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Author: JTchart Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 470  
Subject: Re: Earnings are out Tuesday JAN 25th Date: 1/25/2005 12:27 PM
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I just listened to the Conference call, and overall I was impressed by the presentation by Airtran management:

Airtran had 89 aircraft at year-end: 80 717 and 9 737-700. In 2005, they will take delivery of another 6 717s and 13 737-700s! As they continue to add 737-700s to their fleet the new planes are driving cost savings. The 737 burns less fuel in total than a 717, but has 20 extra seats!

The 717 aircraft continues to be a good plane to develop a new market. Airtran only owns 8 717s, Boeing owns the rest, so the risks of Boeing deciding to discontinue the 717 is not a problem for Airtran. Boeing asked AAI if they should continue 717 production and AAI said "No" and then ordered the 50 new 737-700s and took an option on 50 more 737-700s. The 717 has better economics than a 50 seat regional jet, and the grwth going forward will be from the 737s...

"The carrier with the lowest costs will end up winning" and Airtran plans to continue reducing costs. $38 million was saved in 2004 by fuel hedges. Yields are still declining but some "flattening" of the decline may be happening as we move forward. "We are selling too many tickets at low prices" - if demand gets better then they can try selling some seats at higher prices.

For 2005 the big wild card is fuel costs; in Q1 2005 they have 40% of fuel hedged at 95 cents per gallon; in Q2 2005 only 24% hedged at $1.04 per gallon; and in Q3 and Q4 only 14% and 13% at $1.31 per gallon respectively. Overall they expect fuel cost to be around $1.40 to $1.45 per gallon in 2005, which equates to a mid-$40 price per barrel. If the per barrel price rises above $50 it will cause a lot of pain industry-wide, but may hasten the demise of the weakest carriers. If the per barrel price drops back to $30 then Airtran will probably make nice profits...

Non-fuel unit costs are projected to decline 4% in 2005, with the biggest percentage declines in Q2 and Q3 2005. Total reported capacity will be up 30% in 2005, and expected tax rate will be 37% - 39%.

I have left some stuff out but all-in-all it looks like Airtran is well-positioned for 2005 and beyond...

John :-)
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