西南航空 (LUV) 2009 Q4 法說會逐字稿

Good day and welcome to the AirTran Airways fourth-quarter earning conference call.

As a reminder today's call is being recorded.

At this time, for opening remarks and instructions I'd like to turn the conference over to Mr.

Jason Bewley.

Please go ahead, sir.

Thank you and good morning, everyone.

I'd like to thank you for joining us for a discussion of our fourth-quarter and full-year 2009 results.

Joining me today are Bob Fornaro, Chairman, President and Chief Executive Officer; Arne Haak, Senior Vice President of finance, treasurer and Chief Financial Officer; Steve Rossum, Executive Vice President of corporate development; and Kevin Healy, Senior Vice President of marketing and planning.

I'd like to remind you that this call will contain forward-looking statements.

These comments are not historical facts and (inaudible) you should consider them as time-sensitive, forward-looking statements that are accurate only as of January 27, 2010.

If you'd like additional information concerning factors that could cause our actual results to vary from those in the forward-looking statements they can be found on our annual report Form 10-K, Forms 10-Q and other SEC filings on the Company.

We will also be discussing several non-GAAP financial measures that we believe are helpful in gaining an understanding of our operating performance and providing a period-to-period comparison, excluding special items.

A copy of today's press release, recent SEC filings and a reconciliation of these non-GAAP financial measures are available in the investor relations section of the Company's website, airtran.com.

Today we will be discussing our fourth-quarter results and our outlook for 2010.

At the end of the call there'll be a brief question-and-answer session.

Before I turn the call to Bob I'd like to alert everyone that we issued a revised press release this morning that addressed an error in our original release.

The revised press release corrects our first-quarter total unit revenue guidance, which we expect to be up 2.5% to 3.5% for Q1.

Now I'd like to turn the call over to Bob.

Thanks, Jason, and good morning, everyone, thank you for joining us.

Today we are pleased to report our fourth consecutive profitable quarter, highlighting the continued year-over-year improvement in AirTran's financial position, as reflected in our quarterly earnings results.

For the fourth quarter of 2009 we earned net income of $17.1 million, which includes an unrealized gain of $7.1 million on the increase in the value of our future hedged portfolio.

Excluding this item, we reported net income of $10.1 million, or $0.07 per share.

For the full-year 2009 we earned net income of $134.7 million, which also includes certain one-time items.

For the year we recorded economic net income of $93.6 million, or $0.67 per share, which excludes gains on our future hedge portfolio and other one-time items.

Despite a weak economy 2009 marked a tremendous financial turnaround at AirTran.

Our fourth-quarter pretax profit is $134 million higher than the same quarter last year and our full-year results represent a pretax improvement of $436 million.

This performance represents a true team effort by all the hard-working crew members of AirTran Airways.

Our annual load factor of 79.8% represents an all-time Company record and our nonfuel costs remain the lowest among major airlines on a stage length adjusted basis.

Besides our financial turnaround, 2009 was a year of significant change.

We became the first major airlines to equipment its entire fleet with Wi-Fi.

We also made tremendous drive in diversifying our network.

We've announced service to four new destinations in the Caribbean and seven new destinations in the US.

Our Florida franchise has continued to grow as we added 12 new routes from Orlando and as a result we now serve more destinations from Orlando than any other carrier.

And we have growth both Baltimore and Milwaukee as strong focus cities in our network.

Regarding our revenue performance the worse of the year-over-year declines in industry unit revenue are clearly behind us and the pace of recovery has accelerated in the past two months.

We expect that the pace of improvement will continue into the first quarter.

Our results of the year have been strong for this challenging environment.

We earned recognition as a top-ranked, low-cost airline in the airline quality award for the last two years.

Next week we will proudly accept the Air Transport World prestigious Market Leadership Award as a result of our financial, strategic and operational performance, as well as our marketing initiatives in 2009.

Our goal for 2010 is to build upon our 2009 results despite the economic uncertainty in the airline industry.

