AirTran

Airways 2005
A Strategic Management Case Study

2008, Danielle Boucher, Matt Bouchard, Darius Parker, Takefumi Kawahara, UMFK

Graphics are the property of AirTran Airways

Overview

$A %rief history of AirTran Airways $&O' 200( oMission) O%*ectives) Strategies $2005 o+ew ,ision and Mission $&-terna# Ana#ysis oOpportunities . Threats oC/M o&0& $1nterna# Ana#ysis o0inancia# 2ata oStrengths and wea"nesses o10& o0inancia# ratios $Strategic Ana#ysis oS3OT MatrioS/AC& o1& matrioGrand Strategy MatrioMatri- Ana#ysis

!Getting to "now a #ow fare #eader !

$/ossi%#e a#ternative strategies $Our 4ecommendation oStrategies o5ong range o%*ectives o&/S6&71T $1mp#ementation 1ssues $/roposed annua# o%*ectives 8goa#9 and po#ices $/roposed procedures for eva#uation $&pi#ogue $Current /erformance $:uestions $4esources ;ti#i<ed

>istory of AirTran Airways

$1n 1??2) the predecessor air#ine) ,a#u@et Air#ines was founded $,a#u@et Air#ines started with two former 2e#ta Air 5inesA 2C ? aircraft $0irst commercia# f#ight occurred %etween At#anta and Tampa on Octo%er 2B) 1??=C $The air#ine was the first to #aunch tic"et#ess trave# in 1??=C $1n the spring of 1??() %are#y eight months after #aunching service %etween At#anta and three 0#orida cities) the air#ine went pu%#ic %y #isting its stoc" on the +AS2A: and trading under the tic"er sym%o# ,@&TC $1n #ate 1??5) the air#ine p#aced an order to %e the #aunch customer for the 7oeing D1DC ,a#u@et was the youngest air#ine ever to serve as a #aunch customer for an aircraft typeC

>istory of AirTran Airways

$At the end of 1??5) ,a#u@et was named as the top company in the famed Georgia 100 as pu%#ished %y the At#anta @ourna# Constitution $ and the air#ine posted high margins with a EBD mi##ion net profit $ revenues of E=BD mi##ionC $The pu%#ic#y traded air#ine stoc" was increasing in va#ue on a seeming#y wee"#y %asisC $The origina# AirTran Airways) a 7oeing D=D operator with service to6from Or#ando) was founded %y AirTran Corporation) the ho#ding Company of Mesa%a Air#ines of Minneapo#is) Minnesota) operating as a +orthwest Air#in" carrier with hu%s in Minneapo#is and 2etroitC 1n 1??() $AirTran >o#dings purchased a start up D=D operator named ConFuest Sun and renamed the air#ine AirTran AirwaysC

>istory of AirTran Airways

$ConFuest Sun) simi#ar to ,a#u@et) was an air#ine started %y former &astern Air 5ines emp#oyeesC $The origina# AirTran Airways moved its headFuarters to Or#ando) 0#orida) and grew to 11 7oeing D=D aircraft serving 2( cities in the &ast and Midwest providing #ow fare #eisure trave# to Or#andoC $1n 1??5) AirTran Airways was spun off %y Mesa%a and formed its own independent ho#ding company named Airways CorporationC $On @u#y 10) 1??D) ,a#u@et) 1ncC) the ho#ding company for ,a#u@et Air#ines) 1ncC) announced p#ans to acFuire Airways Corporation) 1ncC) the ho#ding company for AirTran Airways) 1ncC of Or#ando) 0#oridaC The dea# was schedu#ed to c#ose on +ovem%er 1D) 1??DC $On Septem%er 2() 1??D) ,a#u@et Air#ines changed its name to AirTran Air#inesC 3hi#e the hu% remained in At#anta) the headFuarters of the new entity was com%ined in Or#ando) 0#orida) on @anuary 2G) 1??GC

@anuary 1???

>istory of AirTran AirwayHs Management

$ A new management team #ed %y @oe 5eonard) a veteran of &astern Air 5ines) and 7o% 0ornaro) of ;S Airways) too" the reins at the air#ineC $ 5eonard) Chairman and C&O) improved operating efficiencies whi#e 0ornaro) /resident and COO) %ui#t a sustaina%#e route networ" which increased the presence of the At#anta hu% whi#e adding focus cities in 7a#timore63ashington) /hi#ade#phia and ChicagoC $On August 15) 2001) 5eonard and 0ornaro *oined twe#ve Crew Mem%ers in ringing the opening %e## at the +ew 'or" Stoc" &-change where the companyAs stoc" %egan trading under the tic"er sym%o# AA1C

@anuary 1???

