西南航空 (LUV) 2005 Q1 法說會逐字稿

Good morning and welcome to the AirTran Holdings earnings conference call. [OPERATOR INSTRUCTIONS] It is now my pleasure to introduce your host, Mr. Arne Haak, Director of Finance.

Sir, the floor is yours.

Good morning everyone.

I want to thank you for joining us today for AirTran Holdings first quarter 2005 earnings call.

Joining us today is Stan Gadek, our CFO, Bob Fornaro, our President and COO, and Joe Leonard, our Chairman and CEO.

As is our usual practice, we will begin by reminding you that this call may contain forward looking statements and our actual results may differ materially from these statements.

These comments are not historical fact and instead you should consider them as time sensitive forward-looking statements that are accurate only as of April 26, 2005.

If you would like additional information concerning factors that could cause our actual results to vary from those in our forward looking statements, they can be found on our Form 10-K filings for the year ended December 31, 2004.

In addition, we will be discussing several non-GAAP financial measures that we believe are more consistent with the true operating performance and provide a more meaningful period to period comparison as they exclude special items.

A copy of today's press release and a reconciliation of these non-GAAP financial measures is available on our Company's at www.AirTran.com.

At this point I would like to turn the call over to Stan Gadek, our CFO.

OK, thank you Arne and good morning everyone.

The first quarter of 2005 was especially challenging given the competitive pressures of an industry undergoing change, record high fuel prices and uneconomical fares.

Yet against this backdrop AirTran continued to improve as a company by growing revenues and passenger loads while upgrading its fleet with new fuel efficient aircraft.

In fact, we can count our success by the record numbers of passengers who are trying our product for the first time and returning for their future travel needs.

This is real, measurable performance that is not reliant upon relative comparisons to a peer group.

Rather, it is the tangible result of the strategic growth plan based upon new aircraft, low costs and a highly productive work force.

Our crew members are among the best in the industry.

They are steady and focused determination to do the best job gives AirTran an advantage that cannot be matched by many of our competitors.

They know that the company’s success is their success and maintaining a low cost culture is central to our future growth.

We thank our employees for their hard work.

They are the cornerstone of our success and will ensure that AirTran continues to grow and attract new customers.

Since the beginning of the quarter we expanded our route network by announcing new service to Indianapolis, Charlotte, and Richmond.

In addition, we enhanced our existing service in the Atlanta, Dallas/Ft.Worth, Las Vegas and Los Angeles markets.

These improvements are the direct result of the new aircraft being added to our fleet.

Since year end we have taken delivery of 2 717s and 4 737s bringing our total fleet to 81 717s and 12 737s, or 93 aircraft in total.

As we experienced with the introduction of the 717 aircraft, the 737s are generating positive customer feedback and improving our overall product image.

On the operating side, the 737s are performing flawlessly with dispatch reliability greater than 99.3percent.

This translates into improved operating performance and reduced costs.

During the first quarter we introduced XM Satellite Radio on our aircraft.

As of today, we have installed the system on 22 airplanes and will perform installations at the rate of about 3 to 5 aircraft per week.

We are proud of our affiliation with XM, but most of all, we are thrilled to offer a great entertainment package.

All you have to do to enjoy XM is plug in your own headphones or buy a set of earbuds on board.

Our customers tell us they like it, and we couldn’t be more pleased to offer this service at no additional charge.

And now I’d like to talk about our metrics.

During the first quarter 2005 capacity in terms of available seat miles increased 24.1 percent on a year-over-year basis of which 15.6 percent was replacement for wet lease operations in 2004.

The remaining 8.5 percent of growth resulted from new aircraft deliveries and a 5 percent increase in average stage length from 627 miles to 659 miles.

Traffic, or revenue passenger miles, increased 27.7 percent which resulted in a 2 percentage point increase in year-over-year load factor to 70.5 percent.

Average fares in the first quarter increased 3.6 percent to $81.27 compared to $78.43 last year.

