1. A Strategic Management Case Study
AirTran Airways 2005
A Strategic Management Case Study
Graphics are the property of AirTran Airways
® 2008, Danielle Boucher, Matt Bouchard, Darius Parker, Takefumi Kawahara, UMFK

2. Overview - “Getting to know a low-fare leader “
A brief history of AirTran Airways
EOY 2004
Mission, Objectives, Strategies
2005
New Vision and Mission
External Analysis
Opportunities & Threats
CPM
EFE
Internal Analysis
Financial Data
Strengths and weaknesses
IFE
Financial ratios
Strategic Analysis
SWOT Matrix
SPACE
IE matrix
Grand Strategy Matrix
Matrix Analysis
Possible alternative strategies
Our Recommendation
Strategies
Long range objectives
EPS/EBIT
Implementation Issues
Proposed annual objectives (goal) and polices
Proposed procedures for evaluation
Epilogue
Current Performance
Questions
Resources Utilized

3. History of AirTran Airways
In 1992, the predecessor airline, ValuJet Airlines was founded
ValuJet Airlines started with two former Delta Air Lines' DC-9 aircraft
First commercial flight occurred between Atlanta and Tampa on October 26,
The airline was the first to launch ticketless travel in 1993.
In the spring of 1994, barely eight months after launching service between Atlanta and three Florida cities, the airline went public by listing its stock on the NASDAQ and trading under the ticker symbol VJET.
In late 1995, the airline placed an order to be the launch customer for the Boeing 717. ValuJet was the youngest airline ever to serve as a launch customer for an aircraft type.

4. History of AirTran Airways
At the end of 1995, ValuJet was named as the top company in the famed Georgia 100 as published by the Atlanta Journal-Constitution
and the airline posted high margins with a $67 million net profit
revenues of $367 million.
The publicly traded airline stock was increasing in value on a seemingly weekly basis.
The original AirTran Airways, a Boeing 737 operator with service to/from Orlando, was founded by AirTran Corporation, the holding Company of Mesaba Airlines of Minneapolis, Minnesota, operating as a Northwest Airlink carrier with hubs in Minneapolis and Detroit. In 1994,
AirTran Holdings purchased a start up 737 operator named Conquest Sun and renamed the airline AirTran Airways.

5. History of AirTran Airways
Conquest Sun, similar to ValuJet, was an airline started by former Eastern Air Lines employees.
The original AirTran Airways moved its headquarters to Orlando, Florida, and grew to 11 Boeing 737 aircraft serving 24 cities in the East and Midwest providing low-fare leisure travel to Orlando.
In 1995, AirTran Airways was spun off by Mesaba and formed its own independent holding company named Airways Corporation.
On July 10, 1997, ValuJet, Inc., the holding company for ValuJet Airlines, Inc., announced plans to acquire Airways Corporation, Inc., the holding company for AirTran Airways, Inc. of Orlando, Florida. The deal was scheduled to close on November 17, 1997.
On September 24, 1997, ValuJet Airlines changed its name to AirTran Airlines. While the hub remained in Atlanta, the headquarters of the new entity was combined in Orlando, Florida, on January 28, 1998.

6. History of AirTran Airway’s Management
January 1999
A new management team led by Joe Leonard, a veteran of Eastern Air Lines, and Bob Fornaro, of US Airways, took the reins at the airline.
Leonard, Chairman and CEO, improved operating efficiencies while Fornaro, President and COO, built a sustainable route network which increased the presence of the Atlanta hub while adding focus cities in Baltimore/Washington, Philadelphia and Chicago.
On August 15, 2001, Leonard and Fornaro joined twelve Crew Members in ringing the opening bell at the New York Stock Exchange where the company's stock began trading under the ticker symbol AAI.

7. History of AirTran Airway’s Management
January 1999
The airline grew quickly under Leonard and Fornaro's leadership and has transformed itself into a strong competitor operating:
the youngest all Boeing fleet in the nation
to more than 56 cities coast-to-coast
more than 700 flights per day
over 9,000 Crew Members
serving nearly 20 million passengers per year.