>istory of AirTran AirwayHs Management

$ The air#ine grew Fuic"#y under 5eonard and 0ornaroAs #eadership and has transformed itse#f into a strong competitor operatingI $ the youngest a## 7oeing f#eet in the nation $ to more than 5B cities coast to coast $ more than D00 f#ights per day $ over ?)000 Crew Mem%ers $ serving near#y 20 mi##ion passengers per yearC

+'S& Tic"erI AA1

wwwCairtranCcom
G

AirTran Airways 200( !The year of new p#anes) new peop#e) and new determinationCJ AirTran C&O) @oe
5eonard

200( Mission
1nnovative peop#e dedicated to de#ivering the %est f#ying e-perience to smart trave#ersC &very dayC

10

Guiding /rincipa#s
$3e ce#e%rate %ringing peop#e together throughI $ afet! Ta"ing persona# responsi%i#ity for the safety of each trave#er and every Crew Mem%erC $"ourtes! Showing respect and providing caring customer service to trave#ers and Crew Mem%ersC $Pride 1n our wor") in one another and in contri%uting to the success of our air#ineC $Teamwork Supporting one another and va#uing our diverse contri%utions to meet every trave#erAs needsC $#nno$ation Acting with an empowered Kcan doK spirit to continuous#y improve our air#ineC $"leanliness Of wor" areas and our eFuipment says everything to our customers L pic" it up) "eep it c#eanC $%ntici&ation Of customer) crew mem%er and %usiness needs is a "ey reFuirement of every positionC 5oo" ahead L %e readyM $'esults &very crew mem%er is e-pected to contri%ute to our success through measurement and 11 $ continuous improvementC Nnow your num%ersM

Our ,a#ues
$% Total "ommitment to afet! 1n every decision and every action) every time) every dayC $"om&liance with 'e(ulator! tandards 1n every decision and every action) every time) every dayC $Technical )*cellence and "ontinuous +earnin( 3e do it right) then we improve to do it %etterC $,onest!, Trust and #nte(rit! 1n a## actions with one another) our supp#iers and our customersC $'es&ectful "ommunication and "onstructi$e Disa(reement To get to the %est resu#t) togetherC $Personal 'es&onsi-ilit! for 'esol$in( #ssues 3e do not pass the %uc" or Fuit on a Crew Mem%erC $%ctin( with Pur&ose and Ur(enc! 3e ma"e decisions to do the right thing and then act on itC $,ard .ork 3e ta"e pride in doing the difficu#t things that ma"e our air#ine %etter than the othersC $Fun 3e are positive peop#e who ce#e%rate success) #earn from mista"es and en*oy our wor"C $Profit 3e de#iver a sustaina%#e profit to support the growth and improvement of our companyC 12

200( 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 ( !" represented #y union$ %ow&fare price point

1=

200( O%*ectives
$4emain profita%#e despite increased fue# prices $To satisfy the transportation needs of our target customers) %ut a#so to provide customers with a trave# e-perience worth repeatingC $Minimi<e rising e-penses whi#e increasing revenuesC

1(

200( 1ssues
%ost the #id to a ma'or expansion of ( gates at )*) airlines to +outhwest )irlines, Increased fuel prices %a#or costs (government mediation$ -urricanes hit .rlando /egotiations #etween 0+ and Mexico

15

A +ew ,ision
AirTran AirwayHs vision is to %ecome the #eading afforda%#e) safe and en*oya%#e short distance air#ine in the nationC

1B

A +ew Mission
The mission of AirTran Airways is to provide safe) c#ean) and afforda%#e short distance f#ights for %usiness and #eisure#y trave#ers as we## as crew mem%ersC 3e are focused on innovative ideas to provide for profita%#e growth for our shareho#ders) whi#e %eing mindfu# of comp#iance and regu#atory standardsC 3e %e#ieve that emp#oyees shou#d have a respectfu#) courteous) and fun e-perience whi#e %eing part of AirTran AirwaysC AirTran is committed to improving the Fua#ity of #ife of others and improving communities through a diverse range of charita%#e activitiesC 1D

