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Alternative airline
By STEVE HUETTEL, Times Staff Writer ORLANDO -- Look around the no-frills headquarters of AirTran Airways and you'd think the scrappy low-fare carrier is as young as the shiny, new jets it flies. Awards in a display case date back no further than 1999. On the walls of the corporate offices and on its Web site, there's little to indicate that the airline has much of a history. For good reason: AirTran used to be ValuJet. For many air travelers, that name was forever tainted by the gruesome photos of a scorched circle where ValuJet Flight 592 plunged into the Everglades. The DC-9 crashed May 11, 1996, killing all 110 people on board, when oxygen generators in the cargo hold fueled an intense fire. ValuJet blamed a Miami maintenance contractor whose employees put an unmarked box of generators on the flight. But the National Transportation Safety Board also pointed a finger at ValuJet for not keeping a closer eye on the contractor. The disaster seemed all but certain to doom the small discount airline, whose passenger counts plummeted in the months that followed. A year later, ValuJet's top executives decided to gamble on a fresh start. They bought tiny AirTran, a weakling that flew out of Orlando with 11 planes, took the name and repainted the fleet. But the changes that followed were more than cosmetic. AirTran brought in a new management team of aviation veterans. It replaced old 737s and DC-9s with Boeing's newest jet, the 717. And the airline added routes away from Atlanta, the hub where it competes with the city's 800-pound gorilla: Delta Air Lines. AirTran was headed for its third consecutive year in the black before Sept. 11 and expects to be profitable again by spring. It's among a handful of low-cost carriers that have expanded since the terrorist attacks, while the top six traditional airlines slashed schedules and ended the year with a combined loss of more than $7-billion. "They've built an intensely competitive airline from something that was a mess," said Stuart Klaskin of the Coral Gables consulting firm Klaskin, Kushner & Co. AirTran operates 346 daily flights to 36 cities on the East Coast and in the Southeast and Midwest. It ranks No. 13 among U.S. carriers, ahead of commuter carrier American Eagle and behind Hawaiian Airlines, in the number of miles flown by paying passengers, a standard industry measuring stick. AirTran is the second biggest low-fare airline behind Southwest Airlines, but they're hardly in the same league. Southwest has a fleet of 355 jets, compared with AirTran's 61. Southwest rang up revenues of $5.6-billion last year, while AirTran reported $665-million. Still, AirTran's turnaround story is creating a buzz. In November, AirTran began flying from Tallahassee and Pensacola, bringing the cities their only low-fare service. Then AirTran jumped into Baltimore-Washington International Airport as US Airways shut down its low-fare division, MetroJet, and cut 128 flights at the airport. The move put AirTran in direct competition with Southwest, the major player at BWI. Chief executive Joseph Leonard insists there's enough business for both airlines on heavily traveled routes between Baltimore and Florida cities such as Tampa. AirTran will expand 20 percent systemwide this year, he said. "If we can approach the revenue MetroJet did we'll make a lot of money." But Leonard knows better than to take on Southwest in Baltimore on too many routes. "We understand who's the big dog," he said. "And it ain't us." * * * When Leonard came to AirTran in January 1999, the picture was bleak. The airline lost money in 10 of the 11 previous quarters, partly because of the ValuJet stigma and partly because of difficulties combining the two airlines. While the booming economy left other carriers flush, AirTran was down to $11-million in cash. "We were running on cash fumes," Leonard said. But the airline veteran, who as a young executive had been a protege of former astronaut Frank Borman at Eastern Airlines, saw some things he liked about AirTran. The percentage of seats filled was rising steadily, from a low of just under 52 percent in the second quarter of 1997 to nearly 61 percent for the first three months of 1999. AirTran had rebuilt its fleet, overhauled routes and had the 717s on order. Questions about ValuJet "always came up and always drove everybody nuts," Leonard said. His solution was simple: Start making money and perceptions would change. AirTran managed to earn net income of $2-million in the first quarter of 1999 and ran off a string of