西南航空 (LUV) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, my name is Ian and I'll be your conference facilitator today.

At this time I would like to welcome everyone to the AirTran Holdings fourth quarter year end conference call. [OPERATOR INSTRUCTIONS] It is now my pleasure to turn the floor over to your host Mr. Arne Haak.

Sir you may begin your conference.

Good morning everyone, I want to thank you for joining us today for AirTran Holdings fourth quarter and full year 2005 earnings call.

Joining us today is Stan Gadek, our Chief Financial Officer;

Bob Fornaro, our President and Chief Operating Officer, and via conference call, Joe Leonard, our Chairman and CEO.

Before we get started, we will begin by reminding you that this call may include forward-looking statements.

And our actual results may differ materially from these statements.

These statements are not historical facts and instead you should consider them as time sensitive forward-looking statement that are accurate only as of January 24, 2006.

If you 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 in 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 our 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 reconciliation of these non-GAAP financial measures is available on our company's website at www.airtran.com.

At this point, I with like to turn the call over to Stan Gadek, our Chief Financial Officer.

Thank you Arne, and good morning everyone.

Today, we are very pleased to announce net income for the full year of 2005, making this our seventh consecutive year of profitability. 2005 was again marked by intense competition, high energy prices and hurricanes.

It was also a year which ended with strong unit revenue growth, the delivery of 18 airlines and record passenger load factors.

Everyone at AirTran is proud of what we accomplished in 2005.

As well as mindful of what lies ahead.

The competitive landscape while changing has not become any easier to navigate given the additional carriers now operating under bankruptcy protection.

Add to this mix persistently high fuel prices and it is clear that the industry is still faces significant hurdles.

Yet there are a few bright spots and AirTran is one of them.

We have remained profitable while operating in some of the most competitive markets in the United States.

While continuing the growth of our network.

As the industry restructures, AirTran will continue to do exactly what it has done to date.

We're improving our product, adding new airplanes and lowering costs while raising productivity.

This is the basis of our plan, which will benefit from the emerging trends in the marketplace.

The most apparent development is that excess high cost capacity is beginning to exit the market.

For some time legacy carriers have added capacity believing that the marginal cost was insignificant while also serving as a deterrent to low cost airline growth.

What they did not anticipate was the impact of higher fuel costs and the dilution of their own revenue base.

The outcome was fairly predictable.

Airlines lacking positive cash flow could not fund the cash burn resulting from this strategy.

As a result, capacity has begun coming out and some forecasters project a net reduction in U.S. domestic capacity of 3%.

In our markets, the competitive capacity reductions have been on the order of double digit or more and we believe this trend will continue.

The simple fact is that legacy carrier capacity remains high in cost.

In particular, the direct operating costs of older aircraft may only be addressed by replacing the fleet with new aircraft.

Hobbled by weakened balance sheets and negative cash flows it is doubtful that some carriers will be able to renew their fleets anytime soon.

This is further reinforced by the fact that the mid-size narrow body production of Boeing and Airbus is nearly sold out through 2010.

As a result, there will be further reductions in capacity, which will lead to an improving revenue environment.

Air travel is still a tremendous bargain and demand is such that we should be able to increase yield and unit revenues.

In fact we are seeing this in our most recent quarterly results.

In addition, we're also seeing the end of ultra low discounted fare sales by distress carriers such as Independence Air.

This is a very positive revenue trend and indicates that we maybe entering a more rational competitive environment on the East Coast.

Overall, we believe that the changes taking place are positive for AirTran.

Improving revenues and the opportunity to deploy new aircraft as high cost capacity is withdrawn, will lead to profitability, even in an environment of continued high fuel prices.

At this time, I would like to talk about our metrics.

During the fourth quarter, AirTran took delivery of four 737 aircraft and two 717 aircraft.

As of today our fleet totals 106 aircraft consisting of twenty-one 737s and eighty-five 717s.

On a year-over-year basis fourth quarter capacity as measured in available seat miles increased 25% as a result of new aircraft deliveries and a 0.5% increase in stage lane from 649 miles to 653 miles.

Traffic or revenue passenger miles increased 28.9% resulting in a load factor of 71.5%.

Up 2.2 points representing an all time fourth quarter record.

For the full year capacity increased 28.3% and stage length increased 3.7% to 651 miles.

Combined with a 33.3% increase in RPMs load factor for 2005 was up 2.7 points to a record 73.5%.