+ew Mission &va#uation

*he new mission fulfills the following 1uestions2
$"ustomers/ 3ho are the firmHs customersO $Products or ser$ices/ 3hat are the firmHs ma*or productsO $MarketsI Geographica##y) where does the firm competeO $Technolo(!/ 1s the firm techno#ogica##y currentO $"oncern for sur$i$al, (rowth, and &rofita-ilit!/ 1s the firm committed to growth and financia# soundnessO $Philoso&h!/ 3hat are the %asic %e#iefs) va#ues) aspirations) and ethica# priorities of the firmO $ elf0conce&t/ 3hat is the firmHs distinctive competence or ma*or competitive advantageO $"oncern for &u-lic ima(e/ 1s the firm responsive to socia#) community) and environmenta# concernsO $"oncern for em&lo!ees/ Are emp#oyees a va#ua%#e asset of the firmO

1G

&-terna# AuditI Opportunities

$Appea# to pu%#ic due to new !safeJ p#anes $+egotiations %etween Me-ico and ;nited States may a##ow in more opportunities for service to Me-ico from ;CSC air#ines $E?50)000 federa# grant to advertise the new AirTran service and E1 mi##ion from Greater 4ichmond Cham%er of CommerceC $1nternationa# and nationwide f#ightsC $A##ow for computer reservations $2e#ta and ;CSC Airways of reduced services and capacity in the eastern ;nited States

1?

&-terna# AuditI Threats

$;nioni<ed and su%*ect to union actions as co##ective %argaining agreement e-pire $SocietyHs view of f#ying after Septem%er 11) 2001 $4ising fue# costs 8BBP from 200= to 200(9 $Ma*or competitor 2e#ta is Q1 in At#anta 8AirTranHs main hu%9 $0#ight de#ays and cance##ations due to weather on eastern and southeastern coastsC $Outsourced maintenance may compromise safety $More intense competition as they %roaden their geographic #ocations

20

AirTran Airways C/M

Air Trans "ritical uccess factors 1 .ei(h t
020 to 320

Delta 'atin (
3 to 4

Southwest 'atin (
3 to 4

'atin (
3 to 4

.ei(ht ed core
0CB0 0C(5 0C05 0C=0 0C20 0C20

.ei(hted core
0C15 0CB0 0C20 0C(5 0C(0 0C10

.ei(ht ed core
0C(5 0C(5 0C10 0C(5 0C(0 0C10

Air#ine :ua#ity 4ating 2omestic6+ationa# &-pansion 1nternationa# &-pansion Operating &-penses per avai#a%#e seat mi#e 8ASM9 Mar"et Share Age of 0#eet /assenger Accommodations 6 7usiness C#ass 5ow Outsourced Maintenance Costs Customer /rices &-ecutives 6 Management

0C15 0C15 0C05 0C15 0C10 0C05

( = 1 2 2 (

1 ( ( = ( 2

= = 2 = ( 2

0C0B 0C10 0C12 0C0D

= 2 = (

0C1G 0C20 0C=B 0C2G

= ( 2 =

0C1G 0C(0 0C2( 0C21

2 1 = =

0C12 0C10 0C=B 0C21

Totals

2282

2256

2274

21

AirTran Airways &0&

Ke! )*ternal Factors
8&&ortunities Appea# to pu%#ic due to new KsafeK p#anesC 1ncreased internationa# f#ightsC 1ncreased domestic f#ights throughout the ;nited StatesC 8additiona# hu%s9 A##ow for computer reservationsC E?50)000 fedC Grant 6 E1)000)000 from Greater 4ichmond C of C Threats ;nioni<ed wor"ers 6 possi%#e union actionsC 4ising fue# costs 8BBP from 200= to 200(9 Ma*or Competitors in same mar"et 82e#ta9 ScietyAs view of f#ying after Septem%er 11 &astern 6 Southeastern ;CSC 3eather Conditions R 0C05 0C2 0C15 0C0D 0C0( .ei(ht s 020 to 320 R 0C05 0C1= 0C1B 0C05 0C1 R 2 = 2 2 2 0C1 0CB 0C= 0C1( 0C0G 'atin( 3 to 4 R 2 2 = 1 = R 0C1 0C2B 0C(G 0C05 0C=
.ei(hted core

Totals

2243

22

200( Conso#idated 7a#ance Sheet

2004 ASSETS Current Assets: 3ash and cash e1uivalents 9estricted cash +hort&term investments )ccounts receiva#le6 less allowance of 4!;7 and 4!53 at Decem#er 3(6 ;55 and ;5536 respectively Inventories6 less allowance for o#solescence of 4787 and 4733 at Decem#er 3(6 ;55 and ;5536 Deferred income taxes & current respectively Prepaid expenses and other current assets *otal current assets Property and Equipment: =light e1uipment %ess2 )ccumulated depreciation Purchase deposits for flight e1uipment .ther property and e1uipment %ess2 )ccumulated depreciation