Given the 5 percent increase in stage length and price competition on the east coast yield declined 3 percent to 11.8 cents.

When you factor in the high or low factor, unit revenue was nearly flat down only by .2 percent year-over-year at 8.32 cents.

In terms of unit costs performance, AirTrans nonfuel unit costs were essentially flat to up slightly, .3 percent, to 6.44 cents.

Fuel, use of fuel neutral unit costs declined .4 percent to 8.23 cents and show fuel costs adjusted to reflect comparable fuel prices for the year earlier period.

Operating costs for ASM, including fuel for the quarter, increased 7.7 percent to 8.09 cents.

This reflects the year-over-year increase in the average cost per gallon of fuel of 37.5 percent.

Fuel burn n a year-over-year basis improved 2.9 percent to 16.6 gallons per thousand ASMs.

During the first quarter 2005 AirTran reduced its fuel costs by $11.6 million as a result of fuel hedging.

The 2.9 percent reduction in fuel burn reduced fuel costs by a further $2.5 million.

Average daily aircraft utilization during the first quarter was 11 hours.

Reviewing our first quarter operating performance, completion factor was 97.9 percent, compared to last years 99 percent, reflecting the impact of winter weather throughout the quarter.

On-time arrivals were 68.9 percent, and baggage claims per thousand were 3.18.

And now I would like to review our financial performance.

For the first quarter 2005 AirTran reported a net loss of $8 million or 9 cents per share.

Included in the first quarter was a change in the effective tax rate from 39 percent to 33 percent resulting from changes in permanent tax differences in the company’s pretax loss for the quarter.

Passenger revenue for the quarter increased 23.8 percent to 289.1 million, compared to 233.5 million in the year earlier period.

Once again revenue for the quarter reflect an all-time record for AirTran.

Looking at the individual line items of expense on a unit cost basis, salaries, wages and benefits were flat at 2.25 cents per ASM during the first quarter of 2005 and 2004.

Productivity in the first quarter as measured in departures per full-time equivalent improved 3.1 percent to 2.46 FTEs from 2.39 FTEs.

Employees per aircraft declined 7.8 percent to 66.4 employees from 72.0 employees in the first quarter of 2004.

Aircraft fuel expense on a unit cost basis increased 33.6 percent to 2.46 cents per ASM in 2005 compared to 1.84 cents in 2004.

The increased fuel unit costs reflect the increase in the price per gallon of fuel offset by the improvement in fuel burn for ASM.

In absolute dollars, AirTrans fuel expense increased $33.9 million or 65.8 percent. $23.3 million was related to price and $10.6 million was related to the added number of aircraft.

During the first quarter 2005 AirTran was hedged for approximately 50.2 percent of its fuel consumption at a price per gallon of $1.04 raw or a $1.25 all in.

Aircraft rent on a unit cost basis was unchanged year-over-year at 1.28 cents per ASM.

Since the first quarter of 2004 AirTran has taken delivery of 6 717s and 10 737s on operating leases.

The numbers of aircraft in our fleet that are leased or owned are 73 leased 717s, 10 leased 737s, 8 owned 717s, and 2 owned 737s.

For the remainder of 2005 AirTran will lease 4 additional 717s, lease 5 additional 737s and purchase 4 737s.

Permanent financing commitments are in place for all 2005 deliveries.

Distribution expense in the first quarter increased 2.8 percent from .43 cents to .44 cents.

The increase in distribution costs primarily reflects an increase in travel agency booking.

During the first quarter 52.1 percent of our bookings were made by AirTran.com, and all Internet bookings increased to 70.7 percent.

In addition, more than half of our customers, over 51.1 percent checked in for their flights using Internet technology or airport kiosks which is up a half a point from the fourth quarter 2004.

Maintenance, materials and repairs decreased 1.3 percent to .67 cents per ASM from .68 cents.

The primary reason for the reduction was lower 717 seat check expense than last year.

Maintenance cost per block hour was $264.00 versus $254.00 in the first quarter of 2004 and reflects the expiration warranties on the 717s.