Average fare for the fourth quarter was up 13.9% to $89.

Compared to $78.12 in the fourth quarter 2004, driven by a 12.4% increase in yield to $0.1319.

For the full year, average fare increased 9.7% to $83.77 as yield increased 4% to $0.1233.

As a result of the yield and load factors improvements, fourth quarter unit revenue gained 15.7% to $0.942 for the fourth quarter and 8.1% to $0.0907 for the full year.

During the fourth quarter, AirTran served nearly 4.4 million customers an all time record up over 27%.

For the full year AirTran's passenger count topped 16.6 million representing an all time company record.

Looking at costs AirTran's non fuel unit cost increased 1.8% to $0.0611 from $0.06 in the fourth quarter 2004.

Included in the fourth quarter, was a charge of approximately $2.6 million, related to the Wendy's and Coca-Cola promotion representing the estimated fair value of the flights to be awarded under the program.

Excluding this item, AirTran's non fuel unit costs were $0.0605 representing a 0.8% increase year-over-year.

For all of 2005, non fuel unit costs declined 1.6% to $0.0625 from $0.0635.

Operating costs including fuel on a fuel neutral basis were up to 0.07% to $0.838 in the quarter and down 1.9% to $0.0826 for 2004.

Fuel neutral CASM includes fuel costs suggested or comparable fuel prices for the year earlier period.

Operating costs including fuel increase 17.3% to $0.0976 in the fourth quarter and 10.8% to $0.0933 for 2005 year-over-year.

The higher operating unit costs reflect the increased cost of fuel per gallon of 61.1% and 53.6% respectively.

For the fourth quarter and the year, AirTran reduced fuel costs by $2.9 million and $38.9 million respectively as result of fuel hedging.

Average daily utilization increased 1.7% from 10.9 hours to 11.1 hours in the fourth quarter.

By fleet size, utilization was 11 hours for the 717 and 11.8 hours for the 737.

For the year, utilization improved half a percent to 11 hours.

Reviewing our fourth quarter operational performance completion factor was 99% .

On-time arrivals were 72.6 and baggage claims were 3.3 per thousand.

Now I would like to review our financial performance.

For the fourth quarter and full year 2005, AirTran reported a net loss of $364,000 and net income of $2.7 million resulting in break even earnings per share for the quarter and $0.03 per diluted share for the year.

Passenger revenue for the fourth quarter increased 44.8% to 390.6 million compared to $269.7 million in 2004.

Full year 2005 passenger revenue increased 38.6% to nearly $1.4 billion compared to about $1 billion in the prior year.

Both the quarter and full year revenue numbers are all time records for AirTran.

Looking at the individual line items of expense on a unit cost basis, salaries, wages. and benefits were down 5.5% to $0.0212 from $0.0224 for the quarter, and down 6.3% to $0.0214 from $0.0228 for the full year.

The continued reduction and labor unit costs primarily reflects the increased productivity driven by higher block hours in the new aircraft.

FTE's per aircraft dropped 6.1% from 68.2 to 63.8 FTE's at the end of 2005.

Fuel expense on a unit cost basis rose 57.2% to $0.0365 cents in the fourth quarter and 48.6% to $0.0308 for the full year.

The increased fuel cost while somewhat offset by fuel hedging resulted primarily from the significant price increases throughout the year as well as the run-up in fuel prices following hurricanes Katrina and Rita.

Aircraft run on a unit cost basis increased slightly to $0.0123 to $0.0122 in the fourth quarter and decreased 0.7% from $0.0126 to $0.0125 for the full year.

Changes in rent unit costs reflects the mix of owned and leased aircraft delivered in the fourth quarter and the full year of 2005.

During the fourth quarter, AirTran leased six aircraft and for the full year we purchased three aircraft and leased 15.

Distribution expense unit costs began to decline in the fourth quarter 1.5% to $0.004 primarily reflecting the reduction in costs associated with our new GDS agreement which became effective in the fourth quarter.

We expect the trend of lower distribution costs to continue in 2006.

The full year unit costs were up 3.2% to $0.0044 reflecting an increased percentage of travel agency sales as well as higher revenues.

During the fourth quarter, 58% of our revenue sales were made by airtran.com and all internet sales increased from approximately 70% to 72%.

In addition, over 56% of our customers checked in for their flights using internet or airport technology, representing a 5.4 percentage point increase over 2004.

