strategic-management

EXHIBIT 2 Airline Quality Rating Ranks for 2007 and 2008
EXHIBIT 3 Airline Bag Fees
2008 Rank 2007 Rank
AirTran 2 1
American 9 9
American Eagle 16 15
Atlantic Southeast 17 16
Continental 8 6
Delta 12 10
JetBlue 3 2
Northwest 4 4
Southwest 6 3
United 11 8
US Airways 10 11
Rankings for 2008 reflect the addition of Hawaiian to the airlines tracked.
Source: Based on 2009 Airline Quality Rating, by Brent D. Bowen, St. Louis University, and
Dean Headley, Wichita State University, April 2009, http://aqr.aero/aqrreports/2009aqr.pdf.
Airline First Checked Bag Second Checked Bag Additional Bags
AirTran $15 $25 $50 per bag, after first two
Delta $15 $25 $125 for 3rd (domestic),
$200 (international),
$200 (bags 4–10 US),
$350 (bags 4–5 international)
JetBlue Free (less than $20 $75
50 lbs.)
Southwest Free Free $25 (bag 3) $50 (bags 4–9)
Source: Based on “Airline Fees: A Snapshot of Carrier Policies,” Wall Street Journal, February 23, 2009;
http://blogs.wsj.com/middleseat/2009/02/23/airline-fees-a-snapshot-of-carrier-policies/tab/print/.
Operating Performance
Operating costs per available seat mile (CASM) increased 15.5 percent from 2007 to
2008 (see Exhibit 4). Aircraft fuel had the greatest increase in CASM of 41.8 percent
from 2007 to 2008. AirTran’s fuel price per gallon (including taxes and into-plane fees)
increased 45.7 percent from $2.23 in 2007 to $3.25 in 2008. In 2008, however, AirTran
realized a $15.7 million gain from fuel-related derivative financial instruments that
reduced fuel expenses. Other costs that increased are distribution expenses (7.7 percent),
landing fees and other expenses (7.4 percent), and depreciation and amortization costs
(19.0 percent).
The cost per available seat mile is operating costs divided by ASM and is
frequently used to compare operating efficiencies of airlines. How does AirTran compare
to its competitors? Yahoo! Finance identifies Delta, JetBlue, and Southwest as
AirTran’s main competitors. The 2008 CASM data in Exhibit 5 shows AirTran (11.02¢)
to be more efficient than Delta (18.72¢) but less efficient than JetBlue (9.87¢)
and Southwest (10.24¢). AirTran’s operating expenses for 2008 rose by 15.5 percent
(see Exhibit 4) compared to JetBlue’s increase of 20.6 percent and Southwest’s increase
of 12.5 percent. The greatest increase in operating expenses for all three airlines
was fuel (AirTran, 41.8 percent; JetBlue, 43.1 percent; and Southwest, 33.3 percent,
respectively).
CASE 4 • AIRTRAN AIRWAYS, INC. — 2009 41