As we acquire more 737 aircraft the positive impact of the new warranty coverage will be reflected in the maintenance costs per block hour.

Also impacting the first quarter maintenance expense was the occurrence of seat check which would have occurred in the third and fourth quarter but were shifted to the first quarter due to the maintenance interval extension recently granted to us by the FAA.

Landing fees and other rent unit costs increased 4.8 percent to .52 cents per ASM compared to .5 cents last year.

The primary reason for the increase in unit cost was rent on the new Atlanta maintenance hanger and airport rate increases.

Aircraft insurance and security services unit costs dropped 20.4 percent from .19 cents in the first quarter of last year to .15 cents in 2005.

The primary driver for the reduction was the decrease in [hall] and liability rates related to our 2005 insurance coverage.

Marketing and advertising unit costs remained flat year-over-year at .27 cents per mile even though we announced new service to four new cities since the first quarter of 2004 and have been expending advertising dollars.

Depreciation unit costs increased 20.6 percent from .1 cents to .12 cents year-over-year.

In absolute dollars the increase was approximately $1.4 million and reflects depreciation associated with the new owned 737s.

Other operating expense unit costs remained flat year-over-year at .72 cents.

On the operating line as a result of the weak revenue environment and the increased cost of fuel, AirTran reported a $9.4 million operating loss for the first quarter of 2005.

Reviewing the balance sheet AirTran ended the first quarter 2005 with $371.9 million of cash and short term investments.

This represents an 8.5 percent improvement over the year end 2004 ending balance of cash and short term investments of $342.3 million.

The increased liquidity reflects the seasonally positive trends in future bookings.

As of the end of the 1st quarter 2005, AirTran had $82.5 million on deposit with the Boeing Company, up from $69.8 million at year-end.

We expect to conclude a financing agreement to monetize the deposits related to the 2005 deliveries, in the near future.

We have also come up with negotiations to finance delivery deposits and obtain permanent financing commitments for the 2006 deliveries.

GAAP including current portion increases at $65 million compared to 1st quarter 2004, primarily reflecting the purchase of 737 aircraft and capital leases for spare engines.

Stockholder’s equity at March 31, 2005 was $327.5 million.

I would now like to guidance for the remainder of the year.

Net capacity additions will be 15%, 23%, and 27% for Q2 through 4.

Reported capacity additions, which includes the [flying or buying] we are doing to replace the wet lease operations of last year are 30%, 35%, and 30%.

Regarding fuel, our cost assumption is a price per gallon of fuel in a range of $1.55 - $1.60 all in, including the benefit of hedging.

Our updated hedge guidance is as follows.

For the 2nd quarter, 55% at $1.28.

These are raw costs.

For the 3rd quarter, 39% at $1.42.

For the 4th quarter, 33% at $1.38.

For the year 2006, a little under 5% at $1.47 and for calendar year 2007, a little under 5% at $1.41.

Our nonfuel unit cost guidance for the remainder of the year is unchanged at down 4-5% for Q2, down 6-7% for Q3, and down 1-2% for Q4, and down 3% for the full year of 2005.

No changes to the non-aircraft CapEx of between $20-25 million for the year, as well as no changes to the remaining aircraft delivery schedule.

In conclusion, I would like to say that we are in a very tough environment on the East Coast, where we are competing against 3 struggling carriers.

Other parts of our route system are beginning to improve, but the marketplace in the East is full of capacity priced on uneconomical terms.

Against this backdrop, we have continued to reduce costs and become more productive.

We are following a plan, which is based upon new airplanes, low cost, and high productivity.

We are encouraged by the progress we have made.

To our customers, we thank you for your continuing supporting business, and to our employees, we are grateful for your hard work and enthusiasm.

To our shareholder’s, let me say that the lowest cost in most efficient producer will always succeed, and we are focused on achieving that goal.

This concludes my prepared remarks and I would like to open the call to questions.

