strategic-management

4
AirTran Airways, Inc. — 2009
Charles M. Byles
Virginia Commonwealth University
AAI
www.airtran.com
In July 2009, AirTran became the first airline to offer Wi-Fi on all flights—all 136 of its
Boeing 737 and 717 jets. Based in Orlando, Florida, the low-fare carrier now lets all customers
access the Web from a handheld device or laptop for $7.95 to $12.95 per flight,
depending on the device and length of the flight. Rival firms are more slowly equipping
their planes with wireless, including Virgin America, Delta, United Airlines, Air Canada,
and American.
The Airline Quality Report released April 6, 2009, had good news for AirTran. The
airline was ranked second in overall quality following its number-one ranking the prior
year, and had been ranked in the top three for the last five years. However, the airline
industry overall is not doing well. Earlier, on March 24, Giovanni Bisignani, the director
general and CEO of the International Air Transportation Association, summed up the
industry situation as follows:
The state of the airline industry today is grim. Demand has deteriorated much more
rapidly with the economic slowdown than could have been anticipated even a few
months ago. Our loss forecast for 2009 is now US$4.7 billion. Combined with an
industry debt of US$170 billion, the pressure on the industry balance sheet is extreme.
AirTran’s profit loss in 2008 was the airline’s only loss in the last nine years. The
company’s first quarter of 2009 was grim with passenger unit revenue down 7 to 8.5 percent,
total unit revenue down 2 to 3.5 percent, and nonfuel costs up 8 to 9.5 percent. But AirTran
seemed upbeat in its view about the outlook for all of 2009. It expects profits in all quarters
of 2009, assuming fuel remains at current prices. The company views its low-cost strategy as
a strength in the current economic downturn.
History
The 1978 deregulation of the U.S. airline industry resulted in the entry of several low-cost
airlines such as AirTran Airways (then known as ValuJet Airlines). Although it came close
to failure in 1996, AirTran was able to recover, and today it is one of the most successful
low-cost carriers. In 1992, the predecessor of AirTran, ValuJet Airlines, Inc., was founded
by an executive group from the former Southern Airways, and pilots, mechanics, and flight
attendants from the recently bankrupt Eastern Airlines. ValuJet’s first commercial flight
was between Atlanta and Tampa on October 26, 1993. Although profitable, ValuJet was
plagued with several safety incidents, the worst being the May 1996 crash of flight 592 in
the Florida Everglades killing 110 people. ValuJet was held partially liable and grounded
for four months by the Federal Aviation Administration. Although it resumed flying, the
ValuJet name was so tarnished that the airline needed to reinvent itself.
On July 10, 1997, ValuJet Inc. (the holding company for ValuJet Airlines) announced
the acquisition of Airways Corporation Inc. (the holding company for AirTran Airways,
Inc.) of Orlando, Florida. Later, ValuJet Airlines and AirTran Airways merged, the resulting
airline retaining the name of AirTran Airways. Since then, AirTran has gained a reputation