AirTran Airways plans to shrink its Atlanta hub as high oil costs put pressure on the airline, the company's executives said Tuesday.

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High oil prices mean it makes less sense to fly "lower-yielding leisure customers," AirTran's Chief Financial Officer Arne Haak said during an investor conference call. "This will result in our Atlanta hub getting smaller."

The Orlando-based airline has rapidly grown its Atlanta hub in recent years, bringing in more price competition against market leader Delta Air Lines.

"We created the market in Atlanta for low fares, for close-in regional business fares," AirTran Chief Executive Bob Fornaro said during the conference call. "Quite frankly, those average prices need to come up." When prices go up, the market will contract, and Fornaro said the number of flights AirTran has this summer is "too much."

Aside from cutting back in Atlanta, the airline also expects to close more operations in other cities it serves.

Fornaro also said that mechanics represented by the Teamsters have voted against a proposed pay cut. AirTran announced earlier this month that it plans to cut employee pay by 5 percent to 15 percent.

"Over time we will go back again to the Teamsters," Fornaro said. Haak said if the airline is not successful in cutting pay, it will need to reduce its fleet further, "and that will result in more terminations."

AirTran reported Tuesday that it lost $13.5 million in the second quarter and will cut flight capacity by 7 percent to 8 percent in the last four months of this year and by 4 percent to 8 percent in 2009 — steeper cuts than previously planned. Fornaro hopes to increase that capacity cut to as much as 10 percent, depending on how many planes the airline can sell off. The company also is deferring deliveries of four more aircraft from Boeing — for a total of 22 deferrals.

Though the airline is cutting back its operations, Fornaro said the airline may consider adding international routes such as to Cancun or to places in the Caribbean.

During the investor conference call on the airline's financial results, Fornaro said, "Clearly we are disappointed."

The company's second-quarter loss is equivalent to 12 cents per share. That compares to a profit of $42.1 million, or 42 cents per share, a year earlier, according to AirTran.

The airline's plans for additional capacity cuts come as airlines across the industry shrink to cope with high fuel costs. AirTran had previously planned to cut capacity by 5 percent instead of earlier plans to grow 10 percent.

The company also said it has negotiated an extension of its credit card processing agreement through Dec. 31, 2009, and agreed to a requirement by the credit card processor to hold back cash. The company said it now has a commitment for a line of credit of up to $150 million to cover part of the credit card processors' potential hold-back requirements. Hold-back requirements have contributed to problems for other airlines, including Denver-based Frontier Airlines, an AirTran partner. Frontier filed for Chapter 11 bankruptcy protection in April.

AirTran said its revenues in the second quarter ended June 30 were $693.4 million. That's up 13 percent from $613.5 million in the year-ago quarter. But its operating expenses were $738.9 million, up 37.9 percent from $535.7 million a year earlier.