We will continue to work diligently to position the Company for both good times and bad.

This includes slower growth, an improved capital structure, continued diversification of our network and building a solid portfolio of fuel hedges for this year.

Our future success will be built around a solid foundation of industry leading old costs, a competitive portfolio of products and services and a team of hard-working crew next pulling together to deliver high-quality, high-value services that our customers have come to expect and appreciate from AirTran.

I will now turn the call over to Arne to give you some more detail on our financial performance and future outlook.

Thanks, Bob, and good morning, everyone.

As Bob just mentioned, we reported net income of $17.1 million for the fourth quarter, $0.11 per diluted share.

Included in these results was a $7.1 million gain due to an appreciation in the value of our future fuel hedge portfolio.

Excluding this item, our economic net income was $10.1 million, or $0.07 per diluted share.

For the full year, our GAAP net income was $134.7 million, or $0.95 per diluted share.

Our economic net income for 2009 was $93.6 million, or $0.67 per diluted share, which excludes gains on our future fuel hedge portfolio, net gains related to asset dispositions and debt repurchases.

For a complete reconciliation of these items I direct your attention to the reconciliation tables at the end of today's earnings press release.

Our capacity for the fourth quarter grew 8.1% due to two aircraft that we purchased from Boeing in September, as well as a nearly 4% increase in aircraft utilization year over year.

Our traffic as measured by revenue passenger miles increased 6.9%, resulting in a fourth-quarter load factor of 77.8%, which was the second-highest fourth-quarter load factor in Company history.

Fourth quarter revenues came in at $598.4 million, which was up 1.5% year over year and the highest fourth-quarter revenue in Company history.

Passenger unit revenues declined 10.3% year over year to $0.0926 as a result of a 9.3% year-over-year decline in yield and a 4.7% increase in stage length on 8.1% more ASMs.

Other revenues increased $25.8 million, or $0.71.

The increase in our other revenues continues to partially offset the decrease in passenger unit revenues, resulting in a 6.1% decline in total unit revenue.

For the full year, our capacity was down 2.2% year over year.

Traffic declined 1.9%, resulting in a record annual load factor of 79.8%.

Total unit revenue for the year was down 6.3%.

As Bob highlighted, the pace of yield improvement has accelerated in the fourth quarter.

Year-over-year yield declines went from negative double digits in October to down low to mid single digits in December.

On the cost side of the equation our total operating costs were slightly lower year over year in the fourth quarter and nonfuel adjusted costs were $0.0649, up 0.6% year over year, which was aided by a $2.4 million favorable revision to recorded advertising expenses.

Our unit maintenance costs were up 26.4%, largely due to do final contractual step increased provided for in our 717 Rolls Royce power-by-the-hour agreement that began in late October.

Excluding maintenance increases, all other nonfuel unit costs declined 2.6% in aggregate during the fourth quarter.

For the full year our adjusted nonfuel unit costs wer $0.0639, up 5.3% year over year, with maintenance costs being responsible for half of the increase in unit cost.

Our economic fuel cost for the quarter was $2.09 per gallon, all in, which includes the effects of hedging.

For the full year economic fuel costs was $1.88 per gallon all in.

In regards to the balance sheet we ended the quarter with $543 million in unrestricted cash and equivalents, which included the proceeds from a $125 million draw on our revolver.

This is the highest unrestricted cash balances in the Company's history.

Our nonaircraft CapEx was $5.1 million for the fourth quarter and $16 million for the year.

I'd now like to spend a few minutes sharing with you our outlook for 2010.

Our fleet plan for 2010 is to remain at 138 aircraft, which reflects the two aircraft deliveries we took from Boeing in September of 2009.

As a result, we expect our 2010 capacity to be up 3% to 4% year over year.

For the first quarter we expect capacity to be up 7% to 8% year over year.

Second quarter capacity is projected to be up 4% to 4.5%.

Third and fourth quarter capacity is projected to be up approximately 2%.