December 31, 2003

4 3576 7 768:3 ;!677: (7637! ;863(( 76 ; ( 6!(3 (;65! ;7 67! (3 653 !$ ! ;!5673 !76833 5 8;68: (;76!8$ ; :36(7; 383673 : 863:5 ;(6:!7 76!57 (!6758 ::6:55

4 338675 76778 7 < (76 : (763 : :;65: (:6;57 :;6:! 7 ;;767; (;!6!(5 7$ ;5363( 7677( 7 :6 ;: (;;6;7;$ ;36(:3 ;7!6 ! ( 863:5 ;(6:!7 76;73 < ;6(;! 4 85863!

*otal property and e1uipment t!er Assets: Intangi#les resulting from #usiness ac1uisition *rademar>s and trade names De#t issuance costs Deferred income taxes ? noncurrent .ther assets Tota" assets

2=

4 75:673 (

200( Conso#idated 7a#ance Sheet

2004 #$A%$#$T$ES A&D ST C'( #DE)S* E+,$TCurrent #iabi"ities: )ccounts paya#le )ccrued and other lia#ilities )ir traffic lia#ility 3urrent portion of lease o#ligations 3urrent portion of long&term de#t *otal current lia#ilities %ong&term lease o#ligations %ong&term de#t Deferred income taxes .ther lia#ilities Stoc.!o"ders* Equity: Preferred stoc>6 4,5( par value per share6 :6555 shares authori@ed6 no shares issued or 3ommon stoc>6 4,55( par value per share6 (65556555 shares authori@ed6 and 8!6!(7 and outstanding 8 6;57 shares issued and outstanding at Decem#er 3(6 ;55 and ;5536 respectively )dditional paid&in capital 0nearned compensation )ccumulated other comprehensive loss )ccumulated deficit *otal stoc>holdersA e1uity Tota" "iabi"ities and stoc.!o"ders* equity 4 4 ;56788 8:65 7 876:7( 88! (;67:5 ;576 ; ( 6::7 ;8:6:7: < ! 6((7 < 87 3!(65!3 ( 6!; $ < $ (;;6 75$ 33 653! 75:673(

December 31, 2003

(86 78 !76;33 7867 ! !;7 6388 (7(6 7; 77! ; (65;: ;!6(55 !!6738 < 8 3376( : < (;7($ (3 67 :$ 35;6;(3

85863!

2(

Conso#idated Statement of Operations

2004 2003

-ear ended December 31,

2002

peratin/ acti0ities: /et income )d'ustments to reconcile net income to net cash provided #y operating activities2 Depreciation and amorti@ation )morti@ation of deferred gains from salesBlease#ac> of aircraft Provisions for uncollecti#le accounts Deferred de#t discountBissuance cost amorti@ation %oss on asset disposal +=)+ (33 ad'ustment Deferred income taxes .ther 3hanges in current operating assets and lia#ilities2 9estricted cash )ccounts receiva#le Covernment grant receiva#le Inventories Prepaid aircraft fuel Prepaid aircraft rent .ther assets )ccounts paya#le6 accrued and other lia#ilities )ir traffic lia#ility &et cas! pro0ided by operatin/ acti0ities

(;6;:: (:678; ( 638:$ 757 < < < 76!(8 ;68;7 (67 (;6!3($ < ((637($ (865::$ ((36!7($ ( 67 5$ ;;68:5 868;: 386((7

(556:(7 (:67 ( ( 67!($ :(5 (;6;:7 < < ((36!58$ < ; 637: (6(:! < (7$ ((567:;$ ((86877$ 36!!: (6888 ;(6:!! (336; !

(567 : (767!7 (:6777$ (6557 < 8:8 (:68:7$ < < (76!33$ (76!:7$ 6333 (;6( ($ 335 (86((8$ (!:3$ (76:7:$ (867;3 !63:;

25

1nterna# AuditI Strengths

$C#assified %y ;CSC 2epartment of Transportation as a !ma*or carrierJ $E1 %i##ion or more annua# revenue $Average p#ane age is 2C5 years 8youngest f#eet in the country9 $Consumes 2(P #ess fue# than o#d p#anes $@oe 5eonardHs 8C&O9 credi%i#ity $Additiona# seating in p#ace of ga##eys since mea#s are not served on the Jshort hau#J p#anes $SM Sate##ite 4adio $200( !7est Air#ine 3e%siteJ %y the 3e% Mar"eting Associates $7usiness c#ass is avai#a%#e 8not common on short distance f#ights9 2B

