A little over seven years ago, AirTran Airways’ chief executive stood before cheering employees and Atlanta’s mayor to do a little chest-thumping.
Even as Delta Air Lines and other competitors were still struggling with the post-9/11 recession, then-CEO Joe Leonard announced that AirTran was ordering potentially more than 100 new jets in a bid to supercharge its growth.
“We think we can put our business model where we want it, and there’s not much our competitors can do about it,” said Leonard.
Well, except one competitor, as it turns out.
The $3.4 billion deal Southwest Airlines announced Monday to acquire AirTran is largely aimed at rescuing both carriers from dwindling growth opportunities without igniting a damaging fare war, say some industry analysts.
“One issue now that both companies are facing is that growth opportunities in the domestic market are more limited than they might have at one time appeared,” said Standard & Poors credit analyst Philip Baggaley.
The deal is another big course correction in the up-and-down history of AirTran.
The Orlando-based discount carrier was re-incarnated from Atlanta-based Valu-Jet. The latter airline’s fortunes had skyrocketed after it was launched in 1993 with a couple of DC-9s. But after three years of expansion it was grounded by federal regulators after one of its jets plunged into the Everglades in 1996, killing all on board.
After resuming operations later that year, ValuJet wobbled on for several months before acquiring a small Orlando-based carrier named AirTran and taking its name.
It continued to struggle financially until the arrival in 1999 of Leonard and AirTran’s current CEO, Bob Fornaro. Together they orchestrated AirTran’s resurgence.
Soon after recruiting Fornaro, Leonard’s team returned AirTran to profits and began expanding the carrier by adding new routes as Delta Air Lines and other large competitors retrenched during hard times that followed 9/11.
AirTran’s announced plan in 2003 to buy more than 100 jets, for instance, would have doubled its fleet in a few years and allowed it to fly across North America and into Canada, Mexico and the Caribbean.
Southwest, similarly, had announced new jet orders and growth plans as old-line carriers like Delta, United, Northwest and US Airways struggled with high costs and stagnating revenues that would eventually land all of them in bankruptcy court.
But both carriers throttled back on growth plans in the wake of soaring fuel costs followed by the deep recession in late 2007.
AirTran sold jets and delayed deliveries of new ones in 2008; it doesn’t plan to add to its fleet until 2011.
With jet fuel prices that spiked at $90 a barrel in recent years, “that’s a different world for growth airlines,” said airline analyst Michael Derchin, with CRT Capital Group in Stamford, Conn.
Until Monday’s deal announcement sent shares soaring, AirTran’s stock had stalled at about $5 a share, about 70 percent below its 2006 peak.
For both Southwest and AirTran, the deal gives them new places to fly by linking up their route networks, analysts said.
“There are a whole lot of cities that AirTran serves that Southwest doesn’t serve and vice versa,” he said. The proposed merger adds “hundreds” of potential new routes, said Derchin, that should revive the carriers’ growth, which had dropped from perhaps 15 percent a year in recent years to about 5 percent in AirTran’s case.
Much of that growth will likely occur as Southwest takes advantage of AirTran’s key Atlanta hub and routes to the Caribbean and other short-hop international destinations, said Baggaley.
He said the merger also will be good news for most of AirTran’s roughly 6,000 employees in Atlanta, who are likely to see higher pay and better job stability at financially stronger Southwest.
For them, Southwest is “an island of stability,” he said.
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