AirTran Holdings Inc. (AAI)

Q2 2010 Earnings Call

July 21, 2010 9:30 AM ET

Executives

Jason Bewley – Director, Corporation Finance

Bob Fornaro – Chairman, President and CEO

Arne Haak – Chief Financial Officer

Kevin Healy – Senior Vice President, Marketing and Planning

Analysts

Duane Pfennigwerth – Raymond James

Bill Greene – Morgan Stanley

Glenn Engel – Bank of America

Gary Chase – Barclays Capital

Michael Linenberg – Deutsche Bank

Daniel McKenzie – Hudson Securities

Kevin Crissey – UBS Investment Bank

Steve O’Hara – Sidoti & Company

Helane Becker – Dahlman Rose

Michael Derchin – CRT Capital

James Higgins – Soleil Securities

Presentation

Operator

Good day, ladies and gentlemen. And welcome to our AirTran Airways Second Quarter Earnings Conference 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)

And as a reminder, this program is being recorded. I would now like to introduce, Mr. Jason Bewley, Director of Corporation Finance. Please go ahead.

Jason Bewley

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

I’d like to remind you this call you will contain forward-looking statements. These comments are not historical facts and instead you should consider them as time sensitive forward-looking statements that are accurate only as of July 21, 2010. You’d 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, Forms 10-Q and other SEC filings of the company.

We will also be discussing several non-GAAP financial measures that we believe are helpful in gaining 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 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 second quarter results and our outlook for the remainder of 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

Good morning, everyone and thank you for joining us today. After a challenging first quarter AirTran has delivered a solid performance here in the second quarter. From an operations perspective the results were the best we have ever delivered in the second quarter.

Our on time performance was 83.8%, our completion factor was 99.5% and our industry leading baggage handling performance improved 4% to 1.5 mishandled bags per 1000 passengers. I want to personally thank all of our 8000 crew members for this accomplishment. This is truly a team effort.

In the second quarter we reported a GAAP profit of [$12.4] million, which includes an unrealized loss of $26.4 million net of taxes on the reduction in value of our future hedge portfolio. Including, we reported an economic net income of $38.8 million or $0.23 a share, compared to last year’s economic net income of $46.6 million.

During the quarter our capacity grew 4.9% year-over-year and we produced record second quarter revenues of $700.6 million, which represents a 60.1% increase. We achieved a record low factor of 83.1%, which was up 2 points year-over-year. Our business class load factor rose more than 5 points to over 83%, which also represents a new company record.

Typically, an increased in capacity load factors were stable and comes at the expense of yield. However, our second quarter passenger yield increased 9.4% the highest year-over-year yield growth in four years, despite a 3% year-over-year increase in average stage. Our other revenues are roughly flat year-over-year and Arne will give you a little more color on that during his remarks.

Further development our total unit revenues increased 10.7% year-over-year. On our network front we continue to make a lot of progress on growing and diversifying our revenues. During the past year we’ve opened 12 new destinations from Orlando, mostly to small and midsized cities as well as in the Caribbean. The most significant progress in developing our network has been made in Milwaukee.

While we have added only one main line destination year-over-year, we have grown our capacity here more significantly than any other city on our network. After a tough winter, Milwaukee has been solidly profitable for us in the second quarter despite significantly higher fuel costs. In fact, our unit revenue growth in Milwaukee far out paced our system average and during the second quarter was the best performing region in our network in terms as a year-over-year unit revenue growth.

While absolute profitability still trails our system average trends here are very good, as you continue to improve as our own capacity growth begins to moderate and our newer roots continue to mature. All sides parts Milwaukee as having a bright future on our network.

Finally just this week the Atlantic City Council voted unanimously to renew our lease at Hartsfield-Jackson International Airport for the next seven years, solidify our position at the world busiest airport.

On the cost side, within our non-fuel cost expectations in the second quarter. Our adjusted non-fuel costs were up 2.5% year-over-year, well ahead of our initial second quarter non-fuel guidance of 4% to 4.5% and even better than our revised guidance of six weeks ago are up 3.5% to 4%. Fuel costs rose by over $68 million, a 43% increase.

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