8. NYSE Ticker: AAI www.airtran.com A2B: 1998-99
Travelers are flocking to AirTran.
airline never requires a roundtrip purchase or a Saturday-night stayover.
the airline offers last-minute upgrades to "business class" seats at the front of the plane, where travelers will find enough room to spread out and get some work done-- or relax--for just
$25 more than its standard coach-class fares. And for small businesses, AirTran's A2B Corporate Travel Program offers upgrades, reduced restrictions, lower change fees and bonus frequent-flier points.
University
You're between the ages of 18 and 22.
You (or your parents) have at least $69*.
For just $69* per segment, or $99* for long-haul segments, you can visit your fellow pledge class friends, wherever they are. A+
rewards visa
Hertz rental
flying
redeem for flights

9. AirTran Airways 2004
“The year of new planes, new people, and new determination.” AirTran CEO, Joe Leonard

10. 2004 Mission
Innovative people dedicated to delivering the best flying experience to smart travelers. Every day.

11. Guiding Principals We celebrate bringing people together through:
Safety Taking personal responsibility for the safety of each traveler and every Crew Member.
Courtesy Showing respect and providing caring customer service to travelers and Crew Members.
Pride In our work, in one another and in contributing to the success of our airline.
Teamwork Supporting one another and valuing our diverse contributions to meet every traveler's needs.
Innovation Acting with an empowered "can do" spirit to continuously improve our airline.
Cleanliness Of work areas and our equipment says everything to our customers – pick it up, keep it clean.
Anticipation Of customer, crew member and business needs is a key requirement of every position. Look ahead – be ready!
Results Every crew member is expected to contribute to our success through measurement and
continuous improvement. Know your numbers!

12. Our Values
A Total Commitment to Safety In every decision and every action, every time, every day.
Compliance with Regulatory Standards In every decision and every action, every time, every day.
Technical Excellence and Continuous Learning We do it right, then we improve to do it better.
Honesty, Trust and Integrity In all actions with one another, our suppliers and our customers.
Respectful Communication and Constructive Disagreement To get to the best result, together.
Personal Responsibility for Resolving Issues We do not pass the buck or quit on a Crew Member.
Acting with Purpose and Urgency We make decisions to do the right thing and then act on it.
Hard Work We take pride in doing the difficult things that make our airline better than the others.
Fun We are positive people who celebrate success, learn from mistakes and enjoy our work.
Profit We deliver a sustainable profit to support the growth and improvement of our company.
Tire Blowout:
When we arrived at the terminal, the "supervisor" announced that we would all receive McDonalds food vouchers for our inconvenience and that another plane would arrive in a approximately 90 minutes then we were told that each passenger would receive a free round-trip ticket to any of Air Tran’s destinations for use within the next twelve months I now feel safe knowing that the Air Tran Captain took the necessary safety precautions, and the company compensated me by providing the tickets and paying for a car service from Philadelphia to Toms River, NJ as my original ride was no longer available I will be even happier when I take my family to the Bahamas next year courtesy of Air Tran. Mechanical malfunctions can happen to any airline. Most come from the same manufacturer with different carrier’s logos affixed to the sides. Yet it is good to know that Air Tran takes care of its customers.

13. 2004 Strategies
Introducing the newest fleet of Boeing 737 to appeal to customers safety concern
Develop flights to Mexico
Preservation of good relations with our employees (46% represented by union)
Low-fare price point

14. 2004 Objectives Remain profitable despite increased fuel prices
To satisfy the transportation needs of our target customers, but also to provide customers with a travel experience worth repeating.
Minimize rising expenses while increasing revenues.

15. 2004 Issues
Lost the bid to a major expansion of 14 gates at ATA airlines to Southwest Airlines.
Increased fuel prices
Labor costs (government mediation)
4 Hurricanes hit Orlando
Negotiations between US and Mexico

16. A New Vision
AirTran Airway’s vision is to become the leading affordable, safe and enjoyable short distance airline in the nation.

17. A New Mission
The mission of AirTran Airways is to provide safe, clean, and affordable short distance flights for business and leisurely travelers as well as crew members. We are focused on innovative ideas to provide for profitable growth for our shareholders, while being mindful of compliance and regulatory standards. We believe that employees should have a respectful, courteous, and fun experience while being part of AirTran Airways. AirTran is committed to improving the quality of life of others and improving communities through a diverse range of charitable activities.

18. New Mission Evaluation
The new mission fulfills the following questions:
Customers: Who are the firm’s customers?
Products or services: What are the firm’s major products?
Markets: Geographically, where does the firm compete?
Technology: Is the firm technologically current?
Concern for survival, growth, and profitability: Is the firm committed to growth and financial soundness?
Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
Self-concept: What is the firm’s distinctive competence or major competitive advantage?
Concern for public image: Is the firm responsive to social, community, and environmental concerns?
Concern for employees: Are employees a valuable asset of the firm?

