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AirTran Airways - 2009Case Notes Prepared by: Dr. Mernoush Banton

Case Author: Charles M. Byles

A. Case AbstractAirTran Airways www.airtran.!o"# is a !o"prehensi$e strate%i! "ana%e"ent !ase thatin!ludes the !o"pany&s !alendar year-end De!e"ber 200' (inan!ial state"ents)!o"petitor in(or"ation and "ore. The !ase ti"e settin% is the year 2009. *u((i!ientinternal and e+ternal data are pro$ided to enable students to e$aluate !urrent strate%iesand re!o""end a three-year strate%i! plan (or the !o"pany. ,eaduartered in rlando)/lorida) AirTran Airways is traded on the New or1 *to!1 +!han%e under ti!1er sy"bol

AA3.

B. Vision Statement proposed#

AirTran Airways stri$es to be!o"e the "ost pro(itable and sa(e airline in the world.

C. Mission Statement a!tual#

AirTran Airways is dedi!ated to pro$idin% uality (li%ht ser$i!es 2# with e"phasis onsa(ety 4# and satis(a!tion to all tra$elers 5#. 6e stri$e to "aintain our e+!ellen!e asone o( A"eri!a&s lar%est low-(are airlines in the industry by !o""ittin% to sales %rowth)(are7!ost !ontrols) %eo%raphi!al e+pansion 8#) (leet e((i!ien!y #) and "a+i"iation o(our shareholders& wealth ;#. 6e deli$er a sustainable pro(it to support our %rowth andbroaden roo" (or i"pro$e"ents. 6e are !o""itted to our e"ployees 9# by !onsistently

"oti$atin%) retainin%) pro"otin%) and rewardin% the" throu%h !o"pensation) bene(its)and

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8. ,i%h entry barrier due lar%e !apital in$est"ent reuire"ent. Additional airport se!urity relie(s airlines (or "aintainin% and installin%

!ostly se!urity euip"ent;. Dere%ulation o( the industry in 594'=. 3nternet boo1in% !auses the airlines to be "ore e((i!ient

Threats

5. /uel pri!es has been in!reasin% in CA*M by ;.= per!ent2. 3n!rease in labor !osts due to labor unions8. ?e%ulatory issues related to @.*. Depart"ent o( Transportation and

/ederal A$iation Ad"inistration. 3ntense !o"petition a"on% airlines;. 6ar and terroris" !ould disrupt leisure and business tra$elers=. De!line in business and pleasure tra$el by a$era%e ' per!ent

4. *ensiti$e to e!ono"i! downti"e with loss (ore!ast (or 2009 o( @* .4billion

CPM Competitie Pro!ile Matrix

AirTran "etBlue South#est

Critical Success $actors%ei&h

t'atin

&%ei&hted Score

'atin&

%ei&hted Score

'atin&

%ei&htedScore

Ad$ertisin% 0.50 5 0.20 2 0.20 8 0.80

*er$i!e 7 Produ!t uality 0.04 2 0.2' 0.2' 8 0.25

Pri!e 0.0' 2 0.5= 8 0.2 0.2

Mana%e"ent 0.0; 5 0.0; 2 0.50 8 0.5;

/inan!ial Position 0.09 2 0.5' 5 0.09 8 0.24

Custo"er oyalty 0.50 2 0.20 8 0.80 0.0

Produ!t ines 0.50 5 0.50 8 0.80 2 0.20

Mar1et *hare 0.0= 5 0.0= 8 0.5' 2 0.52

Custo"er *er$i!e 0.0' 2 0.5= 8 0.2 0.82

*a(ety 0.0' 5 0.0' 8 0.2 2 0.5=

Te!hnolo%y 0.50 2 0.20 0.0 8 0.80

"ployees 0.0; 2 0.50 8 0.5; 0.20

lobal +pansion 0.0 5 0.0 8 0.52 2 0.0'

Total (.)) (.*( +.*, +.-

Copyri%ht > 2055 Pearson du!ation) 3n!. publishin% as Prenti!e ,all.