nine more profitable quarters, capped by a second-quarter 2001 profit of $28.3-million on revenues of $205.8-million. Then came Sept. 11 and the precipitous drop in business for all airlines. Ending last year with two unprofitable quarters, AirTran lost $2.8-million last year. Still, that was the smallest loss among U.S. airlines in a year when only two publicly traded carriers, Southwest and Frontier Airlines, made money. A big part of AirTran's success was that Delta didn't pay it much attention, said Jamie Baker, airline analyst with UBS Warburg. Delta, still the established airline on many of AirTran's routes, went after the upstart's leisure passengers only when spending by high-paying business travelers dried up last spring, he said. "While Delta's back was turned, Joe Leonard built AirTran into a tough competitor," Baker said. AirTran uses clever marketing to set itself apart from traditional carriers such as Delta and no-frills airlines such as Southwest that offer only coach service. Passengers can spend an extra $25 to upgrade to first class, with a wider seat and two free drinks. The airline offers "X-Fares" of $52 one-way for 18- to 22-year-olds who fly standby. Six round-trip coach flights or three in business class earn you a free AirTran ticket; 12 coach trips or six business class trips get you a ticket on any competitor. But the main order of business for AirTran, like other low-fare carriers, is keeping a tight rein on costs. AirTran spends about 9.7 cents to fly one airliner seat, full or empty, one mile on a typical flight of about 540 miles. It costs Delta 12.2 cents and US Airways 15.6 cents to fly a seat the same distance. AirTran squeezes out costs in a variety of ways. Nearly four out of 10 tickets are sold through AirTran's Web site, where they cost the airline 25 cents each. A ticket sold by a travel agent costs the company about $8.50. The 717s, which make up half the fleet, burn 24 percent less fuel than the airline's DC-9s. They also require less maintenance than the DC-9s, some of which are more than 30 years old. But the biggest advantage comes from lower labor costs, said Jim Parker, airline analyst with Raymond James & Associates. Pilots, mechanics and flights attendants are unionized, but contracts don't include wages to rival those paid by a Delta or American, Leonard said. Salaries are comparable to Southwest's if you don't count profit-sharing, he said, and better than what similar-size carriers pay.
* * * AirTran runs lean, both on the front lines and in executive offices. Chanel Johnson, a customer service manager in Atlanta, walks the concourse looking for gates with long lines. She jumps in to help check people in, rip boarding passes and answer customer questions. Her boss, Tommy Kalil, also picks up slack. An executive vice president, Kalil oversees customer service agents at the 36 airports AirTran serves, plus the carrier's flight attendants. When the station manager at Atlanta left last year, he took on that job, too. AirTran recently replaced worn seats throughout the Atlanta concourse. But one floor below, the airline's "command center," where the airline orchestrates the flow of planes in and out of its major hub, looks like the office of a college newspaper. Big airlines run their hubs from high-tech centers that look like small versions of NORAD's war room. At AirTran, the boss works at two church-dinner tables with folding legs, with monitors on top and a tangle of wires beneath. An assistant pencils in gate schedules on a clipboard. Others tap on old monochrome computer screens, their chairs rolling over stained green carpet. "We're not launching the space shuttle here," Kalil says. "We're just getting airplanes out." The atmosphere contributes to a David-vs.-Goliath mentality among employees. "I throw bags; I pick up trash," said David Boecker, a 717 captain. "I'm not above doing whatever's needed. It's become a very good place to work . . . an airline that doesn't have a big wall between pilots and management." Never was that more clear than after the terrorist attacks. AirTran's top executives took a 15 percent pay cut Sept. 12. Directors took a 10 percent reduction and managers had to give up 5 percent. Rather than order big layoffs as the airline canceled 20 percent of its schedule, Leonard asked pilots to give back 9 percent of their salary temporarily and to defer some pension payments. He asked mechanics to cut back to a four-day workweek. Both groups readily agreed. AirTran had to lay off only 84 of 4,400 employees, all of whom are now back at work. Pay for pilots and