19. External Audit: Opportunities
Appeal to public due to new “safe” planes
Negotiations between Mexico and United States may allow in more opportunities for service to Mexico from U.S. airlines
$950,000 federal grant to advertise the new AirTran service and $1 million from Greater Richmond Chamber of Commerce.
International and nationwide flights.
Allow for computer reservations
Delta and U.S. Airways of reduced services and capacity in the eastern United States

20. External Audit: Threats
Unionized and subject to union actions as collective bargaining agreement expire
Society’s view of flying after September 11, 2001
Rising fuel costs (66% from 2003 to 2004)
Major competitor Delta is #1 in Atlanta (AirTran’s main hub)
Flight delays and cancellations due to weather on eastern and southeastern coasts.
Outsourced maintenance may compromise safety
More intense competition as they broaden their geographic locations

21. Critical Success factors
AirTran Airways CPM
Air Trans
Delta
Southwest
Critical Success factors
Weight
Rating
Weighted Score
0.0 to 1.0
1 to 4
Airline Quality Rating
0.15 4
0.60 1 3
0.45
Domestic/National Expansion
International Expansion
0.05
0.20 2
0.10
Operating Expenses per available seat mile (ASM)
0.30
Market Share
0.40
Age of Fleet
Passenger Accommodations / Business Class
0.06
0.18
0.12
Low Outsourced Maintenance Costs
Customer Prices
0.36
0.24
Executives / Management
0.07
0.28
0.21
Totals
2.82
2.93
2.74

22. AirTran Airways EFE Key External Factors Totals 2.41 Weights Rating
Weighted Score
0.0 to 1.0
1 to 4
Opportunities
Appeal to public due to new "safe" planes.
0.05 2
0.1
Increased international flights.
0.13
0.26
Increased domestic flights throughout the United States. (additional hubs)
0.16 3
0.48
Allow for computer reservations. 1
$950,000 fed. Grant / $1,000,000 from Greater Richmond C of C
0.3
Threats
Unionized workers / possible union actions.
Rising fuel costs (66% from 2003 to 2004)
0.2
0.6
Major Competitors in same market (Delta)
0.15
Sciety's view of flying after September 11
0.07
0.14
Eastern / Southeastern U.S. Weather Conditions
0.04
0.08
Totals
2.41

23. 2004 Consolidated Balance Sheet

24. 2004 Consolidated Balance Sheet

25. Consolidated Statement of Operations

26. Internal Audit: Strengths
Classified by U.S. Department of Transportation as a “major carrier”
$1 billion or more annual revenue
Average plane age is 2.5 years (youngest fleet in the country)
Consumes 24% less fuel than old planes
Joe Leonard’s (CEO) credibility
Additional seating in place of galleys since meals are not served on the ”short-haul” planes
XM Satellite Radio
2004 “Best Airline Website” by the Web Marketing Associates
Business class is available (not common on short-distance flights)

27. Internal Audit: Weaknesses
Most flights originate from AirTran’s Atlanta, Georgia hub causing a heavy reliance on Atlanta
Strictly domestic flights
Primarily east coast flights
Net income dropped from in 2003 to 12.3 million in 2005
High labor costs
AirTran’s fleet of Boeing 717s are made only for efficient short-haul services
Rated in 2003 by Airline Quality Report:
Among the lowest for on time-performance
among the highest in denied boarding
above industry average for passenger complaints

28. AirTran Airways IFE Key Internal Factors Weights Rating Weighted Score
Internal Strengths
3 or 4
$1 billion or more annual revenue
0.09 3
0.27
Average plane age is 2.5 years (youngest fleet in the country)
0.16 4
0.64
Consumes 24% less fuel than old planes
0.13
0.52
2004 “Best Airline Website” by the Web Marketing Associates
0.07
0.21
Business class is available (not common on short-distance flights)
0.28
Internal Weaknesses
1 or 2
Net income dropped from in 2003 to 12.3 million in 2005
0.12 1
Most flights originate from AirTran’s Atlanta, Georgia hub causing a heavy reliance on Atlanta
0.10
Strictly domestic flights
0.08 2
Primarily east coast flights
High labor costs
0.20
Totals
2.58

29. Financial Ratio Analysis

30. Financial Trends Date Avg P/E Price/ Sales Price/ Book
Net Profit Margin (%) 20 07
18.80
0.32
1.47
2.3 06
84.60
0.57
2.82
0.8 05
129.50 NA
4.03
0.5 04
150.00
0.92
2.79
0.7 03
8.70
1.12
3.32
10.9 02
33.70
0.39
5.35
1.5 01 -
247.80
0.67
13. 74
0.3 00
7.00
0.80
60.71
7.6 19 99 NA -
19.0 19 98 NA -
9.3