Our next scheduled aircraft delivery is in March of 2011.

Our advanced bookings, and more importantly our yields continue to improve.

In 2009 we began the year with a strong base of leisure bookings and starting in late January experienced weaker close in bookings.

This contributed to very strong total unit revenues in January of 2009, which were up nearly 10% over January of 2008.

In contrast to early 2009, for the last two months we've experienced weaker advanced booking but improved year-over-year booking trends within the last 60 days.

Because of the tough January comparisons we expect total unit revenues in January to be down year over year, despite the improvement in close in bookings.

Our current expectation is that we will see an improvement in February and March unit revenues year over year, resulting in total unit revenues increasing between 2.5% and 3.5% for the first quarter.

We expect these positive trends to accelerate throughout the year.

As I mentioned earlier, we experienced the last contractual step increase on our 717 Rolls Royce power-by-the-hour engine maintenance agreement in late October of 2009.

This will continue to significantly pressure our maintenance costs for most of 2010.

We expect that our first-quarter nonfuel unit cost will increase by 2.5% to 3% and that our full-year nonfuel unit cost will be up from 3% to 4%.

The increased cost of our Rolls Royce contract and increased from higher anticipated unit revenues will contribute over one half of the increase in our unit cost for 2010.

However, this projected increase is slower than what we experienced in 2009.

In regards to fuel we have continued to add to our fuel hedge portfolio during the fourth quarter.

As of today we have fuel contracts for approximately 40% of our anticipated jet fuel volume for 2010.

The hedge percentages by quarter are 46% in Q1, 40% in Q2, 37% in Q3, and 39% in Q4.

Our portfolio consists primarily of crude based call options and wide collars based on crude oil and heating oil.

Despite the benefits from our fuel hedge portfolio we expect that our fuel costs in the first quarter of 2010 to be up year over year.

Based on on average spot space of $78 for crude oil and $8 for jet fuel refinery spreads in the first quarter, we currently expect our economic fuel costs per gallon to be between $2.25 and $2.30, all in, inclusive of taxes, transportation, fuel hedging and [into] plane fees.

In closing we are proud of the results the entire AirTran team has turned in this year but we have more work to do.

Our core competencies of managing our unit costs and providing high-value, high-quality service remain well suited for the current economic environment.

We remain focused on sustaining our low-cost advantage, as we believe this is the key to our long-term success.

We believe that we are well prepared for a variety of economic scenarios.

Our growth plan is more conservative, our network and our profitability are more diversified and AirTran is better capitalized.

With that I'd like to turn the call over for questions.

Caitlin?

Thank you.

(Operator Instructions).

We'll take our first question from Bill Greene with Morgan Stanley.

Hi, good morning.

I'm wondering if we could talk a bit more about the capacity plans.

If I look at the RASM commentary that you made perhaps it's all this January comp that was maybe unique versus the rest of the industry,but the RASM, even with the fix in the press release, even that doesn't strike me as particularly strong and you've got some aggressive growth on the capacity front.

Maybe if you could reconcile how you're thinking about that.

Is it really perhaps too much, maybe you should not have so much utilization here in the first quarter?

Hi, Bill, it's Kevin.

I think you touched on it in the January difference is driving a lot of that.

What you are seeing is a sequential improvement in unit revenue quarter over quarter into the first quarter and a significant difference between the January and March performance.

And then I think, as Arne said in his comments, after the first quarter we expect to continue to see improvement in unit revenue going forward.

So it's just this first comp is just an outlier versus the industry?

Yes.

See, we moved faster than everybody else in the past.

Did a lot last year to bring things down.

Even looking at the advanced bookings we had come into the quarter this year with an expect -- or last year, rather, layering in a whole bunch of advanced bookings.

We come in this year with expectation of stronger performance, had lower advances, but are closing very nicely by design.

Okay.

Bob, maybe I can ask you just for a comment on the industry.