Thank you.

The call is now open to questions. [OPERATOR INSTRUCTIONS] Thank you.

Our first question is coming from Ray Neidl of Caylon Securities.

Very good presentation, Stan, with the details, but one macro question overall quick, I guess for Joe or Bob, is if there is a US Airway America West merger, I know that there, you said there are 3 struggling carriers now destroying pricing on the East Coast.

If US Airways were to strengthen themselves through a Market West merger, what kind of affect would you think that would have on AirTran in your continuing pricing?

I think it would actually be positive.

I think for those two companies, they probably would be to make a few changes with their network, but our feeling is anything that reduces capacity on the East Coast is going to be very, very positive.

We believe US Airways unit revenues on the East Coast are weak, and we think that deal would not happen unless there is further capacity reduction.

I think that would be a positive.

Stan, what did you say the tax rate was going forward?

The effective tax rate is going to be 33%.

Thank you.

Our next question is coming from Gary Chase of Lehman Brothers.

Hey, I wondered if you could maybe give us a little color first on the cost picture per year as the next fuel guidance on the last call for the quarter was a little bit lower than what you hit, and maintenance was just a line item that looked particularly high.

I am just curious if in the course of your guidance x-fuel hasn’t changed as we move beyond the 1st quarter.

What was it about the 1st quarter that sort of came in a little above your expectations, and is maintenance really at a run-rate on an absolute basis?

Gary, this is Joe.

There are a couple things.

One is we had some capacity put in the system going into January that we decided not to fly, so that was [technical difficulty] about 2 airplanes that we had in the schedule early and decided not to fly going into January, so that lowered our completion a bit.

The 2nd thing, particularly in regards to maintenance, is that we had a fairly substantial time extension from the FAA in the 2nd half of last year.

It went from 18 to 24 months on the 717 [C-Chack] and as a result that pushed some C-Chack out of 2004 into 2005, which was sort of a one-time benefit.

We are now up at the normal run-rate on the 24-month cycle.

That is in essence a one-time benefit, but we still benefit from the fact that we have 6 more months in-between the intervals.

The 3rd point is 717 warranties ran out.

Some of the airplanes before the 737 warranties started cutting in, so I think we are probably at the high water mark on the maintenance cost right now, and I think that is pretty much it.

The completion factor was also down a bit in the quarter because of severe weather of all 3 month’s of the quarter, so in the last year we ran at 99%.

We were less than that this year.

So those 3 factors really add up to that.

Okay.

Bob or Joe can you maybe talk a little bit about the substitution you are doing in some markets of the 73’s or what you see, or at least partially substituting for what used to be 717-flying marketplace in LaGuardia, Atlanta to Tampa, FL market.

Is that going well, are the incrementally units proving up to your expectations there?

Yes.

I think that they are.

Again in LaGuardia we practice slight constraint.

New York right now is very, very strong from a revenue perspective, and we are pretty much tapped out there, so the only way we can grow now is to get 20 more seats on the airplanes.

Atlanta-Orlando for example, we have won 9 of 10 flights a day.

That is a good number of flights.

It is good flights for us to handle.

Orlando is very strong now.

Those are really big stretches.

A 20-seat growth in pretty strong markets is very, very manageable, and we are pretty happy with it.

If we were growing to from 117 seats to 175 seats, that puts big dollar pressure on your revenues, and we don’t have to worry about that.

I know it is a little bit early Bob, but is the internal revenue compensating you for the incremental costs you have on the heavier gate?

In fact we have 737 overall costs.

We are neck-in-neck on total seat costs all in on 2 airplanes. 737’s have a few advantages because of some of the purchase prices and the warranties.

Our seat mile costs -- our plane mile cost on both airplanes are almost identical, but we have 20 more seats.

So, that is really good news for us going forward.

A lot of people have noted some strength in the East/West markets.

Everybody has got the same feed back on the East Coast as you’ve got.