Maintenance, materials and repairs, unit costs increased 43.5% to $0.0066 per mile for the quarter and 14.3% to $0.0066 for the full year.

The increase in the fourth quarter, 2005 unit cost reflects in part the unusual low maintenance unit cost in the fourth quarter of 2004 as well as higher maintenance cost for the 717 aircraft going forward.

This can be seen in the maintenance cost per block hour rates of $182 in the prior year compared to $264 in the fourth quarter of 2005.

Looking at the full year, maintenance cost per block hour shows a more representative run rate of $266 per block hour for 2005 compared to $224 per block hour for 2004.

These rates are for the combined fleet at year end of 85, 717's and 27, 737s.

Landing fees and other rent unit cost declined to 4% to $0.0047 cents in the fourth quarter and increased 1% to $0.0053 for the full year.

The fourth quarter reduction reflects changes in airport rates in the mix of airports served.

Aircraft insurance and security services unit costs dropped 20.2% to $0.0015 from $0.0019 in the fourth quarter and 21.3% to $0.0015 for 2005.

The reduction in aircraft insurance and security costs reflects lower insurance rates in 2005.

Marketing and advertising unit costs increased 5.9% to $0.002 for the fourth quarter, but decreased 2.8% to $0.0022 for the full year 2005.

Included in the fourth quarter marketing costs is the previously mentioned charge for the Wendy's promotion which will reclass to revenue in 2006.

Depreciation expense unit cost declined 9.3% to $0.0013 for the quarter and increased 3.5% also to $0.0013 for the full year.

As with aircraft rent, depreciation expense varies primarily as a result of the timing of purchased aircraft deliveries.

Other operating expense unit costs increased 12.6% to $0.0075 for quarter and decreased .4% to $0.0073 for 2005.

The increased unit cost during the quarter were due primarily to increases in passenger services and supplies as well as increases in professional and technical fees.

The company recorded fourth quarter operating income of $3.6 million and full year operating income of $14.9 million.

The increase in fourth quarter operating income resulted from increased revenues.

Looking at the balance sheet, AirTran ended the fourth quarter 2005 with total cash and investments of $390.1 million of which $19.4 million was restricted.

In addition, the company has deposits with the Boeing company net of pre-delivery deposit financing of $46.6 million.

Long-term debt increased $101.8 million to $387.4 million reflecting the debt related to new 737 deliveries.

And now I would like to provide guidance for 2006.

Starting with unit revenue, we expect to see double digit unit revenue growth in the first quarter.

Capacity additions by quarter on a year-over-year basis are projected to be for Q1, 23%, Q2, 20%, Q3, 27%, Q4, 23% and for the full year 23%.

Aircraft deliveries by quarter will be in the first quarter, five 737s.

In the second quarter five 737s and two 717s representing the final deliveries.

In the third quarter, three 737s and in the fourth quarter, five 737s.

Non fuel unit costs by quarter, on a year-over-year basis are estimated to be in the first quarter up 2 to 3%.

Second quarter, up 2 to 3%.

Third quarter, down 2 to 3%.

Fourth quarter, down 1 to 2% and for the full year flat to slightly down.

[Inaudible] fuel prices per gallon and percent hedged by quarter are for the first quarter, $2 to $2.05 a gallon with 37% hedged.

Second quarter, $1.90 to $1.95 a gallon with 34% hedged.

Q3, $1.85 to $1.90 a gallon with 22% hedged.

Q4 a $1.90 to $1.95 with 20% hedged.

Our projected total fuel price per gallon for the year is in the range of $1.95 to $2.05. 2006 deposits for future aircraft deliveries net of PDP financing will be $26.2 million.

Non aircraft CapEx is expected to be approximately $25 million, and our effective tax rate for the year will be between 38% and 40%.

In conclusion, we would like to thank our frontline crew members who serve the customer everyday.

AirTran's growth during 2005 set many records for which we are proud.

AirTran's success now and in the future will ensure the continued growth of our company, and the opportunities which -- that provides for each and every employee.

To our many new and existing customers, we again thank you for your business.

Your support enables us to offer low fares and great value.

Finally, we want to acknowledge the support of our shareholders and pledge that we will continue to keep our costs down and do everything we can to generate the profitability that you expect.

Today's airline industry is undergoing significant change in just about every way that one can imagine.

The revenue environment, direct operating costs, and the competitive landscape are all in a state of change.

Yet, against this backdrop AirTran is on course to achieve sustained growth and profitability.