1nterna# AuditI 3ea"nesses

$Most f#ights originate from AirTranHs At#anta) Georgia hu% causing a heavy re#iance on At#anta $Strict#y domestic f#ights $/rimari#y east coast f#ights $+et income dropped from 100C5 in 200= to 12C= mi##ion in 2005 $>igh #a%or costs $AirTranHs f#eet of 7oeing D1Ds are made on#y for efficient short hau# services $4ated in 200= %y Air#ine :ua#ity 4eportI TAmong the #owest for on time performance Tamong the highest in denied %oarding Ta%ove industry average for passenger comp#aints 2D

AirTran Airways 10&

Ke! #nternal Factors .ei(ht s 020 to 320 R 0C0? 0C1B 0C1= 0C0D 0C0D R 0C12 0C10 0C0G 0C0G 1 or 2 1 1 2 'atin( 3, 2, 6 or 4 = or ( = ( ( = ( R 0C12 0C10 0C1B 0C0G .ei(hted core Internal Strengths $1 billion or more annual revenue Average plane age is 2.5 years (youngest fleet in the country) Consumes 24% less fuel than ol planes 2!!4 "#est Airline $ebsite% by the $eb &ar'eting Associates #usiness class is available (not common on short( istance flights) Internal Weaknesses )et income roppe from 1!!.5 in 2!!* to 12.* million in 2!!5 &ost flights originate from Air+ran,s Atlanta- .eorgia hub causing a heavy reliance on Atlanta /trictly omestic flights 0rimarily east coast flights R 0C2D 0CB( 0C52 0C21 0C2G

2G

0inancia# 4atio Ana#ysis

'ey )aito Current )atio +uic. )atio &et Sa"es to 1or.in/ Capita" $nterest Co0era/e )atio Tota" Asset Turno0er $n0entory Turno0er Debt to2Tota"2Assets )atio )atio )eturn on Tota" Assets )eturn on Equity Pro3it 4ar/in AirTran ;,5 (,7 :,( (,: (,; 3!,8 3 ,7" 5,8" ;,;" 5,7" $ndustry (, (,; (;, 7, (,7 7,7 !7,7" (:,:" (,5" 7,3"

2?

0inancia# Trends
Date 2009 200: 200; 2004 2003 2002 2001 2000 1<<< 1<<= Date 2009 200: 200; 2004 2003 2002 2001 2000 1<<< 1<<= A0/ P5E (8,85 8 ,!5 (;7,:5 (:5,55 8,75 33,75 &; 7,85 7,55 /) /) Price5 Sa"es 5,3; 5,:7 /) 5,7; (,(; 5,37 5,!7 5,85 /) /) Price5 %oo. &et Pro3it 4ar/in 678 (, 7 ;,3 ;,8; 5,8 ,53 5,: ;,77 5,7 3,3; (5,7 :,3: (,: (3,7 &5,3 !5,7( 7,! /) & (7,5 /) &7,3 )eturn on Assets 678 ;,! 5,7 5,! 5,8 (;, ;,3 &5, 8,7 &;(,3 &(5,8 $nterest Co0era/e ;,( (,( /) (,: , (,( /) ;,( &;,! &5,7

%oo. >a"ue5 S!are 4 ,8! 4 ,(! 43,78 43,83 43,:7 4,73 4, 8 4,(; &4,!( 4,8!

Debt5 Equity ;,37 ;,( (,3 5,7: 5,8; ,5: 8,53 : , &(5,38 , ;

)eturn on Equity 678 ((,8 3,7 ;,( ;,; 33,3 ;5,7 &!,3 !53,: ; 8,3 &73,;

=0

AirTran Airways Stoc" /erformance

=1

AirTran Airways +et 3orth 82ecem%er =1) 200( in

thousands9
(, +toc>holdersA D1uity E Coodwill F 433 653! E 45 (/o impairment of its trade name or of its goodwill$ ;, /et Income x : F 4(;6;:: x :F 3, +hare price F 4(5,75BDP+(5,( $ F 7!, x /et Income 4(;6;:: F , /um#er of +hares .utstanding x +hare Price F 876:;3 x 4(5,75 F 4et!od A0era/e 4 33 653! 4 !(6;7: 4 73!6;8; 4 7:7687! ? :7;637;