I am wondering if you see any strength there, and if that sort of speaks to any additional opportunities you have to use the 737 to hit more West Coast destinations from Atlanta?

Well, just a point [inaudible] certainly East/West is benefiting by reductions in capacity.

Our [RAZM] unit revenues are up high teens, unfortunately it is only 10% of our capacity, so it is very, very positive for us.

Unfortunately it is only a small piece and I think the indications are, we had very strong summer in those areas.

We are not planning on adding any new routes prior to the fall.

Quite possible we might add one late December or early next year.

Certainly it is very, very positive.

It is just not a very big play right now.

I think, Gary, the other thing that it does for us is it shows us that if we can get rid of excess capacity on the East Coast, there is pricing power.

Thank you.

Our next question is coming from Sam Panella of Raymond James.

What do you do in terms of fare increases and given that your average fare results about 4% year-over-year in the quarter, how do you see that trending going forward?

Well, I think Sam, some of that is tied to some of the East/West flying now is being done by AirTran rather than subsidiaries.

We took a number of fare increases really in the last 4-5 weeks.

In about 7, 8-14 days advanced fares, plus $10-15 in many cases.

So, in a way it was positive.

As you start to look out further as you go, you can see the average price of your bookings moving up.

But, at the same time, there is whole bunch of other things going on in the market place.

I would say I focused on the multitude of some of these being very, very aggressive, almost panic-like fares we are seeing in the marketplace by Independence Air.

The kind of pricing they have in the market is stuff we really haven’t seen in a decade.

And, that tends to pull the average prices down the other way.

So, we are still upward pressure in certain markets, but with the excess capacity, the booking curves tend to move out further.

When booking curves get longer in many markets, that depresses fares, so -- raising the prices $10-15 is a positive, but you are not going to end up realizing that gain.

You are only going to net our a few dollars of those increases.

How do your advanced bookings look?

The March, May, and June look actually they look very, very good, especially as we move into the East/West.

Actually all throughout the system, June in particular, could be a real bang up month.

Thank you.

Our next question is coming from Mike Linenberg of Merrill Lynch.

Just a couple here.

One of your key competitors in Atlanta on their call they talked or highlighted big share gains in LCC markets, and I think they specifically mentioned Atlanta.

I am just curious if you guys are actually maybe seeing less shift or loosing some share, or maybe it is just a function of very strong leisure demand.

If you can comment on that?

Mike, I mean actually, obviously if you can make comments without having much data to back it up, but Delta is about 80 flights.

When you have 80 flights, you are going to shift-share from some of your own markets, and you’ll shift-share from us just a mathematical exercise.

But, if you look at their unit revenues improvement of -3% domestically and look at ours, I mean, the facts don’t really add up.

They had 5-6% domestically and the unit revenues are down 3%.

We added 20 some percent, and ours are flat.

So, demand doesn’t really work out as far as I can tell.

They’re capacity in markets where they haven’t made money in years, and they continue to do it.

So, we think as long as our costs continue to go down, we are going to win this thing.

It really is hard for me to comment on that because supporting evidence does not back up what they are saying.

That is helpful, Bob.

Then I guess my 2nd question is, and maybe this is also directed to you, Bob is, you mentioned about excess capacity on the East Coast but we are starting to see some airplanes come out.

I mean we’re going to see independent [inaudible] lets call it 24 RJ’s you know over the next couple of months and I think US Airways is full you know 9 or 10 A319’s but I think they just announced now that another 11 737’s are going to come out.

When you look out over the next couple of months is there any sort of data or you know points that you can throw out there when you look at your market capacity?

What do you see today maybe versus a year ago anything that gives us a sense that we are seeing it come out in some of your markets?

Well you know we’ve seen -- the US Airways restructuring actually kind of went into our back yard and so did the downward restructuring.

I think those capacity changes with fuel at $55.00 a barrel it’s simply it doesn’t add up.

So it really is a matter of just kind of at some point, that marginal capacity is really very, very expensive.

If you look at what has gone on in the East West.