I'm curious if you think that the smaller airlines, so excluding the large legacies, if we've just got too many of the smaller and the low cost.

When I think about AirTran and its positioning it strikes me consolidation could help you, but then, again, I also come back and I think, well, perhaps you're not worse off not having done Midwest.

So how do you think of the landscape and how it should evolve?

Bill, obviously this is a -- it's a great question and we could probably take an hour but we won't, so I'll just think about the industry and I'll just go back prior to 2008.

Most of the legacy carriers don't make money domestically just to begin with.

Then we have an underlying trend that's been going on for a long time where you're going to see shrinkage, lower domestic capacity by the higher-cost carriers and they're going to continue to expand internationally.

It's been going on for a long time.

And we're also seeing the very small airplanes being very, very uneconomic.

So I think that is something will create some opportunities for us, as long as we keep a competitive cost structure.

If you look at the East Coast, if you just look at Florida we've been able to grow there because our cost structure is very, very good.

When you look at Milwaukee, I think, as you mentioned, we are glad that our deal didn't come together as it was planned because certainly the price would have been very, very high.

And what we found is as long as our cost structure is good we can finds the leisure routes and because we've got a business product on board we are compete for business travelers within the community.

So I think there's going to be some options and opportunities for us, but I think the days of double-digit growth or more for carriers of our size we're just not going to see that happen.

So the growth will be more deliberate, but I think you're going to continue to see opportunities because I think the cost gaps are wide and the larger legacy competitors are just not competitive domestically.

All right, thank you for the time.

We'll take our next question from Duane Pfennigwerth with Raymond James.

Actually, Jim, do you have any questions?

Yes, it's Jim Parker.

Bob, I'm interested about the industry and AirTran's ability to increase capacity should you want to do so with the current fleet.

How much could you increase capacity through greater utilization and perhaps a comment regarding the industry for the same question?

Jim, I think in the short term our ability to increase capacity it's maybe 1%, 1.5%, and if we wanted to do that it's probably within the summer.

For us we're not interested in taking new airplanes.

There's always an opportunity in peak periods to increase utilization but in terms of taking a big step this year that's not likely.

It's not our plan to go scour the market and look for new planes.

Again, our game plan is pretty simple.

We want to make sure the Company's on very, very firm footing.

We had a very good year in 2009.

We need at least another good year in 2010 to really put the Company back on track to where it was, so it's going to take two good years to really erase the performance that we had in 2008.

So right now it's financial success first for us.

Bob, my question, just assuming the economy were to get stronger and business were to improve considerably, with the current fleet how much additional capacity could you derive through greater utilization, is that 1% or 1.5% or a higher number?

Jim, it's Kevin Healy.

It depends.

In the summer you're running a pretty high utilization already.

The other thing you have to look at is the network diversification that we've already done and the benefits of an improving economy are going to move more on the yield side, but depending on which part of the network that you look at I think we can generally push it up even more in, say, Milwaukee and Baltimore.

Atlanta's probably at -- we can get a little bit more capacity out of there but I don't know the exact number over the peak period.

Certainly in the fourth quarter we could raise that capacity number quite a bit.

Okay.

Duane, do you have a question?

If you're offering.

Can you speak to performance in Orlando where you've seen some increased competition and any update on Milwaukee generally.

Yes, Orlando's been fantastic.

It's one of the bright stars of what we've done there with our combination of a low cost and product differential.

I think we're very well-positioned and the numbers are very good.

The Milwaukee, same sort of thing that we've talked about in the past, is we're in a very strong position in the leisure markets, we've moved into the business markets and I think everything that we're looking at is trending positive and performance is very good there.

Very pleased with that aspect of the network diversification.

Just to follow along with Milwaukee, I think in a very, very short period of time, six months or so, most of the goodwill that was built up for Midwest over a couple of decades, again, has been lost in about six months and that certainly has helped for to us improve our performance, especially with the business traveler.

Okay, thanks.

Your next question comes from Jamie Baker with JPMorgan.

