The fortunes of



are soaring, but the share price isn't following along.

To get an idea of how well things are going requires only listening to Tuesday's conference call. On it, executives said passenger revenue per available seat mile will rise 8% to 9% in the current quarter, while costs are down. Plans to aggressively reduce capacity during slow periods were also covered.

Additionally, the company unveiled a just-completed deal to acquire 10 daily slots at New York's La Guardia Airport and two at Washington Reagan National Airport from privately held ATA.

To top it off, Orlando-based AirTran has now eclipsed


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as the lowest cost major airline, says Morningstar analyst Marisa Thompson.

"They overcame Southwest last year in terms of cost structure, and we've been impressed by their ability to continue lowering unit costs," she says. "The biggest headwind for all airlines is fuel costs, so they have to do everything they can."

Still, the share price languishes, and for the year, it has fallen about 16%. AirTran traded recently at $10.02, up 34 cents, for the session.

The uptick came as AirTran posted third-quarter net income of $10.6 million, or 11 cents a share. Results included a charge of $6.6 million, or 7 cents a share, for the failed



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acquisition effort. Without the charge, AirTran would have earned $17.3 million, or 18 cents a share. Analysts had estimated 16 cents.

Revenue was $608.6 million, up 25% and ahead of estimates of $603 million. Passenger RASM rose 2.9%, but yield declined by 6%.

Morningstar rates AirTran at four stars, signifying that it believes the shares are undervalued, but not enough so for a five-star, strong buy rating. At the same time, JPMorgan analyst Jamie Baker has a neutral rating. Baker says he expected current-quarter passenger RASM guidance of 4%, rather than twice that.

"With shares not far off a 52-week low, downside risks appears reasonably contained

and estimates are likely to trend up," Baker wrote in a research report. JPMorgan has a business relationship with AirTran.

Meanwhile, Avondale Partners analyst Bob McAdoo has a target price of $11 for the shares. McAdoo says the failed bid to acquire Midwest would have enabled AirTran to move aircraft "from lesser performing markets into markets being served by Midwest's older MD-80 aircraft."

Without such prospects, he said, "we doubt the market will get excited about AAI shares." On Tuesday, Midwest shareholders approved an acquisition by TPG Capital.

AirTran Chief Financial Officer Stan Gadek believes that might indeed have something to do with it. "We had a very lengthy campaign to acquire Midwest, and that is still affecting our stock price," he said in an interview. "We are not trading on fundamentals, in my opinion,

after back-to-back quarters with outstanding results."

Though AirTran hasn't said how it will use its new slots, which it will lease for an undisclosed cost, "wherever we utilize them, they will make a net contribution," said Gadek.

Added Kevin Healy, vice president of planning: "In terms of creating opportunity, because New York is the number one market for any city east of the Mississippi and even into the Midwest, it gives you the potential to develop a lot of other services."

Currently, AirTran operates 11 flights a day from La Guardia to Atlanta, Orlando, Akron-Canton, Ohio, and Newport News, Va., and six a day from Washington National to Atlanta, Fort Myers, Fla., and Orlando (weekends only). Each flight requires two slots, one to land and one to take off.

AirTran has acted aggressively to reduce growth, shifting three aircraft deliveries from 2008 to 2011. Capacity growth, which will be 19% in 2007, has been cut to 10.5% for 2008, with 10 aircraft arriving rather than the 18 originally planned.

The carrier will also fly less in slow periods, with seasonal cutbacks in Chicago and Boston. "January and September are terrible months for us," CEO Joe Leonard said on the conference call. Current-quarter bookings are strong, the carrier said.

While unit revenue is improving, costs are falling. In the third quarter, cost per available seat mile, excluding fuel, dropped 2% to 5.92 cents, largely as a result of continuing additions of new Boeing 737s to the fleet.

So far, though, investors are proving difficult to impress.