=2

Strategic Ana#ysis S3OT MatriAirTran Air@ays S1 T 4atriA

+trengths ? + /ew planes consume ; " less fuel than old planes -as remained profita#le despite airline conditions Business class on all flights )dditional seating in place of galley B no meals are served )verage age of planes is ;,: years

Gea>nesses ? G .nly domestic flights offered, Primarily east coast flights, )mong lowest rated for Hon time I performance -eavy reliance on )tlanta6 Ceorgia /et income dropped from (55,: million to (;,3 million (;553& ;55: respectively$ G. +trategies Dxpand domestically B Gest 3oast and Mexico (G(6 G;6 G 6 .36 .:$ 3reate another main hu# other than in southeast (G;6 G 6 .3$ 3reate cost efficient computer reservation system (G:6 . $

.pportunities ? . )ppeal to pu#lic due to new6 Hsafe I6 planes, International Dxpansion, Domestic Dxpansion, )llow for computer reservations, /egotiations #etween 0nited +tates and Mexico B possi#ly more flights to Mexico *hreats ? * 0nioni@ed wor>ers B possi#le stri>es, 9ising =uel 3osts Ma'or competitors in same mar>et, +ociety As view of flying after +eptem#er (( Dastern B +outheastern weather conditions,

+. +trategies Dxpand more flights to west coast B Mexico (+(6 .36 .:$ )dvertise #usiness class to firms throughout the country (+36 .3$ )dvertise the num#er of availa#le seats to all of /orth )merica (+ 6 .36 .:$ +* +trategies )dvertise shared cost savings due to fuel&efficient planes (+(6 *;$ )dvertise new6 HsafeI planes (+:6 . $ Dxpand short haul flights B #usiness class on west coast (+36 + 6 *36 *:$

G* +trategies Dxpand domestically (G(6 G;6 G 6 *36 *:$ 9elocate main hu# (G 6 *36 *:$

==

Strategic Ana#ysis Space MatriF ina ncia l tren( th ra tin(is3;wors t< to :;-es t< 1 5perating revenue increase $12*.4 million (1*.4 %) 2 Current ratio 2.! = 7evenue passenger miles (70&s) increase by 29.: % ( 6ebt to(total(assets ratio *4.9% 5 )et sales to 4or'ing capital 5.1 #ndustr! tren( th ra tin(is3;wors t< to :;-es t< 1 3ncrease in online reservation 2 3ncrease eman for ;atin an <urope travel = <8pansion of international an nation4i e flights ( Air travel increasing 5 2avorable relationshipt 4ith union ) n$ironm enta l ta -ilit! ra tin(is03;-es t< to 0:;worst< 1 $eather an natural isasters 2 2uel 0rices = 3ntense price competition by both long(time competitors an ne4 entrants ( /ecurity inconvenience 5 6evelop in computer an information technology (for reservations an others) "om &etiti$e a d$a nta ( e ra tin(is03;-es t< to 0:;worst< 1 7eceive top 2AA recognition for maintenance e8cellence 2 Consumes 24% less fuel than ol planes because of youngest fleet in the country = capacity- as measure by available seat miles (A/&s)- increase 1:.2 % ( )ame #est ;o4(2are Airline by <ntrepreneur &aga=ine for 2!!5 5 /trong lo4(cost business mo el (one of only a fe4 omestic airlines that are profitable in 2!!4)

=(

' a tin( s 2C0 2C0 =C0 2C0 2C0 F T ota l 3 3 2C0 =C0 =C0 (C0 =C0 # T ota l 3 9 5C0 BC0 BC0 5C0 (C0 ) T ota l 02 : =C0 1C0 =C0 2C0 1C0

Strategic Ana#ysis Space Matri8ContHd9

SPACE Matrix
Conser0ati0e BS
C: C; C4 C3 C2 C1

A//ressi0e

CA
2: 2; 24 23 22 21 21 22 23 24
(1,

$S
C1 C2 C3 C4 C; C:

238

De3ensi0e

2; 2:

Competiti0e ES
Ch > (95

Copyright 2!!9 0rentice 1all

AirTran is competing fair#y we## in an unsta%#e industry =5

Strategic Ana#ysis Grand Strategy Matri4apid Mar"et Growth

3ea" Competitiv e /osition

Strong Competitiv e /osition

Quadrant IV 32'elated di$ersification 22Unrelated di$ersification 62=oint

S#ow Mar"et Growth

=B

AirTran 1& Matri-

Strategic Ana#ysis 1& MatriCrow and Build -old and Maintain -arvest or Divest -igh 3& +trong 3&