I think it’s kind of a good example of what we think we’re going to see.

The last year when we did these kinds of calls, anybody from the East West was seeing tremendous downward pressure and eventually a couple carriers cried uncle.

I think that is going to happen now.

If it doesn’t happen eventually, the guys are going to have to file bankruptcy.

The simply can’t sustain flying at excess capacity with fuel prices at $55.00 a barrel.

I think that really is the way we see it.

Again, regarding our capacity you know we’ve had a pretty heavy growth plan.

At some point, we actually considered slowing our growth down if fuel stays a where it is and if we had some attractive offers we would consider moving some airplanes.

Generally $55.00 a barrel and you really have to debate what the appropriate level of growth is.

We think we’re going to see a huge drop on the East Coast.

Certainly if we don’t see it in three months, we’re going to see it in six.

But eventually if we had to reduce some of our growth, we would do so as well.

Okay.

If I just heard you correctly on an earlier point that you made, whatever Independence in US Airways is pulling out of plans to pull out.

It’s very likely that the capacity situation may still be worse than a year ago given that Delta has moved Dallas to the East and Pittsburgh also with really right of the Eastern Seaboard.

I think that’s fair.

The Independence capacity though carries a lot worse pricing with them.

What they’re charging is in fact, even some carriers aren’t even matching some of the stuff it’s so low.

Ultimately, with that fleet with that cost structure it’s -- they can’t continue to grow.

In fact, they’re opening all these West Coast stations in a very short period of time; may even accelerate the weakness.

Sounds like Braniff in ’81.

The next question is coming from Jamie Baker of JP Morgan.

Actually, your response to Mike’s question answered my first question.

So onto the second one.

How do you plan to respond directly to any vacancy that occurs in Washington Dulles?

First of all again I guess we have a kind of a view that of the three Washington Airports, Dulles has got the weakest global market base; number one.

Most of the stuff that Independence is flying United is duplicating.

So really, it’s almost at full capacity we sort of get back to where we were let’s say about twelve to fourteen months ago.

We would consider perhaps doing Orlando, which is a market that is very, very strong for us.

But for the most part, I guess we’d like to see the pricing improve.

Pricing in Dulles is impacting us in Baltimore, Florida and Upstate New York and certainly Boston.

So the biggest problem there tends to be the prices.

But we don’t really plan on a big move in Dallas.

Except we would consider one or two foreign markets but that’s about it.

Our next question is coming from Helane Becker of Benchmark.

I have three questions.

One is can you say what your business niche is between business and leisure?

Our business -- and to tell you how we do it.

We try to do it aside to ticket perimeters and inside of seven days is about 25%-30% of our customers and probably about 40%-50% of our revenue.

That’s how we would describe it.

We actually think the actual number of business passengers is higher but just moving out on the booking curve versus a couple of years ago.

Okay and then my second question is kind of tied to that is with respect to elasticity I think you might of said Bob or Jim might of said that the booking in June looked very, very strong and that’s even after prices have moved up I think $10.00 or $15.00.

So are you not seeing very much elasticity then?

It really is hard to tell.

One could say that last year we sub optimized markets so you really have to look at the stuff over a long period of time but it appears that -- now again last year’s prices were absolutely so low that a customer who paid $198 last year is certainly willing to pay $230 this year.

We’re also -- actually, we’re also being much more selective of how we advance these fares versus a year ago.

Some of these routes to the West Coast are very secure risks.

Some of the peak day pricing is still low so we have to match something.

We’re relatively small and we’re trying very hard to be selective and it appears that the demand is strong enough -- that’s again we can hold out with our limited footprint on the West Coast.

Okay, and then my last question is with respect to training costs on the new 737’s and how that’s going and if we should see any improvement?

We’ve got a pretty steady flow of airplanes coming in Helane.

So we’re at sort of a constant run rate now in training both pilots and flight attendants.

We’re well along in our mechanic training and so I don’t see -- there won’t be any bubbles and there won’t be any benefit is really sort of a steady state situation.