We believe we have the plan and the people to make this happen.

And now industry trends are beginning to align in a way which will further support the achievement of our goals.

Ian, at this time I would like to open the call for questions.

Thank you,. [OPERATOR INSTRUCTIONS].

Our first question comes from Jim Parker with Raymond James.

Good morning to all.

Good morning, Jim.

Regarding maintenance, Stan, would you give us a bit of an outlook for cost per hour, where you think it's going because you have more 717s coming out of warranty but at the same time you have more new 737s coming in.

What is the balance there?

Yes, I think at least through '06, Jim.

We'll probably see increases in the unit costs for maintenance.

We'll probably see maybe a turn around in '07 as we get a critical mass of 737s giving us this offsetting cost but 737s are out of warranty.

They're definitely requiring more maintenance and probably for the foreseeable future here we'll continue to see that trend.

Okay.

And a second question regarding Delta's removable of capacity, which is substantial out of Atlanta.

Any chance to get some of those gates that Delta has or what is the gate situation in Atlanta and the availability for AirTran to get more?

Jim, the gate situation in Atlanta.

I don't believe Delta has any plans on giving up any gates at the airport.

From what I hear they maybe giving up some support facilities but they're utilization rates of their gates are still pretty good so I don't think any gates are going to go back to the the airport.

Regarding additional gates, there are a few gates available on one of the concourse's and I think we're in a position to get our share with those.

So we think we can expand in two ways.

One by getting a few more gates, but also increasing the utilization on some of the gates that we already have.

So we do not see any issues for expansion over the near term.

Bob, in that context, how much increased utilization could you achieve in Atlanta with existing gates?

I think our utilizations in the seven range, and I think at some point as we get bigger, you can squeeze that up to 8.5 to 9.

So you have a chance to increase that platform again - and that's a real possibility once we get the fifth runway in Atlanta.

Atlanta as an airport has been a tough place to operate over the last 18 months but I think going forward there are some opportunities to expand, especially as the air fields capabilities improve.

The other thing we can do, Jim, is upgauge equipment from 717s to 73s and get capacities that way as well.

Thank you,

Thank you, Jim.

Our next questions is from Ray Neidl with Calyon Securities.

Yes, Stan you talked about unit revenues double digit in the first quarter, do you venture to give us your estimate on what it might be for the rest of the year?

Ray, I think it's too early to make a forecast for the year, I think we expect to see double digit in the first half anyway.

I still think there's going to be changes in the industry in the second half.

If fuel stays where it's at, I think you'll see more capacity [full out] -- particularly the last four or five months of the year and that may give us a boost, but clearly from a capacity standpoint we can get a pretty good read on the first six months and we think we'll see double digit increases.

I believe others will see double digit increases as well.

Again in the near term looks pretty positive.

I guess you said that if capacity is coming out of your market double what it is for the industry that gives you some pricing power even in the second half of the year if those trends continue.

I think that's a real possibility and to go through a general question about revenue.

You know the [FLYi] capacity is finally gone and that was clear situation where we had a lot of downward pressure on pricing and I don't believe there's going be a lot of back filling of the [FLYi] capacity.

So I think that's a positive from a pricing perspective.

Certainly the Delta capacity in Atlanta and particularly east of the Mississippi is very positive.

You're talking about 13 to 15% reduction in capacity.

And the U.S. airways the big hubs of Philadelphia and Charlotte I believe the capacity is down about 13 to 14% as well over the next three or four months.

So that's a pretty good positive.

The one area that you don't see capacity improvements are in New York and Boston to Florida.

And we're really not a player in that area.

We're in a pretty well protected environment right now.

And, Bob, when you pulled back from Dallas, you said that there where just so opportunities in the East that's where you wanted to concentrate but yet I see you entering a high cost airport way out in the far west Seattle.

I'm just wondering why you decided to do Seattle at this time.

It's seasonal.

And so it's not a long term commitment it fits very well with our seasonal Forest services.

If you look at any kind of matrix, the summer, the traffic from Memorial Day to Labor Day is probably 150 to 200% higher than the average month.

Seasonal it's a very very low risk.

In generally speaking, our stage length is going to be flat this year, including that Seattle service, which means we're really focused on the east of Mississippi from a capacity standpoint.

Great, thanks a lot.

Thank you, Ray.

Our next question comes from Michael Linenberg with Merrill Lynch.

Good morning.

Just - I guess two questions here on the recent announcement about service out of White Plains.