I=D +cores
)verage ;&;,77 Gea> (&(,77

3 3? ?33

33 ? ?333
D=D

333 ?3 3@
I=D ;, ( ;, :

D=D +cores

Medium ;&;,77

%ow (& *otal Geighted +cores (,77

=D

Strategic Ana#ysis :S/M

Key factors 5pportunities Appeal to public ue to ne4 AsafeA planes 3ncrease international flights 3ncrease omestic flights in the B/ Allo4 for computer reservations $:5!-!!! fe . .rant C $1-!!!-!!! from .reater 7ichmon C of C +hreats Bnioni=e 4or'ers C possible union actions 7ising fuel costs (>>% from 2!!* to 2!!4) &aEor Competitors in same mar'et (6elta) /ocietyFs vie4 of flying after /eptember 11 <astern C /outheastern B./. $eather Con itions Weig t Domestic Expansion AS 1 to 4 !.!5 !.1* !.1> !.!5 !.1 4 * 4 2 1 !AS !.2 !.*: !.>4 !.1 !.1 International Expansion AS 1 to 4 4 4 1 * 1 !AS !.2 !.52 !.1> !.15 !.1 Advertising to Businesses AS 1 to 4 4 * 4 * 1 !AS !.2 !.*: !.>4 !.15 !.1

!.!5 !.2 !.15 !.!9 !.!4

1 to 4 1 4 * 2 2

!.!5 !.D !.45 !.14 !.!D

1 to 4 1 4 * 2 1

!.!5 !.D !.45 !.14 !.!4

1 to 4 1 1 * 2 2

!.!5 !.2 !.45 !.14 !.!D

total shoul be 1.!

2.:5

2.>1

2.4

=G

/trengths $1 billion or more annual revenue Average plane age is 2.5 years (youngest fleet in the country) Consumes 24% less fuel than ol planes 2!!4 "#est Airline $ebsite% by the $eb &ar'eting Associates #usiness class is available (not common on short( istance flights)

Strategic Ana#ysis :S/M 8Continued9

1 to 4 !.!: !.1> !.1* !.!9 !.!9 * 4 * 2 2 1 to 4 !.29 4 !.>4 4 !.*: !.14 !.14 * 2 1 !.*> !.>4 !.*: !.14 !.!9

1 to 4 2 4 1 4 4 !.1D !.>4 !.1* !.2D !.2D

$ea'nesses )et income roppe from 1!!.5 in 2!!* to 12.* million in 2!!5 &ost flights originate from Air+ran,s Atlanta- .eorgia hub causing a heavy reliance on Atlanta /trictly omestic flights 0rimarily east coast flights 1igh labor costs

!.12 !.1 !.!D !.!D !.1

* 2 2 1 *

!.*> !.2 !.1> !.!D !.*

4 2 1 1 4

!.4D !.2 !.!D !.!D !.4

* * 1 2 2

!.*> !.* !.!D !.1> !.2

total shoul be 1.!

2.>D "#$%

2.D4 "#&"

2.>1 "#'(

=?

Matri- Ana#ysis
%lte rna ti$e t ra t e ( ie s 0orward 1ntegration 7ac"ward 1ntegration >ori<onta# 1ntegration M ar"et /enetration M ar"et 2eve#opment /roduct 2eve#opment Concentric 2iversification Cong#omerate 2iversification >ori<onta# 2iversification @oint ,enture 4etrenchment 2ivestiture 5iFuidation
* * #) P%") * * * * * * * * * * * >'%?D "8U?T 1 1 1 2 2 1 1 1 1 2 0 0 0

(0

Current 0#ight 4outes

(1

/ossi%#e A#ternative Strategies

Mar"et /enetration o Go after 2e##) Southwest) and ;S A irways mar"et share Mar"et 2eve#opment o Concentrate on ma*or vacationers) cooperate company trips) tourists destinations
with the he#p of pac"age dea#s 8hote#s p#us f#ights9 ectC

@oint ,enture o @oin with a#ready esta%#ished f#ight services in the 3est and then gain more
presence in the areaC

