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AirTran Taps the Brakes on Growth

After growing at a 20% rate during the past five years, AirTran (AAI) is stepping on the brakes.

The carrier now says capacity will decline by 7% to 8% during the last four months of 2008 and by 4% to 8% during 2009, as it moves to sell aircraft and to defer 22 deliveries. "Our priorities have clearly shifted," said CEO Bob Fornaro, on an earnings conference call Tuesday. "Growth is far down on the list of things we are interested in. Number one is maintaining liquidity and ultimately returning to profitability."

AirTran's planning reflects the broad impact of the airline industry's effort to reduce capacity. Until recently, industry leaders like Gerard Arpey, CEO of AMR (AMR), have called for capacity reductions but had trouble convincing fast-growth, low-cost carriers to seriously commit. Now, the industry is expected to reduce capacity by 10% in the fourth quarter.

Ironically, the AirTran cuts come as the cost of fuel is falling. Oil traded Tuesday below $122 a barrel, continuing its decline from a record high above $147 earlier this month.

AirTran reported a disappointing second quarter. Revenue per available seat mile, or RASM, grew at just 0.1%, the lowest rate among major airlines. The carrier reported a net loss of $13.5 million, or 12 cents a share. Excluding special items, including a hedging gain equivalent to 22 cents a share, the loss was 29 cents a share. Analysts surveyed by Thomson Reuters had estimated a loss of 25 cents.

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