Where in the parking rights there, you know, how many did you get, how many flights can you offer from there.

Did you buy them from Independence and if so, what was the value you paid for them?

We did buy them from Independence .

I guess I'm not sure whether I can mention the price, so I won't, but we think we can operate -- approximately seven flights a day up there.

Again, it's one of these things that came up at the last minute .

We look at our situation in New York.

Right now we're capped at Laguardia.

I don't know see slots being removed.

We're somewhat limited in Newark and we think for us this is perhaps a better solution than trying to open up JFK.

So, again, it's not going to be a very large operation, but we think it's one that will -- that will complement what we're doing and spool up pretty nicely.

Okay, then just my second question.

You know, you definitely deserve credit for being rational - I think the latest evidence of that was you deciding to withdraw from Boston to Dulles.

I mean it was service you hadn't started up but United had ramped up service there and then JetBlue went in after you announced the service.

Sort of contrary to that or on the other side of the coin of that is Delta 's recent service announcements out of Orlando into some very small and unique markets.

I think there are five or six markets they just announced where you're the only player in some of these markets to middle America like Newport News and Bloomington, et cetera.

What does it do to the market?

In fact, some of those markets I think you're less than daily, with Delta coming in, what shakes out there and anything that you can elaborate on that on how it affects your planning and thinking going forward?

[inaudible] just to mention the Boston to Dulles is a route we're interested in but to be honest with you I am not even sure two carriers can make money in that route.

We just looked at and said to ourselves.

This industry -- a lot of chest pounding in this industry and not very good numbers.

We said to ourselves we're going to protect our Boston-Baltimore franchise and let the dust settle on Boston-Dulles over the next 12 months.

But regarding the situation on these Delta announcements with RJ's, we announced we were going to fly seasonal service to Atlanta - Seattle and a day or two later Delta announced they were going fly to some of these Orlando markets.

And to be honest, this is stuff that Delta has been doing for the last five years.

And they're going to lose money and then they're going go back to their boys and ask for concessions.

It's been a patten of behavior that the last couple of managements at Delta has exhibited.

They're going lose money and we're not going to be influenced by it.

There's kind a belief out there that the legacy carriers will add capacity and push the low cost carriers around.

That maybe true for some of the weaker low cost carriers but it had never been true at AirTran.

We've got financial staying power.

We've got low cost.

We've got some measure in diversification.

To be honest with you, we're just going to ignore it and at some point, they'll lose money and they'll pull the flights.

If they want to stay in, then they will be going go back to their employees and asking for more concessions.

I would say at some point at Delta, maybe perhaps they'll be looking out for the shareholder or perhaps even for themselves and start managing like it's their own money.

That's just typical airline retaliation, which we're just going to ignore.

Mike, let me add od to that.

I think this is -- first of all one of the airport directors involved in the situation has asked Delta not to provide the service which is the first time I've ever heard an airport director not want service.

But they see through this and they see us as a long-term player in their city and they see Delta playing these little games and know they're only there for the time being.

But I think this really speaks to this whole bankruptcy issue and the unfairness of bankruptcy.

Here you have Delta not paying its debts renegotiate airplane leases, et cetera., up at the Congress asking for pension relief.

Over at the Georgia state legislature asking for tax relief and doing silly things like this.

It really shows what 's wrong with the bankruptcy process in the U.S.

I don't think that's going change, but it really gives companies the ability to go do silly stuff like this.

Well, thank you.

Our next question comes from Gary Chase with Lehman Brothers.

Good morning, guys.

Good morning, Gary.

Hey, just a question based on Stan's comments about unit revenue in the first quarter and clarifying something that I think Bob, you were answering Ray 's question.

As you look at the capacity situation you were talking about double digit declines, it gets better as we move into the first and second quarter, doesn't it?

It gets especially good from February through April.

I think in terms of absolute improvements in the industry, I think that's going to be a period of very good improvement.

Last year I say all of the flooding of capacity really hurt the traditional Florida traffic flows and Florida traffic season and we had an especially poor Easter period and spring bank period and I think it's going to be shaping up to be a very strong and much more traditional Florida peak season.

That basically will be mid February and they're probably going to last until late April.

With the late Easter season.

So I think that's where you're going to see very strong unit revenue improvements and very strong revenue overall.

And I think you're going to see it or you should see it for all of the players in the market.

Okay, so we shouldn't, I mean when you gave guidance on sort of where you would be for the fourth quarter, you were a bit more explicit than double digit.