Okay, that’s good to know.

Our next question is coming from David Strine of Bear Stearns.

Well thanks you guys have been pretty thorough but just a couple more questions.

In the new cities that you started, how are those ramping up in terms of business that you’re seeing better than what you typically see or about the same?

Well we have -- we’ve got two under our belt.

We opened up Sarasota late in December sort of, as we moved into the peak.

So it really had the same results of a typical Florida market.

So fortunately, there was no spool (ph) up.

Indianapolis, which is about two weeks old -- and we have Atlanta and Tampa service and they look really good because again we really timed it to ATA’s exit.

So we were planning on going in June and basically moved it up to coincide with their pull down.

So we got two good ones right out the box.

We start Charlotte shortly.

Booking curve looks pretty good again, we’re kind of moving into the peak season.

It is going to be very competitive.

I think US Air will be very aggressive.

But I think we’re hitting the market very, very right.

And again finally, Richmond, which is our fourth market, is about 60 days away a little bit too early to tell.

But fortunately, we have seasonality going for us on those markets.

I think we have -- If you have a look at the revenue improve you’d like to see some improvement to some of your traditional routes which have much lower yields than two years ago.

We actually made the decision based on the Charlotte last year when we got out of Greensboro; we just didn’t withdraw from the North Carolina market but decided Charlotte would be much stronger and we just waiting until we went into the spring season.

Rather than try to enter that market during the winter period.

Stan I think you mentioned that employees aircraft fell to about sixty-six.

How low can that actually go?

Are you guys kind of bottoming out there or do you think you can get more out of that?

Well we think we can get more out of it because as the 737’s come in; their going primarily to increase frequencies in existing markets and then next to connect the dots so where there is no linear addition of head count is required of the pilots or flight attendants.

It’s too early to give you proven guidance but I think you can expect that trend to continue.

Anything incremental on the flight attendants?

Oh, no, we are still in negotiations with them and it’s hard to predict when we will reach an agreement but I would say the talks are moving along; slower than we would like but we are in mediation and I think we’ve got a good mediator and he’s moving things along.

So that’s all we really have to report at this point.

Okay and last, question this bigger issue sort of a policy question.

You know there have been some bills that have popped up on Capital Hill recently with respect to pensions and funding of defined benefit plans.

Do you have a position on that?

Do you think it is good public policy to advertise these over a much greater period of time than what version to the old law would be and do think it’s healthy for airline industry?

In either way are lobbing in anyway for it or against it?

Well we’ve been lobbing.

We’ve been very vocal, frankly.

I’ve personally been very vocal about the government staying out the airline business.

The notion of the government deciding who the winners and losers are going to be.

I find it interesting that last week a Delta spokesman was quoted as saying all we want is a level playing field in Wichita where they are trying to interfere with our arrangement with the city.

But at the same time they’re lobbing the State of Georgia for fuel tax relief and they’re lobbying the federal government for pension relief.

So you know the last thing they want is an unbalanced playing field.

So we’ll be in there lobbying through our trade association with others.

I’m not saying that there shouldn’t be some type of relief.

For twenty-five years, especially in the airline business is ridicules.

Perhaps some deal where they have some deferral but if they hit certain targets, they have to make payments; might help them squeeze through this thing.

But not put the taxpayers at risk for twenty-five years.

Okay, thanks for the comments.

I appreciate it.

Our next question is coming from Andrew O’Connor from Wells Capital.

Andrew O’Connor: You know for somebody whose relativity new to AirTran and maybe for Stan, can you briefly review your philosophy in managing the balance sheet including the cash you have on hand and your intended use of the cash in your term?

Sure.

What we’ve been doing is pursuing the strategic of incrick (ph) and liquidity.

We’ve made a lot of progress over the twelve to eighteen months in that regard as well as paying debt or replacing the debt with coupon debt.

So improving liquidity reducing the debt are the two primary drivers.