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External $actor Ealuation /E$E0 Matrix

1e2 External $actors%ei&ht 'atin& %ei&hted

Score

Opportunities

5. ther airlines are !uttin% ba!1 inroutes and 7 or (li%hts

0.50 2 0.20

2. *o"e airlines (iled (or ban1rupt!y 0.50 5 0.50

8. ,i%h entry barrier due lar%e !apitalin$est"ent reuire"ent

0.0; 2 0.50

. Additional airport se!urity relie(sairlines (or "aintainin% and installin%!ostly se!urity euip"ent

0.0= 8 0.5'

;. Dere%ulation o( the industry in 594' 0.08 5 0.08=. 3nternet boo1in% !auses the airlines

to be "ore e((i!ient

0.0' 8 0.2

Threats

5. /uel pri!es has been in!reasin% inCA*M by ;.= per!ent 0.50 8 0.80

2. 3n!rease in labor !osts due to laborunions 0.0' 8 0.2

8. ?e%ulatory issues related to @.*.Depart"ent o( Transportation and/ederal A$iation Ad"inistration

0.0= 2 0.52

. 3ntense !o"petition a"on% airlines0.09 8 0.24

;. 6ar and terroris" !ould disrupt leisureand business tra$elers 0.0; 5 0.0;

=. De!line in business and pleasure tra$elby a$era%e ' per!ent 0.50 0.0

4. *ensiti$e to e!ono"i! downti"e withloss (ore!ast (or 2009 o( @* .4 billion 0.50 8 0.80

TOTA3(.)) +.4

E. 5nternal Audit

Stren&ths5. Cost ad$anta%e due to bein% a s"all !arrier2. Maintains to be a low-!ost !arrier8. *er$es in a "ore !on!entrated "ar1et) "ostly in the eastern @nited

*tates


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. ,i%hly ran1ed in o$erall uality by Airline uality ?atio A?# (or theyear 200'

;. +perien!ed "ana%e"ent tea"=. ((ers (li%hts to Can!un) Me+i!o4. ,eaduartered in rlando helps the operational !ost

%ea6nesses5. Dependen!e on Atlanta "ar1et (or hub2. *"all "ar1et share !o"pare to other airlines8. Mu!h hi%her !urrent debt a%ainst !urrent asset by 52 "illion. ,i%her losses in 200' by 00E;. A$era%e (leet a%e is .; years old=. 3n!rease in lon% ter" debt by 58E4. $erall in!rease in peratin% Cost per A*M CA*M# by 5;.;E

$inancial 'atio Anal2sis !tober 2009#

7ro#th 'ates 8 AirTran 5ndustr2 S9P ))

Sales (Qtr vs year ago qtr) -12.90 -8.00 -9.30

Net Income (YT vs YT) N! "."0 -2.80

Net Income (Qtr vs year ago qtr) "28.90 10#.#0 1#.90

Sales ($-Year !nn%al !vg.) 22."9 22.83 13.1#

Net Income ($-Year !nn%al !vg.) N! 3.$$ 12."0

&v&'en's ($-Year !nn%al !vg.) N! .#8 11."9

Price 'atios AirTran 5ndustr2 S9P ))%rrent *+, at&o N! 2. 31.$

*+, at&o $-Year &g/ N! #8.# 1.8

*+, at&o $-Year o N! 21.8 2."

*r&ce+Sales at&o 0.2$ 1.1 1.99

*r&ce+oo 4al%e 1.$1 1."" .2"

*r&ce+as/ 5lo at&o N! 1.10 13."0

Pro!it Mar&ins 8 AirTran 5ndustr2 S9P ))

6ross 7arg&n 9.# 2#.1 3#."

*re-Ta 7arg&n -.# 1.8 10.1

Net *ro&t 7arg&n -.9 1.2 ".8

$Yr 6ross 7arg&n ($-Year !vg.) 10.0 29.$ 3#.