We shouldn't read anything.

There's nothing changing that makes it more uncertain the competitive landscape is shifting in a way that is favorable if anything?

A couple of reasons why we think we'll be double digit, hopefully and probably in each month.

But the booking curves are changing as well.

And I think we're probably seeing is more close-in business across the industry and if that is the case then you get positive surprises.

So, to the degree that again the booking curve comes a little shorter.

That means that people are booking closer in and probably paying higher fares.

If that's the case you've got upsight.

Okay.

When you were answering that earlier question, did you mean to say double digit for the first half or was that first quarter?

I believe first quarter and the first half.

Okay, great.

And just the last one was more a strategic question.

When you guys think about the prospect.

Stan, I think, you mentioned further capacity reduction as you look down the road.

What do you think the source of that is.

I mean, this year you had growth by yourselves and some other carriers that was offset by substantial reductions, particularly Delta and Northwest but some other carriers as well.

As you look forward, what do you think is the source of potential reduction to actually get capacity down beyond say 2006?

Well, I think maybe two areas and again there maybe more.

But if there is some fleet rationalization at Delta and some additional adjustmented at Northwest Airlines, I think there's a chance you will see more capacity coming out there.

And again, if we stay in the high $60 barrel range.

I would suspect most of the companies have budgets much lower than that and at some point you'll reach a point where you will say, they're not going down, we need to act.

If you look at what happened last year, when fuel prices really spiked, that's when you saw the capacity come out.

I think there's probably a hope out there that fuel will go back below to $60 a barrel but it doesn't you're not going to see the results and then you're going to see further action.

So again, at $65, $68 a barrel there's not a lot of carriers that are going to produce reasonable result.

That's all hypothetical but I think if we stay where we are with these prices you'll see more capacity to come out in the second half.

Thanks a lot, guys.

Thanks a lot, Gary.

Our next question comes from Jamie Baker with JPMorgan.

Good morning, everybody.

Hoping for an update on the pilots, I believe negotiations are moving from Orlando up to D.C.

Just curious whether this is even relevant and secondly while I'm sure you don't want to negotiate in public, any guidance as to where the greatest negotiating disparity might be between yourselves and the pilots?

I think I wouldn't read anything into moving to Washington.

The process has really just begun.

We're meeting two or three days a week or two or three days a month has been the pace that we've been on and there doesn't seem to be any reason to believe that's going to change.

And you know our position has been that we're not interested in seeing any CASM increase that there are a number of things we could too with a contract to improve it.

And we're willing to do that but the net-net is we want to make sure the CASM stays about where it is.

Our pilots are now making $17 more an hour than the Delta pilots flying the same equipment.

We think - we had I think it's close to 30 pilots made over $200,000 last year.

We had several that made over $300,000, so we think our pay and benefits are of certainly comparable with anybody else's out there and in many cases ahead of this number.

And so, our focus is to remain productive and to keep our CASM low and we'll make adjustments to the contract as is necessary to fix the issues that pilots have but keep our eye on not letting costs get out of hand.

Reasonable enough.

And I don't want to put words in your mouth but does that suggest that your quarter by quarter [exso] unit cost doesn't incorporate any changes in one direction or the other as it relates to pilot economics?

No, it does not.

Okay, thanks a lot.

Solid quarter, appreciate it.

Thank you, Jamie.

Our next question comes from David Strine with Bear Stearns.

Thanks.

Stan, you mentioned non aircraft CapEx of $25 million.

What is the all end CapEx number for '06?

We didn't give guidance on that.

Other than to say that our net of PDP deposits for aircraft will be $26 million on top of that.

And that's about as much detail as we want to give at this point.

Okay.

In terms of maturing debt in the year still about $70 million?

Yes.

And any sense or can you give any guidance on what you anticipate stock option expenses to be in the year?

It's going to be actually about less than $1 million.

Okay.

And then last just a broader question.

There's a lot of focus obviously on Delta 's behavior but it seems your revenue overlap with Northwest is also very significant.

Can you contrast in any way at this point the difference in behavior at those carriers right now and how that may steer you in terms of your strategy over the next year or two?

Yes, Dave, again, they're both tough competitors, well, first of all.

There is every carrier here is pretty tough and I think clearly most airlines play pretty good defense, especially when you hit certain key markets.

You know, I think Northwest clearly wants to defend its Detroit - Minneapolis markets.