mechanics' hours snapped back Nov. 1. Executive pay was restored Jan. 1. "We told them, 'Give us the savings we need and if the economy rebounds, we'll be in a better position to grow,' " Leonard said. * * * Within two weeks of the attacks, AirTran announced plans to start flying to Pensacola and Tallahassee. Both cities long complained about high fares charged by major airlines. They were exactly the kind of markets where AirTran can slash ticket prices and, because of its low costs, still make money. But for the 100 or so small and medium-size cities clamoring for low-fare service, Leonard has a simple message: Show us your money. "We won't go into those markets if we don't think they'll work," Leonard said. "But we want to minimize our risks for the first 18 to 24 months. Then, we're on our own." Pensacola businesses put $2.1-million into a "travel bank," an account they can draw down as employees travel on the airline. Any money left after a year goes to AirTran. Tallahassee came up with a $2.1-million package to help with marketing and cover potential losses during the first year on the flights to Tampa, Miami and Atlanta. Florida gave AirTran a contract to fly state employees to and from the capital. Before AirTran, it wasn't unusual to pay $400 for a round-trip ticket to Atlanta, said Philip Inglese, assistant director of Tallahassee Regional Airport. Now, the flight costs less than half that. "Our community is very happy and hopes that investment will grow business here," Inglese said. In October, AirTran decided to jump into a big new market. US Airways had just given up on MetroJet, its low-fare response to Southwest's assault on the East Coast. Baltimore was the hub that MetroJet used to funnel vacationers from the Northeast to Florida. AirTran was on the prowl for a new small hub so the airline can keep flying if weather or some other problem closes Atlanta. "We're looking to diversify the airline beyond Atlanta," said president Robert Fornaro, a former US Airways executive. Next month, AirTran will have 20 daily departures from BWI to Atlanta, Boston, Rochester, N.Y., and five Florida cities, including Tampa. But that puts AirTran in the cross hairs of Southwest. Baltimore became Southwest's first East Coast city in 1993, and the airline now makes 134 daily flights from there to 32 cities. For once, AirTran finds itself at a cost disadvantage. Unlike AirTran, Southwest doesn't fly through inefficient hubs, and it has a nationwide route system to keep its jets busy around the clock. "Southwest presents a problem for AirTran," said Baker, the UBS Warburg analyst. "You want to avoid head-to-head competition. Southwest always wins."
* * * A photo of a jet engine is an unusual airline marketing tool. But the image in newspapers and billboards seems to work for AirTran, in part to dispel any lingering customer concerns about ValuJet. One reason the ValuJet crash so devastated the company is a perception that bargain carriers cut corners on safety. The airline's old DC-9 fleet fed that fear. So, the star of AirTran's limited advertising, targeted largely on Atlanta, is the Boeing 717 jet and in particular its engines with the prestige logos of the joint manufacturers: Rolls Royce and BMW. People aren't likely to forget ValuJet, but that doesn't necessarily keep them from flying its successor. When her assistant told Debra McWaters that she was booked on AirTran to Dallas, the Tampa choreographer immediately thought of the ValuJet crash. "My first thought was: No way," McWaters said. "I don't think anyone who lives in Florida can forget that one." She told the assistant to check the Federal Aviation Administration Web site for AirTran's safety record. As far as she could tell, it was about the same as other airlines. McWaters was a little worried but flew AirTran anyway. Charlie Barocas of Seminole wasn't happy that AirTran didn't have skycaps to check bags at the curb at Tampa International. But memories of the 1996 crash didn't bother him on his flight to Atlanta. "I think sometimes after a disaster, people are more meticulous about their job," said Barocas, who owns a school that teaches casting to medical technicians. Besides, he likes a bargain. The round-trip ticket to Dallas he bought on the Web to attend a convention of orthopedists cost $250, half what Delta was charging. "For a small business guy like myself to save $250," he said, "it's a big deal." -- Researcher John Martin contributed to this report. Steve Huettel can be reached at huettel@sptimes.com or (813) 226-3384.
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