AirTran hits turbulence

The Baltimore Sun

After six years of rapid growth at Baltimore-Washington International Thurgood Marshall Airport, AirTran Airways is running into head winds that threaten its expansion here.

The low-cost airline grew exponentially after snatching up its first gate at BWI as US Airways retreated in the wake of the Sept. 11 attacks. With its headquarters in Orlando, Fla., and hub in Atlanta, AirTran found the coveted Mid-Atlantic center it had lacked.

It has since swelled to become BWI's second-largest carrier, flying nearly 2.5 million passengers last year non-stop to and from cities such as Boston and Atlanta, now even Seattle and Portland, Maine - routes that behemoth Southwest Airlines doesn't have.

"We moved very quickly," said Kevin Healy, the carrier's vice president of marketing and planning. "There's a lot of similarities between AirTran and Baltimore. AirTran has gone through a revival since 1999, and so has Baltimore."

But now it's contending with the soaring fuel prices and economic slowdown that's putting pressure on the entire industry. It also faces logistical challenges unique to BWI, where it struggles with an outdated baggage system that could hamper growth.

As AirTran expanded, it has also struggled with delays, as 2007 marked its worst performance at BWI in five years, according to the Bureau of Transportation Statistics. Some persistent delays surfaced last summer as AirTran added flights - a problem it will try to rectify this year.

The new challenges come a decade after the airline, then a startup called ValuJet, remade itself after a fiery 1996 crash in the Florida Everglades grounded it for months and drove the carrier near bankruptcy. After resuming flights, it assumed the AirTran name, after buying the tiny competitor in 1997.

But even as the resurrected airline gained credibility and market share, AirTran finds itself playing second fiddle to Southwest Airlines, BWI's largest carrier. At no other airport does AirTran compete as directly with Southwest.

At BWI Southwest operates more than three times as many flights as AirTran, with a better on-time performance - 82.3 percent of arrivals were on time last year versus AirTran's 76.9 percent.

Southwest also dwarfs AirTran financially, with revenue last year more than four times AirTran's and operating profit five times as large. Southwest's passenger revenue per available seat mile - a benchmark measure of performance - was 35 percent higher.

"AirTran may be one of the bigger carriers in Baltimore, but when compared to the larger carriers, they're not a huge player," said Daniel M. Kasper, a Massachusetts-based airline consultant with the firm LECG. "They're clearly much more like David than Goliath."

But as legacy airlines reduced flights east of the Mississippi, AirTran's revenue per available seat mile last quarter grew at a faster rate than most other large-jet operators, including Southwest, JPMorgan airline analyst Jamie Baker wrote in a report.

AirTran is also known for keeping nonfuel unit costs among the lowest in the industry. What the carrier lacks is Southwest's fuel hedges, which allowed Southwest to lock in fuel prices in a sharply rising market. Southwest is still 70 percent hedged in 2008, while AirTran has only 26 percent of its fuel under contract.

AirTran also is chafing with its BWI baggage facility, the oldest at the airport.

Built for the former Piedmont Airlines about 30 years ago, the Pier D site has a mishmash of old conveyor belts and new explosive- screening technology required by the Transportation Security Administration. Handlers must often manually move luggage through the screeners when the old conveyor belts break down, Healy said. AirTran's current system can process about 550 bags an hour, BWI spokesman Jonathan Dean said.

Southwest Airlines, on the other hand, got one of the most high-tech systems in the country when its $264 million terminal opened in May 2005. It's able to screen 2,500 bags an hour, according to airport officials.

AirTran's facility is due for a $36 million state upgrade, to be completed in 2010, that will increase capacity to about 1,500 bags an hour.

That won't keep pace with Southwest's but it's enough to give AirTran the ability to double its daily departures, to 100 a day.

AirTran should add about four flights on top of its 46 current daily departures this year, Healy said. Just over half of AirTran's growth will still be in Atlanta, where two-thirds of the carrier's flights go. Nationwide, AirTran has more than 700 flights per day to 56 cities.

Southwest Airlines, by comparison, has over 3,300 daily flights to 64 destinations.

But AirTran's growth picture may now be threatened. Chief Executive Officer Robert L. Fornaro recently told airline analysts fuel prices may force the carrier to further trim plans to add capacity this year.

"Our growth rate is now down to 10 percent," Fornaro said in a Webcast presentation from a Raymond James conference in New York. "That may be too high."

Though still predominantly an East Coast airline, about 20 percent of AirTran's routes are to the West, executives said. It's a stark turnaround.

"We thought the West Coast was Dallas, Texas, and 100 percent of our activity was from Atlanta," Fornaro often says of the network AirTran had when he joined the company in 1999.

Since then, AirTran has eyed cross-country routes. Holes opened up in Baltimore, where Southwest Airlines slashed non-stop flights to California last fall.

But it was on such a route - a touted new one between BWI and Seattle - that AirTran recorded glaring delays.

"We did a poor job forecasting the proper flying time between those cities," Fornaro said. "We will try to manage those delays better" next summer.

The red-eye service from Seattle to Baltimore was late more than 95 percent of the time in August, and the return trip from BWI ran just as late. It was a vicious cycle, with each leg reporting an hour delay.

Those late flights were tamed by the fall. The Baltimore-to-Seattle leg, however, was still late nearly half the time this fall, until the service stopped for the season in November. Still, BWI officials said AirTran's Seattle route filled a void when it launched in May. It is the airport's only nonstop flight to the Northwestern city.

A merger involving Delta Air Lines and another revenue-bleeding carrier could create more opportunities for AirTran to exercise its opportunistic spirit. In Atlanta, AirTran is second only to Delta, which would have to shed gates in some key markets under any consolidation deal.

An airline analyst in December even went so far as to suggest AirTran itself is a "potentially cheap takeout target" - for Southwest. "Industry consolidation is imminent and AAI [AirTran] is a subsequent beneficiary," the same analyst, Daniel McKenzie, wrote in a more recent Credit Suisse report. The investment bank does business with AirTran.

Fornaro isn't shy about angling for more slots at congested airports such as LaGuardia in New York and Reagan National in Washington - and growing service to the Midwest.

"We're trying to diversify our airline," Fornaro said. "We don't want all our eggs in the Southeast part of the United States or the Mid-Atlantic."

laura.mccandlish@baltsun.com

At a glance

AirTran results for 2007 and change from the previous year:

Revenue:

$2.3 billion (up 22%)

Profit:

$52.7 million (up 258%)

Systemwide passengers: 23.8 million (up 18.6%)

BWI passengers:

2.5 million (up 16.4%)

Fleet:

137 planes - 87 Boeing 717s and 50 Boeing 737s. Ten 737s were to be added in 2008 but AirTran may lease or sell some of them to other carriers, to reduce its costs and capacity growth.

Headquarters:

Orlando, Fla.

Hub:

Atlanta

Most flights from BWI:

Atlanta and Boston, 6 each; Orlando, 5; Fort Lauderdale, 3.

[Source: AirTran Airways, BWI]

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