AirTran to ease off rapid growth

The Baltimore Sun

Blaming weaker traffic caused by last month's terrorist scare and other challenges, AirTran Airways said yesterday that it will throttle back its aggressive growth rates in 2007 and 2008.

In a terse regulatory filing, the discount carrier, which has major operations at Baltimore-Washington International Thurgood Marshall Airport, said it began seeing softer demand last month.

"This trend appears to be continuing into the month of September and likely resulted from the threat of recent terrorist events, Tropical Storm Ernesto, and capacity additions on the East Coast," said Stan Gadek, AirTran's chief financial officer.

"In that regard, we are working on a plan to reduce our growth in the 2007 and 2008 time frame."

He said details will be released "at a later date."

However, in a telephone interview later yesterday, Gadek characterized the expected changes as a "fine-tuning" of AirTran's fleet growth in reaction to improved prospects at Delta Air Lines, US Airways, United and other carriers.

Almost a year after filing for Chapter 11 bankruptcy protection, Delta is "in recovery and adding back capacity" either in its mainline operations or through regional affiliates, Gadek said. He said AirTran is adjusting its growth plans now rather than wait until excess capacity hurts fares.

"This is not a knee-jerk reaction to terrorism," he said.

JPMorgan analyst Jamie Baker said in a research note yesterday that AirTran's "reversal from its heretofore relentless pursuit of growth" was unexpected - and good news for the rest of the airline industry.

AirTran for years has been adding capacity at an annual clip of 20 percent to 25 percent after ordering up to 100 new jets in 2003.

It has taken delivery of 32 of those jets and used them to build its schedule both at its Atlanta hub and in other cities, adding to the competitive pressure on older, bigger carriers.

AirTran was scheduled to take delivery of 19 more jets next year but will reduce that number by an undetermined amount by selling or leasing them or delaying deliveries, Gadek said.

Wall Street punished AirTran stock yesterday. Shares fell about 11 percent on the New York Stock Exchange, dropping $1.19 a share to $9.48.

Airline industry analysts said several carriers this week have projected softer results, possibly because of fallout from last month's episode in which British authorities arrested an alleged terrorist ring they said was plotting to blow up jets over the Atlantic using hard-to-detect liquid explosives.

U.S. officials banned passengers from bringing most liquids and gels on planes, except in checked luggage.

"Airlines have been guiding revenue growth down from prior expectations as passengers reconsider travel, given the increased hassles of the new security rules," UBS Securities said in a report.

"We expect all carriers will be similarly impacted and have lowered our revenue and earnings estimates across the board."

Several airlines have made "cautionary statements" about August traffic, noted Raymond James analyst James Parker. But he said AirTran, based in Orlando, Fla., is the first to report that the slowdown continued into this month.

September already is one of the industry's weakest months because of the drop-off after the end of the summer vacation season.

"Quite possibly, the terrorist threat might be a sort of 'triggering event' that is foretelling a broader shift in industry momentum due to other macroeconomic factors," Parker said in a report.

The analyst noted that airline revenues don't usually bounce back quickly after a sudden drop.

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