(2

4ecommendations
Domestic )*&ansion ; trate(! 3<
$/urchase ( more 7oeing D1D fue# efficient p#anes which wi## increase the num%er of +on Stop f#ights $Create networ"s at various ma*or tourist airport >u%s such as those in the /acific) and Mountain regions of the ;nited States of America $1ncrease the num%er of promotions) and pac"ages to new) untapped mar"ets in the /acific) and Mountain regions of the country $&stimated costI E2D5 mi##ion 8inc#udes increased advertising for f#ights to new domestic regions

httpI66wwwC%oeingCcom6commercia#6prices6

(=

4ecommendations
#nternational )*&ansion ; trate(! 2<
$/urchase ( 7oeing DDD fue# efficient p#anes to trave# internationa# $Create contracts with internationa# airports to a##ow Air Tran to #and at their airportC As a new venture) Air Tran shou#d e-pand to South America) Cari%%ean) &urope) then further internationa# destinations wi## %e esta%#ished after Air Tran is sta%#e in the internationa# mar"et $Get permission from internationa# destinations to f#y in their airspace) and ma"e sure that a## #ega#ities such as customs are dea#t with prior to operating internationa##y $&sta%#ish connections with internationa# tourist destinations) and create promotiona# trave# pac"ages to introduce the new destinations that Air Tran wi## he#p promote the new services that Air Tran wi## %e providing $&stimated costI 1 %i##ion 8inc#uding contracts) and advertising costs

((

4ecommendations
%d$ertisin( for Business@s ; trate(! 6<
$/rovide freight #i"e services for companies shipping pac"ages from one of our service hu%s to another $&sta%#ish contracts with various %usinesses to opt to use Air Tran for their various %usiness re#ated tas"s such as %usiness trips) shipping etcC $Set up a p#an with %usinessHs that wou#d give them discounts on tic"ets if they have a## their emp#oyees f#y with Air Tran &stimated costI E10 mi##ion

(5

&/S6&71T
)P A )B#T %mmount ?eeded )B#T 'an(e #nterest 'ate Ta* 'ate tock Price B hares 8utstandin( 1000 12 =B D2 5P =GP 10CD0 G? De-t ?ormal =B 50 1( 0 1( G? C15 %ll amounts are in millions e*ce&t for &ercenta(es and stock &rice2

)B#T #nterest )BT Ta* )%T B hares )P

"ommon tock +ow ?ormal ,i(h 12 =B D2 0 0 0 12 =B D2 (C5B 1=CBG 2DC=B DC(( 22C=2 (2CB( 1G2 C0( 1G2 C12 1G2 C2=

+ow 12 50 =G 0 =G G? C(

,i(h D2 50 22 GC=B 1=CB( G? C15

(B

1mp#ementation 1ssues
==) regulations -omeland +ecurity 3urrent economy conditions 9ising fuel expenses

(D

 3ontinue rapid growth

/roposed Annua# O%*ectives and /o#icies

? Bidding on gates that #ecome availa#le at current hu#s ? Dxpand into new hu#s

Increase revenues ? ;:" per year Increase efficiency ? 3ut expenses wherever possi#le while a#iding #y )ir*ranAs #eliefs and values (culture of company$ ?Maximi@e passengers per flight (G

/roposed /rocedures for &va#uation

U Air#ine :ua#ity 4eport 8A:49 U :uarter#y financia# reports o Operating /erformance Avai#a%#e Seat Mi#e 8ASM9 o 0inancia# /erformance 4evenue /assenger Mi#e 84/M9 U :uarter#y meetings to eva#uate current p#an and respond necessary changes

(?

&pi#ogue
$2005 1n @une 2005) AirTran announced p#ans to #aunch services from At#anta and Tampa to Cancun) Me-icoC $200B AirTran Airways partnered with 0rontier Air#ines) a##owing freFuent f#yers to earn air#ine mi#es in either AirTranAs AV 4ewards) or 0rontierAs &ar#y4eturns freFuent f#yer programC 1n addition the air#ines wi## refer customers to each other when appropriateC

50

&pi#ogue
;557 LAirTran announced new dai#y nonstop service from At#anta 8AT59 to /hoeni- S"y >ar%or 8/>S9 a#ong with many other additiona# routes LAirTran AirwaysA on#ine survey which as"ed consumers) !3here do you want #ow fares ne-t LAirTran has shifted its attention to %ui#ding up their operations at Genera# Mitche## 1nternationa# AirportC The air#ine is now trying to compete direct#y with riva# Midwest Air#ines L0ai#ed in attempt to acFuire Midwest Air#ines

51

Current Stoc" /erformance

52

4esources
$Case +otes $0red 4C 2avid) 0rancis Marion ;niversity $AirTran >o#dings 10 N) 2ecem%er =1) 200( $wwwCAirTranCcom $MS+ Money $A#manac 7usiness and 1ndustry 0inancia# 4atios 200G

5=

:uestions

O
5(