Hey, good morning, everybody.

Good morning, Jamie.

You were among the early adopters of unbundling your product, I'm just curious if you think you've unbundled it about as far as you can at this point, or we should model for continued growth above and beyond demand trends when it comes to non-airfare ancillary revenue?

Hey, Jamie, it's Kevin.

I'm not going to get into any of the specifics what we're doing on an ancillary but I do believe that there's more things that we can do and will be doing going forward.

It'll be a bit slower.

The slope's got to change because some of the biggest programs are out there already --

Right.

-- but it will continue to grow.

Well, and let me ask you then as a follow up about the possibility of moving in the other direction.

I'm sure you're aware of the disconnect between Southwest RASM trends and you're own, at least in the early months of this year.

I'm wondering if it would make sense to match their bag policies where you overlap, such as Baltimore.

It really seems that the industry is feeding an ever-growing amount of RASM to Southwest.

Well, there's a lot of things I think driving the numbers at Southwest not least of which is some of the schedule changes they've done.

They've closed the historic gap in load factor with rest of the industry.

It's -- we spend a fair amount of time trying to understand what is driving purchase decisions and I don't know that I would conclude or I wouldn't conclude that baggage is the only thing going on there.

Beyond that I'm not going to comment specifically on that program.

Okay.

And lastly, just as you look at RASM across your network, obviously a fair amount of new route activity in the last year or so, any feel for how steady state RASM trends, or your better RASM markets -- if you were to slice your network into three components, what's the spread between the markets that are outperforming and the markets that are underperforming on RASM?

Just trying to get a feel for overtime how that bottom end can move up and affect the average?

I mean without naming markets.

It's difficult to not name markets.

You're right, we've done quite a bit of new.

The one thing I would say is that particularly in the quarter is they have come on very strong and very quickly and we're pleased with the performance there.

I think in general what we're doing with the network and talked a little bit about diversification already, but generally everything is trending fairly well.

Jamie, I think we would expect a bigger pick up in, let's say the Atlanta, which contains more business travel.

So last year it lagged and, again, I think leisure markets stayed way ahead so I think we would see a period of out performance there.

Milwaukee is a little trickier right now and we know there's am lot of capacity in Milwaukee because AirTran has and Midwest has added, and we'll see whether all that capacity remains in the market six to eight months from now.

So there's a lot more going on in the upper Midwest than just the economy.

But I think the business market, we'll see the improvement and that will help us in the southeast.

Okay, I appreciate the color.

Thanks, everyone.

We'll go next to Gary Chase with Barclays Capital.

Good morning, guys.

Good morning, Gary.

I wondered if, Arne, you could -- you mentioned that you've taken the last step function change on the power-by-the-hour contract on the 717 so should we assume that that is pretty much full up on maintenance, as we look at the fourth quarter, as we think about extending that into 2010?

And then when are we going to start running into similar issues, if at all, on the newer fleet, on the 737s?

No, that's a good question, Gary.

On the fourth-quarter cost, fourth-quarter cost is not a full quarter run rate so it will move up on a per ASM basis from there.

We aren't -- we do not have -- we've had now two years -- if you look at it as kind of a multi-year trend on maintenance costs, we've had two years of really double digit and significantly double-digit growth in our unit maintenance costs.

As we look out at 2011, we do not see these kind of increases again.

And particularly on the 717 fleet, the slope now becomes more than a CPI kind of float.

There's adjustments in there for escalations based on industrial commodities and things like that and we are -- on the 73 side, with new 73s coming into the fleet again in 2011 that starts putting the downward pressure on the 73 costs again.

And actually I wondered if you could maybe clarify that, as well.

What's the ordering book liking like, or the delivery skyline, more importantly for 2011 and 2012 on the 737?

It's seven 2011 and eight in 2012, with the first delivery in March 2011.

And then I could -- if I could just one more for Bob and/or Kevin.

