AirTran Eyes Growth With Jet Order

The carrier orders six Boeing 717s as it keeps the heat on Delta Air Lines in Atlanta.
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As the airline industry struggles with high fuel costs,

AirTran Airways

(AAI)

continues to lay plans for future growth announcing an order for six

Boeing

(BA) - Get Report

717 aircraft, valued at $225 million.

Under the terms of the deal, AirTran will take delivery of two 717s in 2005 and hold options to take another four 717s. AirTran, which was the launch customer for the 717 when it entered service in October 1999, currently flies 76 717s on short-haul, high-frequency routes that it serves from Hartsfield-Jackson Atlanta International Airport, where it battles

Delta

(DAL) - Get Report

for supremacy.

"We're confident that these new aircraft will produce consistent operating results, building on the efficiency and reliability of our fleet, thus reducing our costs and allowing us to pass the savings on to our customers," said Robert Fornaro, president and COO. "In fact we estimate the Boeing 717 to be 24% more fuel efficient than our previous aircraft."

In reaction, shares of AirTran rose 9 cents, or 0.7%, to $12.65, while shares of Boeing rose 44 cents, or 1%, to $43.17.

In the coming weeks, AirTran will begin taking delivery of the Boeing 737s it ordered in July 2003, another sign that the carrier is gunning directly at Delta. AirTran is Atlanta's second-largest carrier with 197 flights, but like

JetBlue

(JBLU) - Get Report

, will be taking a large number of planes in the coming years to expand its low-cost model to new markets.

The move also comes at a good time for Boeing, which holds its annual analyst meeting tomorrow and recently raised guidance for 2005, in part because of demand from low-cost carriers like AirTran. On Monday,

Gol Linhas Aereaes S.A.

, a low-cost carrier serving Brazil, ordered 15 737s with an option to buy 28 more, a contract whose whole value is $2.7 billion.

One thing seems clear: the low-cost invasion is spreading -- which could benefit Boeing -- and only puts more pressure on carriers Delta and

US Airways

(UAIR)

to slash costs in order to become competitive. Low-cost carriers have fundamentally changed the way that airline tickets are priced, especially on the once-lucrative transcontinental routes that were the exclusive domain of the legacy carriers.

While many legacy carriers have their old planes parked in the desert, the low-cost carriers are reloading to fuel future expansion that could force some of the older names to the brink of bankruptcy. Next week,

Southwest Airlines

(LUV) - Get Report

will begin flying from Philadelphia, a crucial hub for US Airways.