
3 Intense price competition by both long-time competitors and new entrants
4 Security inconvenience
5 Develop in computer and information technology (for reservations and others)
Competitive advantage
rating is -1 (best) to -6 (worst)
1 Received top FAA recognition for maintenance excellence
2 Consumes 24% less fuel than old planes because of youngest fleet in the country
3 capacity, as measured by available seat miles (ASMs), increased 19.2 %
4 Named Best Low-Fare Airline by Entrepreneur Magazine for 2005
5 Strong low-cost business model (one of only a few domestic airlines that are profitable in 2004)
Ratings
2.0
2.0
3.0
2.0
2.0
FS Total
11
2.0
3.0
3.0
4.0
3.0
IS Total
15
-5.0
-6.0
-6.0
-5.0
-4.0
ES Total
-26
-3.0
-1.0
-3.0
-2.0
34
-1.0
Strategic Analysis Space Matrix (Cont’d)
SPACE Matrix
FS
Conservative
Aggressive
+6
+5
+4
+3
+2
+1
CA
IS
-6
-5
-4
-3
-2
-1
+1
-1
+2
+3
+4
+5
+6
-2
-3
(1,
-3)
-4
Defensive
-5
Competitive
-6
ES
Copyright 2007 Prentice Hall
Ch 6 -75
AirTran is competing fairly well in an unstable industry
35
Strategic Analysis Grand Strategy Matrix
Rapid Market Growth
Weak
Competitive
Position
Quadrant IV
1.Related
diversification
2.Unrelated
diversification
3.Joint ventures
Strong
Competitive
Position
Slow Market Growth
36
Strategic Analysis IE Matrix
37
Strategic Analysis QSPM
Key factors
Opportunities
Appeal to public due to new "safe" planes
Increased international flights
Increased domestic flights in the US
Allow for computer reservations
$950,000 fed. Grant / $1,000,000 from Greater Richmond
C of C
Threats
Unionized workers / possible union actions
Rising fuel costs (66% from 2003 to 2004)
Major Competitors in same market (Delta)
Society's view of flying after September 11
Eastern / Southeastern U.S. Weather Conditions
total should be 1.0
Domestic
Expansion
Weight
AS
1 to 4
International
Expansion
0.05
0.13
0.16
0.05
0.1
4
3
4
2
1
AS
1 to 4
0.2
4
0.39
4
0.64
1
0.1
3
0.1
1
0.05
0.2
0.15
0.07
0.04
1 to 4
1
4
3
2
2
1 to 4
1
4
3
2
1
1
TAS
0.05
0.8
0.45
0.14
0.08
2.95
TAS
Advertising to
Businesses
AS
1 to 4
TAS
0.2
0.52
0.16
0.15
0.1
4
3
4
3
1
0.2
0.39
0.64
0.15
0.1
0.05
0.8
0.45
0.14
0.04
1 to 4
1
1
3
2
2
0.05
0.2
0.45
0.14
0.08
2.61
2.4
38
Strategic Analysis QSPM (Continued)
Strengths
$1 billion or more annual revenue
Average plane age is 2.5 years (youngest fleet in the
country)
Consumes 24% less fuel than old planes
2004 “Best Airline Website” by the Web Marketing
Associates
Business class is available (not common on shortdistance flights)
Weaknesses
Net income dropped from 100.5 in 2003 to 12.3 million in
2005
Most flights originate from AirTran’s Atlanta, Georgia hub
causing a heavy reliance on Atlanta
Strictly domestic flights
Primarily east coast flights
High labor costs
total should be 1.0
1 to 4
0.09
0.16
3
4
1 to 4
0.27
4
0.64
4
0.13
0.07
3
2
0.39
0.14
3
2
0.39
0.14
1
4
0.13
0.28
0.07
2
0.14
1
0.07
4
0.28
0.12
3
0.36
4
0.48
3
0.36
0.1
2
0.2
2
0.2
3
0.3
0.08
0.08
0.1
2
1
3
0.16
0.08
0.3
1
1
4
0.08
0.08
0.4
1
2
2
0.08
0.16
0.2
1
2.68
5.63
1 to 4
0.36
0.64
2
4
0.18
0.64
2.84
5.45
2.61
5.01
39
Matrix Analysis
Alternative Strategies
Forward Integration
IE
SPACE
GRAND
COUNT
x
1
Backward Integration
x
1
Horizontal Integration
x
1
Market Penetration
x
x
2
Market Development
x
x
2
x
1
Product Development
Concentric
Diversification
Conglomerate
Diversification
Horizontal
Diversification
Joint Venture
Retrenchment
Divestiture
Liquidation
x
x
1
x
1
x
1
x
2
0
0
0
40
Current Flight Routes
41
Possible Alternative Strategies


Market Penetration
o Go after Dell, Southwest, and US Airways market share
Market Development
o Concentrate on major vacationers, cooperate company trips, tourists destinations
with the help of package deals (hotels plus flights) ect.