They actually as part of their bankruptcy restructuring have abandoned some capacity in Indianapolis and Milwaukee because at some point you've got to cry uncle.

Delta appears to go out of their way to compete.

It's not just with AirTran.

They're gone out and put RJ in southwest routes.

They've been very aggressive with JetBlue and somehow they have appointed themselves as the policemen of the industry.

It's been very very costly.

They're still doing some of the things they we're doing a year, year and a half ago.

The only solution that you can have is you've got to keep your cost down and stick to your plan.

Because if you start focusing on what they're doing, rather than what you're doing, you'll take your eye off of the ball.

Again, we just got to be patient.

And not that we're not very patient people bet but we just have to keep our eye on the ball and avoid these distractions and make sure they don't become a big focus of ours.

Again - so I'd say Delta is the most different from a competitive perspective than anybody out there.

Okay, thanks a lot.

Thanks.

Our next question comes from Elaine Becker with Benchmark.

Thank you very much operator.

I just have a couple of clarifying questions.

Stan, did you say what equity was for the end of year.

No, I did not and we'll put that in our 8-K.

Okay.

And then my other question is with respect to those booking curve so you're not going to give us equity.

I can give it to you now.

It's $352.5 million.

Thank you.

I appreciate that.

And then on the booking curve, Bob, I think you said that the booking curve was narrowing and getting shorter which obviously has huge positive implications for your yield.

Did you also say what your percentage of business traffic is and have you noticed an increase or shift in your mix that would possibly account for that?

Yes, again, part of the issue of the shift in the booking curve is something in part you do internally.

I think as capacity comes out, you can wait longer.

You know rather -- because you have a pretty good sense or good sense of confidence that numbers -- that the demand will be there.

So you have a tendency to hold out for higher fares.

That's just kind of a part of a process that I think is probably moving across the industry.

Regarding, again, business mix, it's hard to tell, we've looked at business mix as tickets purchased within seven days, and that number increased in the fourth quarter from about 23% in the passengers to about 28% and the revenue increased from about 40% to about 45%.

So, that's a quarter over quarter number so that's clearly a -- again a positive indication.

Again that's just tickets booked within seven days.

So, that's about the first time in a couple years, perhaps that we started to see that number turn up.

So good positive indicator of revenue.

Clearly, clearly that's an excellent indicator.

And then my last question is I got the aircraft ends, are there any retirements planned or just aircraft ends?

No retirements at all.

The comment on the ending aircraft is the 717 delivery schedule ends with the last two.

Great, thank you so much for your help.

Thanks Elaine.

[OPERATOR INSTRUCTIONS] Our next question comes from [Andreo] O'Connor with Wells Capital.

Good morning, gentlemen.

Congratulations on your quarter.

Do your routes out west, San Francisco, L.A., Las Vegas and now seasonal service to Seattle do they prestage additional destinations in between Atlanta and these locations?

What's your long-term goal.

Well, I think our long-term goal is to add additional ones.

We probably won't add another West Coast destination this year because our feeling is right now again the action is still east of the Mississippi in the short-term.

But the way our airline is structured, the West Coast is not going to be a big portion of AirTran's route network for a number of years.

It's still very very competitive, and prone to very big swings in unit revenue.

But again, Seattle is a seasonal service, we think it will do well.

It's a possibility that it could be an annual service down the road but again not right now and again, no other plans to open up any more West Coast destinations in 2006.

Okay.

How many flights per week would you figure on to Seattle summer service.

14.

Two round trips a day.

Round trips a day?

Yes.

Okay, guys, thanks very much.

Thank you.

Our next question comes from Bob Machado with Prudential.

Hi, just a couple quick ones.

The other operating expenses are up 40% when capacity is only up 25.

What all cause that?

In there, we have expenses related to our XM radio as well as we've turned over some of our ground handling now to third party operators at some of the outlying stations.

Those are the two primary drivers of that.

Those unit costs at that level are going to stay at that level.

Are we going to continue to see the thing growing faster than capacity?

I don't think you're going to see it continue to grow at that rate, Bob.

But you're going to see quarterly fluctuations and I don't expect it to be continuing to grow at that run rate going forward.

Okay, the other thing somewhere I missed the whole concept of what your Wendy's promotion was, can you explain what that was so we can think about when the revenue side of that is actually going hit in 2006.

The way it works is, and it's simply a book keeping entry without going into an accounting lecture here.

There's no such thing as free in the accounting word.