Building core asset value is number three and what we’re doing to address that goal is to increase the mix of owned aircraft versus leased aircraft on our balance sheet.

And where we have opportunities to improve assets in the future we’re going to -- we’re gong to take advantage of that.

So just to summarize improve the liquidity, reduce the debt and build core assets value on the balance sheet.

Andrew O’Connor: Okay and then Stan I missed it what was cash at the end of the first quarter in debt?

Cash as the end of the first quarter was $371.9 million and that was up about 8%, and then debt at the end of the quarter was about $311.7; that includes -- the increase their primarily was the aircraft that we purchased in ’04.

Andrew O’Connor: You mentioned the modernization of the [inaudible].

Oh, right yes, as I said in my prepared remarks.

We’re very close to raping up modernization our ’05 deposits.

The number that I quoted of $82.5 million; that’s over and above the cash of short-term investments now that we have on the balance sheet.

And what that will mean is that we get a refund of that cash from the financing party that we’re working with.

More importantly, we are close to concluding a deal for ’06 to that as well.

So, we may be able to in short-term here improve the liquidity of the balance sheet even more by monetizing those deposits that are currently held by Boeing.

Andrew O’Connor: Okay.

That’s helpful, and then are you willing to hazard an estimate for cash flow for ’05.

You were EBITDA negative in the 1st quarter.

How do you see it trending for the rest of the year?

Yes, it is negative obviously because of [multiple speakers] At this point I would just say it is going to be contingent on where fuel goes.

Andrew O’Connor: All right.

That is all we have.

Thank you and our final question is coming from Gary Chase of Lehman Brothers.

Just a quick follow up for Bob.

I was wondering, and I know it is obviously a small piece of the system, but was wondering if there was any discernable impact in Dallas following Delta’s dehubbing?

Obviously that is not going to hit Atlanta, but in your other markets like Las Vegas and L.A., etc.

Before I answer that question.

I think it was you, or somebody asked about bookings, and I mentioned May looks good and June looks exceptional.

April’s load factors will be down versus last year, and that is pretty much tied to the, I think the Easter shift if fairly big and so it did give March a boost from our entire domestic industry and you will see the impact for the industry in April.

You will see pretty good downward movement in load factors.

I did want to point that out.

Regarding Dallas, it is actually pretty interesting.

We saw some impact, especially in Orlando and in Atlanta-Dallas, which were fairly strong and we have been in there for years.

So, I think last year, Delta’s loans are very, very weak and they have been primarily carrying connecting business in Dallas.

They were doing very poorly in the local market, and so when they changed their system, they basically tied in a lot of these southern cities into Salt Lake City into Atlanta and they just recaptured their flow.

So, I think we saw some positives in a handful of markets, but in general it was not a real big push.

I don’t know what the industry is seeing.

Delta was not carrying that many locals in its last days in Atlanta -- or Dallas, excuse me.

Okay.

I will now turn the call back over to Mr. Leonard for any closing remarks.

Okay thank you very much operator and thanks for joining our conference this morning.

Obviously we are disappointed when we are not reporting profit, and we did not report a profit in the 1st quarter.

Although, it is not a gloom and doom scenario.

We [inaudible] 4% in that context, we raised our load factor 2 points.

We had a flat RASM versus a negative RASM for some of our major competitors.

In our marketplace, our non-fuel costs were flat, and will go down fairly significantly in the 2nd, 3rd, and 4th quarters.

That is in a context where fuel costs were up astronomically in our worst quarter, and in the worst environment than the industry has ever seen.

So, it tells us that we don’t need to do radical changes to our strategies, or to our business plan and we will stay on course.

The only caveat I put to that is one that Bob brought up earlier.

We have talked to a couple of parties about laying off some airplanes, if in fact fuel stays up in these ranges, or in fact if there is no significant capacity reductions in the intermediate term.

So with that, that concludes my comments operator, and thanks very much for joining us today.

Thank you.

This does conclude this morning’s teleconference. [OPERATOR INSTRUCTIONS]