31. AirTran Airways Stock Performance

32. AirTran Airways Net Worth (December 31, 2004 in thousands)

33. Strategic Analysis SWOT Matrix

34. Strategic Analysis Space Matrix

35. Strategic Analysis Space Matrix (Cont’d)
AirTran is competing fairly well in an unstable industry

36. Strategic Analysis Grand Strategy Matrix
Rapid Market Growth
Weak Competitive Position
Strong Competitive Position
Quadrant IV
Related diversification
Unrelated diversification
Joint ventures
Slow Market Growth

37. Strategic Analysis IE Matrix

38. Strategic Analysis QSPM

39. Strategic Analysis QSPM (Continued)

40. Matrix Analysis

41. Current Flight Routes

42. Possible Alternative Strategies

43. Recommendations Domestic Expansion (Strategy 1)
Purchase 4 more Boeing 717 fuel efficient planes which will increase the number of Non-Stop flights
Create networks at various major tourist airport Hubs such as those in the Pacific, and Mountain regions of the United States of America
Increase the number of promotions, and packages to new, untapped markets in the Pacific, and Mountain regions of the country
Estimated cost: $275 million (includes increased advertising for flights to new domestic regions

44. Recommendations International Expansion (Strategy 2)
Purchase 4 Boeing 777 fuel efficient planes to travel international
Create contracts with international airports to allow Air Tran to land at their airport. As a new venture, Air Tran should expand to South America, Caribbean, Europe, then further international destinations will be established after Air Tran is stable in the international market
Get permission from international destinations to fly in their airspace, and make sure that all legalities such as customs are dealt with prior to operating internationally
Establish connections with international tourist destinations, and create promotional travel packages to introduce the new destinations that Air Tran will help promote the new services that Air Tran will be providing
Estimated cost: 1 billion (including contracts, and advertising costs

45. Recommendations Advertising for Business’s (Strategy 3)
Provide freight-like services for companies shipping packages from one of our service hubs to another
Establish contracts with various businesses to opt to use Air Tran for their various business related tasks such as business trips, shipping etc.
Set up a plan with business’s that would give them discounts on tickets if they have all their employees fly with Air Tran
Estimated cost: $10 million

46. EPS/EBIT

47. Implementation Issues
FFA regulations
Homeland Security
Current economy conditions
Rising fuel expenses

48. Proposed Annual Objectives and Policies
Continue rapid growth
Bidding on gates that become available at current hubs
Expand into new hubs
Increase revenues
25% per year
Increase efficiency
Cut expenses wherever possible while abiding by AirTran’s beliefs and values (culture of company)
Maximize passengers per flight

49. Proposed Procedures for Evaluation
· Airline Quality Report (AQR)
· Quarterly financial reports
o Operating Performance
- Available Seat Mile (ASM)
o Financial Performance
- Revenue Passenger Mile (RPM)
· Quarterly meetings to evaluate current plan and respond necessary changes

50. Epilogue
2005
In June 2005, AirTran announced plans to launch services from Atlanta and Tampa to Cancun, Mexico.
2006
AirTran Airways partnered with Frontier Airlines, allowing frequent flyers to earn airline miles in either AirTran's A+ Rewards, or Frontier's EarlyReturns frequent flyer program. In addition the airlines will refer customers to each other when appropriate.
2006
AirTran Airways partnered with Frontier Airlines allowing frequent flyers to earn airline miles in either AirTran's A+ Rewards, or Frontier's EarlyReturns frequent flyer program. In addition the airlines will refer customers to each other when appropriate.

51. Epilogue
2007
AirTran announced new daily nonstop service from Atlanta (ATL) to Phoenix Sky Harbor (PHX) along with many other additional routes
AirTran Airways' online survey which asked consumers, “Where do you want low fares next
AirTran has shifted its attention to building up their operations at General Mitchell International Airport. The airline is now trying to compete directly with rival Midwest Airlines
Failed in attempt to acquire Midwest Airlines
2006
AirTran Airways partnered with Frontier Airlines allowing frequent flyers to earn airline miles in either AirTran's A+ Rewards, or Frontier's EarlyReturns frequent flyer program. In addition the airlines will refer customers to each other when appropriate.

52. Current Stock Performance

53. Resources Case Notes Fred R. David, Francis Marion University
AirTran Holdings 10-K, December 31, 2004
MSN Money
Almanac Business and Industry Financial Ratios 2008

54. Questions ?