$Yr *reTa 7arg&n ($-Year !vg.) -1.# 8.$ 1".$

$Yr Net *ro&t 7arg&n ($-Year !vg.) -2.1 ".# 11.$


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$inancial Condition AirTran 5ndustr2 S9P ))

e:t+,q%&ty at&o 2."" 1.11 1.39

%rrent at&o 0.9 1.2 1.

Q%&c at&o 0.9 1.2 1.2

Interest overage 0.$ $.1 2".1

everage at&o $.2 3.$ $.2

oo 4al%e+S/are 3.3# 8.88 20.92Adapted (ro" www."oney!entral."sn.!o"

A& P:E Price: Sales Price: Boo6;et Pro!it

Mar&in /80

5270' -5.40 0.59 2.5= -50.4

52704 5'.'0 0.82 5.4 2.8

5270= '.=0 0.;4 2.'2 0.'

5270; 529.;0 NA .08 0.;

5270 5;0.00 0.92 2.49 0.4

52708 '.40 5.52 8.82 50.9

52702 88.40 0.89 ;.8; 5.;

52705 -24.=0 0.=4 58.4 -0.8

52700 =.40 0.'0 =0.45 4.=

52799 -8.50 0.;= -4. -59.0

Boo6 Value:

Share

Debt:

E

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Stren&ths

5. Cost ad$anta%e due to bein% a s"all !arrier 0.0' 8 0.2

2. Maintains to be a low-!ost !arrier 0.04 8 0.25

8. *er$es in a "ore !on!entrated "ar1et) "ostly inthe eastern @nited *tates

0.0= 8 0.5'

. ,i%hly ran1ed in o$erall uality by Airline uality?atio A?# (or the year 200'

0.09 0.8=

;. +perien!ed "ana%e"ent tea" 0.5 0.

=. ((ers (li%hts to Can!un) Me+i!o 0.0= 8 0.5'

4. ,eaduartered in rlando helps the operational!ost

0.0= 8 0.5'

%ea6nesses

5. Dependen!e on Atlanta "ar1et (or hub 0.0' 2 0.5=

2. *"all "ar1et share !o"pare to other airlines 0.0' 2 0.5=

8. Mu!h hi%her !urrent debt a%ainst !urrent assetby 52 "illion

0.09 5 0.09

. ,i%her losses in 200' by 00E 0.09 5 0.09

;. A$era%e (leet a%e is .; years old 0.0= 2 0.52

=. 3n!rease in lon% ter" debt by 58E 0.0; 5 0.0;

4. $erall in!rease in peratin% Cost per A*MCA*M# by 5;.;E

0.08 2 0.0=

TOTA3 (.)) +.,*

$. S%OT Strate&ies

Stren&ths %ea6nesses

5. Cost ad$anta%e due tobein% a s"all !arrier

2. Maintains to be a low-!ost!arrier

8. *er$es in a "ore

5. Dependen!e on Atlanta"ar1et (or hub

2. *"all "ar1et share!o"pare to other airlines

8. Mu!h hi%her !urrent debt


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!on!entrated "ar1et)"ostly in the eastern@nited *tates

. ,i%hly ran1ed in o$eralluality by Airline uality?atio A?# (or the year

200';. +perien!ed "ana%e"ent

tea"=. ((ers (li%hts to Can!un)

Me+i!o4. ,eaduartered in rlando

helps the operational !ost

a%ainst !urrent asset by52 "illion

. ,i%her losses in 200' by00E

;. A$era%e (leet a%e is .;years old

=. 3n!rease in lon% ter" debtby 58E

4. $erall in!rease inperatin% Cost per A*MCA*M# by 5;.;E

OpportunitiesS=O Strate&ies

%=O Strate&ies

5. ther airlines are !uttin%ba!1 in routes and 7 or(li%hts

2. *o"e airlines (iled (orban1rupt!y

8. ,i%h entry barrier duelar%e !apital in$est"entreuire"ent

. Additional airport se!urityrelie(s airlines (or"aintainin% and installin%!ostly se!urity euip"ent

;. Dere%ulation o( theindustry in 594'

=. 3nternet boo1in% !ausesthe airlines to be "oree((i!ient

5. Ad$ertise by e"phasiin%low-!ost !arrier) hi%huality and e+perien!edtea" *2) *) *;) =#

2. +pand routes to otherCaribbean and *.

