Profits Triple at Airtran

Updated from July 27

Continuing a run of strong airline earnings, AirTran Airways ( AAI) reported record net income in the second quarter, as unit revenue increased despite higher capacity.

The Orlando-based low-fare carrier said Thursday that net income was $32 million, or 33 cents a share, compared with $11.3 million and 13 cents a share for the same quarter a year earlier. Revenue was $528 million, up 44%.

Analysts surveyed by Thomson Financial had expected earnings of 28 cents on revenue of $505 million.

Revenue per available seat mile rose 16.8% from the same quarter a year earlier to 10.75 cents. Yield, or revenue per revenue passenger mile, rose by 13.2% to 13.76 cents, its highest level since the second quarter of 2001. AirTran said its fares have risen 15% over the past 12 months to an average of $94.18.

"The revenue environment is positive, and right now the focus is on trying to get the average fare up," said President Bob Fornaro during a conference call.

Although August and September bookings are strong, a double-digit RASM increase isn't expected in the third and fourth quarters because of difficult comparisons with strong quarters a year earlier, the airline said. For the third quarter, "we are looking at high single digit at this point, not double digit," Fornaro said.

Second-quarter capacity as measured by available seat miles grew 23.3%, due to 14 aircraft deliveries so far this year, increased utilization and a 1% increase in stage length. Nevertheless, the load factor, or occupancy rate, increased by 2.4 percentage points to a record 78.1%. Capacity will likely increase 27% in the third quarter and 25% for the year.

On the expense side, costs per available seat mile, excluding fuel, rose 1.6% to 6.3 cents. The airline said unit costs should decline in the second half of the year as it takes delivery of eight Boeing 737-700 aircraft. "Our costs are low," Fornaro said. "They've been down virtually every year for seven years, and after going up slightly in the first half they are going to start going down again."

In a report issued Thursday, Merrill Lynch analyst Mike Linenberg noted that AirTran reported results that "beat consensus by about 20% and produced a 10.3% operating margin," and said the airline "put to rest near-term concerns for the stock after last quarter's disappointing results." He maintained a buy rating. Merrill Lynch has a financial relationship with AirTran that includes acting as a market maker.

Meanwhile, AirTran and its pilots union resumed negotiations this week, with a focus on scheduling issues.

"This week may be critical," said Allen Philpot, president of the National Pilots Association, which represents the airline's 1,400 pilots, in a prepared statement. "Scheduling is issue number one for our pilots and the reason I ran for this office."

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