Even free tickets.

So what we had to do was book the fair market value of an equivalent ticket and set that up as deferred revenue.

And - -

I guess I'm really trying to understand this.

When was it?

What was it?

Who was it offered too?

Some of that kind of stuff.

What it was was really a promotion.

Wendy's and Coca-Cola promotion and we were the prize.

Free tickets on AirTran were the prize.

And so we entered it, we all three think this is a remarkable success.

Wendy's is ecstatic.

It's beyond anything they imagined as far as interest in it.

It only ran for about six or seven weeks.

It started in November, ended December 31st.

And what it was, is if you buy Coca-Cola at Wendy's in certain quantities and you saved up the coupons you could get a free trip on AirTran.

That was in the Atlanta area or all over the East - ?.

It was all over the U.S.

And that was what we were interested in because with the exception of a very few Wendy's it was promoted across the country.

All 50 states with Coca-Cola's support.

So we got just a tremendous amount of marketing out of it that we could never afford to buy.

How many hamburgers or Cokes did you have to buy to get a free ticket ?

In terms of a round trip its about 64 cups so you had to to a lot of drinking.

Wow.

Okay.

We also gave a priority for those people to use the restroom in flight.

Bob, one of the other things to tie in.

It was actually you had to join the frequent flyer program.

You had to get on the list.

So there's all part of building our propriety - -

In my trips to Wendy's I didn't see it in this part of the country.

You were probably buying the small cups.

I see, maybe that was the issue.

I got a small bladder.

Thanks, guys.

Thanks, Bob.

Our next question comes from Ray Neidl.

Yes, Stan, with the fuel hedges looks like you're about a third hedged for the year what you indicated.

Did you give a average price of those hedges and the type of hedge that you put on there?

Yes, I didn't, Ray, but I'll tell the first half the all in price for the hedges was about $1.95 for the second half it's about $1.85.

Okay, so you're not that far out of the market value as far as the hedges go?

Right.

Great.

Bob, the other thing is, have you revealed your market share at Atlanta and what you think your market share at Atlanta might be after the Delta restructuring?

You know, actually, Ray, the reason I don't know that number we don't really think in those terms.

I think in March we have about 215 flights and I'm not really sure what market share as a result.

What we've tried do on the East Coast and Atlanta in particularly was really try to look at our patterns of service that we operate and say where do we need to be in the near term.

Clearly our goal is not to back fill all of the Delta capacity.

Our primary goal -- and we're glad to see it -- get some of the capacity out.

Get our average fares up.

So our focus has been looking at our patterns of service and filling in where appropriate.

That may mean if, for example, in Boston, we'll fly five flights instead of four or maybe in the southeast route, six versus five.

That's really the way we've approached it.

And so therefore our capacity, we have about 215 flights and I would suspect that's probably up about 50 departures versus last year at this time.

Okay.

Good.

I think an over arching issues is we don't know our markets share and hardly any markets that we operate in if we do it's by accident.

Because we never talk about it.

We have no interest in it and we try to fly airplanes where we can be profitable and that's the only thing that we're not interested in market share, we're not interested in city presence and those sorts of things.

We're interested in profitability.

That's probably a good philosophy, Joe, thanks.

At this time, there appear to be no further questions.

I would like to turn it over to Mr. Joe Leonard for any closing remarks.

Thank you, just to wrap up.

A decent quarter and a horrible environment.

We're not satisfied with the absolutely numbers.

We are very satisfied with the relative performance of our Company versus the industry.

You know, we worked a long time and been very patient trying to get ready for this moment and we think it is about here.

We've outlasted a number of our competitors, kept our cool and kept our position and we think as we move into 2006, the revenue environment is going to be the best it's been in four or five years.

We don't know what is going to happen to fuel.

We're not optimist, our business plan which we will present to our board tomorrow, is around $60 plus fuel and if it stay there's, we should have a pretty decent year.

If it it goes to 70/80 then all bets are off.

But all in all, our people did a great job.

We're not able to drive this revenue without the great customer service that our agents, flight attendants are doing and our mechanics and pilots keeping our airplanes moving on time.

Getting bags delivered .

So we're appreciative of everybody involved here and we look forward to a pretty decent 2006 with the caveat of fuel.

So thanks for your support and we'll see you out on the road.

Thank you.

Thank you.

This does conclude today's AirTran Holdings conference call. [OPERATOR INSTRUCTIONS].

And have a great day.