A"eri!an Mar1et *5) *4)2#

5. 3n!rease destinationsdo"esti!ally to "oreeastern and "id-west"ar1ets in the @.*.5) 2) 65) #

ThreatsS=T Strate&ies

%=T Strate&ies

5. /uel pri!es has beenin!reasin% in CA*M by;.= per!ent

2. 3n!rease in labor !ostsdue to labor unions

8. ?e%ulatory issues relatedto @.*. Depart"ent o(

Transportation and/ederal A$iationAd"inistration

. 3ntense !o"petitiona"on% airlines

;. 6ar and terroris" !oulddisrupt leisure andbusiness tra$elers

=. De!line in business and

5. Pro"ote 3nternet boo1in%and bene(its *8) T2#

5. Cut on !osts by ne%otiatin%better (uel hed%in% andlabor !ontra!ts 68) 6)64) T5) T4) T=#

2. ?epla!e !ostly and older(leets with newer "odelsT5) T) 6;) 6=#


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pleasure tra$el by a$era%e' per!ent

4. *ensiti$e to e!ono"i!downti"e with loss(ore!ast (or 2009 o( @*.4 billion

7. SPACE Matrix

$inancial Stabilit2 /$S0 Enironmental Stabilit2 /ES0

?eturn on 3n$est"ent 2 @ne"ploy"ent -;

e$era%e 8 Te!hnolo%i!al Chan%es -2

iuidity 5 Pri!e lasti!ity o( De"and -8

6or1in% Capital 5 Co"petiti$e Pressure -=

Cash /low 2 Barriers to ntry -2


/*

C*

*

3*-5-2-8--;-= =;825

Conservative Aggressive

CompetitiveDefensive

5

2

8

;

=

-=

-;

-

-8

-2

-5

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$inancial Stabilit2 /$S0 Aera&e (.* Enironmental Stabilit2 /ES0 Aera&e =4.,

Competitie Stabilit2 /CS0 5ndustr2 Stabilit2 /5S0Mar1et *hare -8 rowth Potential 8Produ!t uality -2 /inan!ial *tability 2Custo"er oyalty -8 ase o( Mar1et ntry ;Co"petition&s Capa!ity @tiliation -8 ?esour!e @tiliation Te!hnolo%i!al Fnow-,ow -8 Pro(it Potential 8

Competitie Stabilit2 /CS0 Aera&e =+.* 5ndustr2 Stabilit2 /5S0 Aera&e 4.,

-a+is: /* G * H 5.' G -8.# H - 5.=I-a+is: C* G 3* H -2.'# G 8.# H 0.=

>. 7rand Strate&2 Matrix

5. ?elated di$ersi(i!ation2. @nrelated di$ersi(i!ation8. Joint $enture


%ea6Competitie

Position

Quadrant IIQuadrant I

Quadrant IVQuadrant III

Stron&Competitie

Position

'apid Mar6et 7ro#th

Slo# Mar6et 7ro#th

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5. The 5nternal=External /5E0 Matrix

The 5$E Total %ei&hted Score

*tron%

8.0 to .0

A$era%e

2.0 to 2.99

6ea1

5.0 to 5.99

,i%h8.0 to 8.99

3 33 333

Mediu"2.0 to 2.99

3K 3K

AirTran Air#a2s

K3

ow5.0 to 5.99

K33 K333 3I

". ?SPM

+pandroutes to

otherCaribbean L*. A"eri!an

Mar1ets

3n!reaseDestination

Do"esti!ally1e2 $actors %ei&ht AS TAS AS TAS

Opportunities

5. ther airlines are !uttin% ba!1 in routes and7 or (li%hts

0.50 2 0.2 8 0.8

2. *o"e airlines (iled (or ban1rupt!y 0.50 2 0.2 8 0.8


The EFE

Total

Weighted

Score

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8. ,i%h entry barrier due lar%e !apitalin$est"ent reuire"ent

