AirTran Holdings, Inc. Q1 2010 Earnings Call Transcript

AirTran Holdings, Inc. Q1 2010 Earnings Call Transcript
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AirTran Holdings, Inc.

(

AAI

)

Q1 2010 Earnings Call Transcript

April 21, 2010 9:30 am ET

Executives

Jason Bewley – Director of Finance

Bob Fornaro – Chairman, President and CEO

Arne Haak – SVP, Finance, Treasurer and CFO

Kevin Healy – SVP, Marketing and Planning

Analysts

Jamie Baker – JPMorgan

Duane Pfennigwerth – Raymond James

Jim Parker – Raymond James

Kevin Crissey – UBS

Bill Greene – Morgan Stanley

Dan McKenzie – Hudson Securities

Gary Chase – Barclays Capital

Helane Becker – Jesup & Lamont

Steve O'Hara – Sidoti & Company

Presentation

Operator

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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the AirTran Holdings first quarter earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (Operator instructions) As a reminder, this conference is being recorded. I would like to introduce your host for today, Mr. Jason Bewley, Director of Corporate Finance. Sir, please go ahead.

Jason Bewley

Good morning, everyone. I’d like to thank you for joining us for a discussion of our first quarter 2010 results. Joining me today are Bob Fornaro, Chairman, President and Chief Executive Officer; Arne Haak, Senior Vice President of Finance, Treasurer and Chief Financial Officer; and Kevin Healy, Senior Vice President of Marketing and Planning.

I’d like to remind you that this call will contain forward-looking statements. These comments are not historical facts and that you should consider them as time sensitive forward-looking statements that are accurate only as of April 21, 2010. If you like additional information concerning factors that could cause our actual results to vary from those in the forward-looking statements, they can be found in our Annual Report, Form 10-K, Form 10-Q, and other SEC filings on the company.

We’ll also be discussing several non-GAAP financial measures that we believe are helpful in getting an understanding of our operating performance and providing a period-to-period comparison excluding special items. A copy of today’s press release, recent SEC filings, and a reconciliation of these non-GAAP financial measures are available in the Investor Relations section of the company’s website at airtran.com. Today we’ll be discussing our first quarter results and our outlook for 2010. At the end of the call, there will be a brief question-and-answer session.

Now I’d like to turn the call over to Bob.

Bob Fornaro

Thank you, Jason. And good morning, everyone. This morning we announced our financial results for the first quarter of 2010, which consists of GAAP loss of $12 million or $0.09 a share, which includes an unrealized gain of $4.7 million on the increasing value of our future fuel hedge portfolio. (inaudible) we reported a net loss of $16.7 million or $0.12 per share compared to last year’s economic net income of $26.3 million.

During the quarter, our capacity grew 6.1% year-over-year due to the addition of two aircraft in higher aircraft utilization. Our operating costs grew by $108 million or more than 21%. The leading cause of this operating cost increase was a $67 million increase or a 50% rise in fuel cost, as the cost per gallon rose from $1.59 per gallon last year to $2.27 per gallon, which includes the effects of hedging.

Another significant contributor to our profit shortfall was the weather challenges that plagued the eastern half of the US during the first quarter. While climate weather in the first quarter is certainly not unusual, the severity in duration of weather this year was extreme by any winter’s measure. During the first two months of the quarter, we canceled 1,400 flights, which effectively trended approximately 2% of our first quarter capacity. In 2009, we didn’t cancel 1,400 flights until early November.

Previously, we anticipated the revenue loss from winter storm was $5 million to $6 million. As a further analysis, we now believe the revenue impact was more than $10 million. Despite the loss of revenue from these winter storms, we have seen sequential improvements in load factoring yields with these trends accelerating through the quarter. Specifically, we experienced a record first quarter passenger demand as measured by our RPMs. Our 77.2% load factor was the highest first quarter load factor in our company’s history.

In our yields, our average fair per mile increased by 3.7% year-over-year. This is the first increase in quarterly yields we have seen since 2008. The result was a 5.3% increase in total unit revenue, and the highest first quarter total unit revenue in the company’s history when adjusted for stage length. This year-over-year unit revenue improvement accelerated, as we proceeded through the quarter, culminating in a solid double-digit increase in unit revenue performance in March.

Our efforts to better diversify our network and profitability has also been successful. While we have grown our land operation to be one of the world’s largest low-class hubs, we had built significant operations this quarter, Baltimore, and more recently, Milwaukee. Since the first quarter of last year, we have launched 12 new cities, expanded our Atlanta service to three new Caribbean destinations, six new domestic destinations, and restored our servers in Gulfport, Mississippi. We now serve 60 destinations from Atlanta.

We now serve 47 destinations out of Orlando, more than any other airlines. We have added 17 new non-stop destinations since the first quarter of 2009. In Milwaukee, where we are now the largest mainline airline, we serve 18 of the top 20 destinations. And in Baltimore, we have added eight new non-stop destinations in the past year to bring our total destinations served to 27.

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