If you take a look at Milwaukee -- and this was a specific question I was interested in the way you answered one of the questions there, Kevin -- historically Milwaukee never worked if you didn't have the business markets.

So I guess what I'm really driving at is, has something changed about the nature of the leisure market to make you think you can be successful there if you don't have some of those real powerful business revenue generators the way Midwest used to, or do you just have the kind of confidence that you need to -- do you have line-of-sight on driving the kind of success out of those markets that you would need to be successful there?

I think historically the Milwaukee market, we've been fairly consistent in saying it's been under searched and I think a lot of the characteristics have been assigned to Milwaukee is that it's a small business market and there's not enough demand there was more of a reflection of the type of airline and lack of competition than anything else.

If you have the cost structure and the product we can obviously drive a lot of leisure -- Florida, West Coast and other markets -- but I also think that you're seeing an increase in business travel and if business travel in general comes back over the year Milwaukee will be even stronger.

Even Southwest coming in has the beneficial impact of raising interest in northern Illinois, parts of Chicago, that will drive more business into the Milwaukee market.

I think it really -- it's not that different than other markets that we've entered where with the right price structure, with the right cost structure you can do very well.

Okay.

Thanks very much.

We'll take our next question from Mike Linenberg with Banc of America-Merrill Lynch.

Hi, good morning everyone.

Good morning, Mike.

Two questions.

Just a clarification, Arne, when you talked about January, I think I heard you say total revenues were down but I wasn't -- I'm not sure if you were talking about top-line revenues or total RASM.

Can you clarify that?

Sure, we're expecting a modest decline in total unit revenues in January and it really has a lot to do with the fantastic performance that we had in January of 2009.

When we look at the performance on a normal seasonality basis, this year's January looks fine from what would you expect from a normal seasonality coming out of a November and December from where we'd been the last couple of months.

It's just with the timing of the holiday last year really helped the Florida season, extend it into early January.

With New Year's Day falling on a Wednesday last year it really gave us a longer leisure period into Florida.

And then, obviously, the inauguration gave us tremendous benefits in all three Washington airports but most importantly Baltimore and, obviously, that traffic is not there this year.

Okay, good, that's helpful.

And then my second question, and this just has to do with developing your -- I shouldn't say developing your brand up in Milwaukee, but when I think about -- Bob, you started out by talking about how the fleet is all Wi-Fi and I know the two class throughout the fleet has always been a huge positive, especially when you look at the bifurcated fleet that the majors have with their regionals and they're putting the two classes on the RJs, when you -- as you roll out more of the SkyWest flying and I believe at this point it's still single class, it doesn't have Wi-Fi, what's the game plan there?

And how do you think about -- have have -- you've built up a great brand and people have grown accustomed to the two-class configuration, the Wi-Fi, all the AirTran, the bells and whistles that you offer, is the way we -- as that product evolves will we see you flying into some of these markets with the smaller jets with a similar product or is this more temporary?

How do we think about it, what's --?

It's a good question and it really goes to one of the bigger issues in entering into the agreement with SkyWest and we made an effort to separate the two.

We're not branding the airplane or the service.

It's very clearly differentiated as SkyWest and working in partnership with us.

It's five airplanes and there really is not significant growth plan at all in that agreement at this point.

I think we're in the key routes, there may be one or two more, but it's really designed to support the overall growth of the Milwaukee hub and so far is off to a real good start.

It's just the traditional prorate code share, is that how it's been structured?

Yes.

Okay, good.

All right, very good.

Very good year, guys.

Thank you.

Your next question comes from Kevin Crissey with UBS.

Morning.

Good morning, Kevin.

Can you talk about what your specific financial goals are?

Obviously a good year, are you looking for another good year?

What is your return on invested capital now?

What is your goals for return on invested capita or other similar metric?

Kevin, this is Arne.

As we look at it internally we talk a lot about that and a lot about what had changed in our business and how we need to change our business.