0.0; 8 0.5; 2 0.5

. Additional airport se!urity relie(s airlines (or"aintainin% and installin% !ostly se!urityeuip"ent

0.0= --- --- --- ---

;. Dere%ulation o( the industry in 594' 0.08 2 0.0= 5 0.08

=. 3nternet boo1in% !auses the airlines to be"ore e((i!ient

0.0' 2 0.5= 8 0.2

Threats 5. /uel pri!es has been in!reasin% in CA*M

by ;.= per!ent0.50 --- --- --- ---

2. 3n!rease in labor !osts due to labor unions 0.0' --- --- --- ---8. ?e%ulatory issues related to @.*.

Depart"ent o( Transportation and /ederalA$iation Ad"inistration

0.0= 0.2 5 0.0=

. 3ntense !o"petition a"on% airlines 0.09 8 0.24 5 0.09;. 6ar and terroris" !ould disrupt leisure and

business tra$elers

0.0; 8 0.5; 2 0.5

=. De!line in business and pleasure tra$el bya$era%e ' per!ent

0.50 8 0.8 2 0.2

4. *ensiti$e to e!ono"i! downti"e with loss(ore!ast (or 2009 o( @* .4 billion

0.50 8 0.8 2 0.2

TOTA3 (.)) +.)4 (.@+

Stren&ths

5. Cost ad$anta%e due to bein% a s"all !arrier 0.0' 5 0.0' 8 0.22. Maintains to be a low-!ost !arrier 0.04 2 0.5 0.2'8. *er$es in a "ore !on!entrated "ar1et)

"ostly in the eastern @nited *tates0.0= --- --- --- ---

. ,i%hly ran1ed in o$erall uality by Airline

uality ?atio A?# (or the year 200'

0.09 8 0.24 0.8=

;. +perien!ed "ana%e"ent tea" 0.50 2 0.2 8 0.8=. ((ers (li%hts to Can!un) Me+i!o 0.0= 0.2 5 0.0=4. ,eaduartered in rlando helps the

operational !ost0.0= 8 0.5' 2 0.52

%ea6nesses

5. Dependen!e on Atlanta "ar1et (or hub 0.0' 5 0.0' 8 0.22. *"all "ar1et share !o"pare to other

airlines0.0' 5 0.0' 2 0.5=

8. Mu!h hi%her !urrent debt a%ainst !urrentasset by 52 "illion

0.09 0.8= 2 0.5'

. ,i%her losses in 200' by 00E 0.09 --- --- --- ---

;. A$era%e (leet a%e is .; years old 0.0= 5 0.0= 8 0.5'=. 3n!rease in lon% ter" debt by 58E 0.0; --- --- --- ---4. $erall in!rease in peratin% Cost per A*M

CA*M# by 5;.;E0.08 5 0.08 8 0.09

SBTOTA3 (.)) (.+ +.+(

SM TOTA3 ATT'ACT5VE;ESS SCO'E 4. 4.*4


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1. 'ecommendations

5. @tilie the bi%%er 2055 Pearson du!ation) 3n!. publishin% as Prenti!e ,all.

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M. Epilo&ue

n !tober 2009) the !o"pany announ!ed their third uarter earnin%s o( 50. "illion)appro+i"ately earnin%s o( ' !ents per share. The July-*epte"ber results "ar1 AirTransthird uarter in a row o( pro(it as "ost "a 2055 Pearson du!ation) 3n!. publishin% as Prenti!e ,all.

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David Sm13e Cn 04