Joint Venture
o Join with already established flight services in the West and then gain more
presence in the area.
42
Recommendations
Domestic Expansion (Strategy 1)
•Purchase 4 more Boeing 717 fuel efficient planes which will increase the number
of Non-Stop flights
•Create networks at various major tourist airport Hubs such as those in the
Pacific, and Mountain regions of the United States of America
•Increase the number of promotions, and packages to new, untapped markets in
the Pacific, and Mountain regions of the country
•Estimated cost: $275 million (includes increased advertising for flights to new
domestic regions
http://www.boeing.com/commercial/prices/
43
Recommendations
International Expansion (Strategy 2)
•Purchase 4 Boeing 777 fuel efficient planes to travel international
•Create contracts with international airports to allow Air Tran to land at their
airport. As a new venture, Air Tran should expand to South America,
Caribbean, Europe, then further international destinations will be established
after Air Tran is stable in the international market
•Get permission from international destinations to fly in their airspace, and
make sure that all legalities such as customs are dealt with prior to operating
internationally
•Establish connections with international tourist destinations, and create
promotional travel packages to introduce the new destinations that Air Tran
will help promote the new services that Air Tran will be providing
•Estimated cost: 1 billion (including contracts, and advertising costs
44
Recommendations
Advertising for Business’s (Strategy 3)
•Provide freight-like services for companies shipping packages from one of our
service hubs to another
•Establish contracts with various businesses to opt to use Air Tran for their
various business related tasks such as business trips, shipping etc.
•Set up a plan with business’s that would give them discounts on tickets if they
have all their employees fly with Air Tran
Estimated cost: $10 million
45
EPS/EBIT
EPS / EBIT
Ammount Needed
EBIT Range
Interest Rate
Tax Rate
Stock Price
# Shares
Outstanding
EBIT
Interest
EBT
Tax
EAT
#
Shares
EPS
1000
12-36-72
5%
38%
10.70
All amounts are in
millions except for
percentages and stock
price.
89
Common Stock
Low
Normal
High
12
36
72
0
0
0
12
36
72
4.56
13.68
27.36
7.44
22.32
42.64
Low
12
50
-38
0
-38
Debt
Normal
36
50
-14
0
-14
High
72
50
22
8.36
13.64
182
182
182
89
89
89
.04
.12
.23
-.4
-.15
.15
46
Implementation Issues
• FFA regulations
• Homeland Security
• Current economy conditions
• Rising fuel expenses
47
Proposed Annual Objectives and Policies
• Continue rapid growth
– Bidding on gates that become available at current hubs
– Expand into new hubs
• Increase revenues
– 25% per year
• Increase efficiency
– Cut expenses wherever possible while abiding by AirTran’s
beliefs and values (culture of company)
–Maximize passengers per flight
48
Proposed Procedures for Evaluation
 Airline Quality Report (AQR)
 Quarterly financial reports
o Operating Performance
- Available Seat Mile (ASM)
o Financial Performance
- Revenue Passenger Mile (RPM)
 Quarterly meetings to evaluate current plan
and respond necessary changes
49
Epilogue
•2005
In June 2005, AirTran announced plans to launch services from
Atlanta and Tampa to Cancun, Mexico.
•2006
AirTran Airways partnered with Frontier Airlines, allowing
frequent flyers to earn airline miles in either AirTran's A+
Rewards, or Frontier's EarlyReturns frequent flyer program. In
addition the airlines will refer customers to each other when
appropriate.
50
Epilogue
•2007
–AirTran announced new daily nonstop service from
Atlanta (ATL) to Phoenix Sky Harbor (PHX) along with
many other additional routes
–AirTran Airways' online survey which asked consumers,
“Where do you want low fares next
–AirTran has shifted its attention to building up their
operations at General Mitchell International Airport. The
airline is now trying to compete directly with rival
Midwest Airlines
–Failed in attempt to acquire Midwest Airlines
51
Current Stock Performance
52
Resources
•Case Notes
•Fred R. David, Francis Marion University
•AirTran Holdings 10-K, December 31, 2004
•www.AirTran.com
•MSN Money
•Almanac Business and Industry Financial Ratios 2008
53
Questions
54