We're not going to give any kind of specific targets or timelines, but what I can tell you is, while many people are giving us an attaboy for what a great year this has been we are not satisfied with this.

Many airlines would say that this would be a great year for many airlines.

We're certainly proud of our results but we certainly think we have to do more.

And again, it's a very broadbrush answer but as you look at our business and the amount of capital it takes, and the increase in borrowing costs, the increase in costs of needing to hedge your fuel, all has raised the bar for us on what we feel we need to do before we commit to a faster pace of growth than what we have planned today.

We plan to be very deliberate and very managed in what we do and I think -- but we're not going to give you a specific number or time period like that.

Okay.

And then on distribution, has there been -- given the online travel agencies elimination of booking fees a while back, et cetera, how does the distribution through your website look and through the other channels, has there been any changes there?

I think we've seen a little bit downward pressure on our own website because of -- certainly we've seen a big price decrease on those competitive agencies, so their share is having -- of course I don't want to give you the specific number, but we've seen [HA's], they are a more viable option right now given the price cuts they took eight or nine months ago I guess now.

Right.

And so -- and you combat that through frequent flyer or is this something that you think is sustainable because it's significantly more costly, I imagine, to be getting nose bookings than getting your website directly?

It is and it's something we'll address going forward with our distribution agreements and there's changes in technologies and some other things and we want to keep getting more efficiencies along those lines.

There is one other thing that you also have to consider and -- take the West Coast ,as an example, where we have a very, very small presence.

We have very low name recognition.

You have to look at and being in other distribution networks and it actually provides a vehicle for us that we could not gain on our own because, again, we are a very, very small player in many markets in the West Coast.

So, again, it plays a roll and so it does cost a little bit more but at the same time we're not doing any advertising out in there.

So you've got to look at certain markets as somewhat different.

It provides some unique reach in the western third of the country that we could not get otherwise on airtran.com.

And so do you structure your contracts -- I know, some contracts are structured that way.

You don't need them in Atlanta, you don't need them in Orlando, but you do them in the west markets.

Do your contracts call for different payments for different types of bookings?

Obviously we can't really address any specifics of the distribution agreements.

Okay, thank you.

We'll go next to Dan McKenzie with Next Generation Equity Research.

Hi, good morning.

Just one housecleaning question here.

Arne, you talked about the hedges for 2010 and I wonder if you could share what the average call auction hedge price is on the crude hedges by the quarter?

Dan, the most recent -- we put out that dial-a-fuel table that we did at your conference back in December and it's pretty similar to that in terms of what we've done by quarter, so we won't go through it here but it's pretty similar.

Essentially what the portfolio does, the combinations, the benefits begin -- this is before the premium cost begin around $60.

When you add in the benefits you'll see that it essentially keeps us in a range of between $60 and low $80s on crude oil is where it keeps us in the event that there's a spike in fuel prices.

Got it, okay and I appreciate that.

And t hen another question for Bob or Kevin.

looking at competitive capacity headwinds here from Delta and Southwest it looks like they are adding some capacity into the markets where you folks fly.

I was just wondering if you can provide some historical context about the capacity headwinds today versus what you've seen historically say over the last five or eight years or so.

Is it worse today, is it about the same today, any kind of perspective you could share would be helpful?

I think regarding the capacity with Delta, this is not new, it's about the same over the last -- it's always been intense and it really hasn't changed.

If you look at Delta's Atlanta capacity, when they made pull backs two years a lot of that was in non-AirTran markets and very little in head-to-head markets, so that's really -- and that really hasn't changed.

We're not counting on it to change, we don't expect it to change.

Again, it's just -- it's their strongest market and they've decide to do compete vigorously.

So, again, that's part of the game in Atlanta.

Over the years we've done pretty well at it and so it -- again, we're used to it.

I think in terms of -- and looking at Southwest, I think probably the biggest change is really in Boston-Baltimore where there's been a lot of activity, both by them and JetBlue, so there's a little bit more overlap in Baltimore,, but to some degree some of those additions are additions that we've made, as well.

I think we are fairly unique in that there's not many airlines that have gone into Southwest's backyard for the past decade and added 55 departures or so that we've had to Baltimore.

There's always an ebb and flow with Southwest but the bulk of it revolves around Baltimore and some of their new additions in Milwaukee.

But Milwaukee's working very well and we're pretty happy with what's gone on in Baltimore; all the way back to 2002.

Understood, that's helpful.

Then I guess my final question, Bob, you mentioned the AirTran product appealing to the business traveler in Milwaukee and I know that you've already talked about this so at the risk of kicking a dead horse, I wonder if there's any kind of stats you can share about what you're seeing about specifically or perhaps any marketing initiatives.

ANd I guess what I'm getting at, as you think about the revenue pie from the business traveler in Milwaukee, where are you at now and where would you like to be and what helps you get there?

Is it the network, is it some flights to cities where Midwest doesn't currently fly, if there's any other kind of are perspective you are share along those lines that would he be helpful?

I'm not sure that there's a number that I can give you right now that we're measuring against per se.

We measure a number of different things in terms of certainly brand awareness and favorability ratings and other things like that.

We don't really spend a whole lot of time on market share itself.

If you look at the Milwaukee network we're in 18 of the top 20 O&D markets from the city, so you're really -- you're looking at the success of key business routes like New York, Boston, DCA as indicators.

And generally speaking -- there's some more anecdotal than some others -- but we've done a lot in the last couple of years to reposition our Company and position our Company.

We've been very consistent in the growth, we've done everything that we said we were going to do in Milwaukee and we think that has paid off for us and we feel like 2010 will be a good year up there.

And then in terms of really what we're doing, again, we didn't necessarily add a lot of new capacity this winter but what we did was we kept a lot of capacity in that we added in the summer, so a number of these routes are going through their first winter.

And a business market in cold weather destinations normally the winter's tough.You've got to go through a couple of these cycles before these routes begin to pay off.

We've seen -- and we're actually seeing a lot of improvement.

Again, we've been, we've been working at it for a couple of years.

And again I think -- and clearly, Midwest does not have the following, anywhere near the following that it had a couple of years ago.

It's changed very, very fast.

There's a number of things that you can't see, but if you're in the community you'd see a really big footprint that we've made within the community that has really helped us, again, really position ourself and that would probably take a visit or spending some time there.

So we feel pretty good about it and like I said, I'm not sure what Republic plans are.

There's a lot of changes going on up there but I think at some point in time you'll see this market shake out one way or the other and I think right now we think the things that we've been doing have been working and so we like the pace of change.

And like I said, we'll expect to have some more growth sometime this summer ,as well.

Okay, great.

Thanks a lot, that's helpful.

Appreciate it.

(Operator Instructions).

Our next question comes from Helane Becker with Jesup & Lamont.

Thank you very much, operator.

Hi, everybody.

Good morning, Helane.

Most of my questions have actually been asked or answered, I just have two unrelated questions.

One, on the Wi-Fi so, like my cell phone has Wi-Fi capability, does that mean I'm going to be able to use my phone in flight.

You can use the Wi-Fi capability on your phone for internet mail, other things like that, but not for a phone call itself.

Okay, got you.

Then unrelated to that, obviously, on the salary line, so can you just update us where you stand with your labor agreements, number one: And number two, the 11% increase in the fourth quarter was greater than the full-year average, were there true-ups and accruals in the quarter that we should be aware of?

We need to get the financial number.

Just to give you an update on labor.

You may be aware that we reached a new agreement with the mechanics in October of last year.

Right now we have open agreements with dispatch, the flight attendants and the pilots.

I think if the pace of negotiations with dispatch is -- will quicken in the next few months.

We have a lot of negotiations set with the flight attendants and that's moving along.

And after a long period of a little progress with the pilots we've actually made -- are making quite a bit of progress with the pilot group right now.

I don't want to go into specifics of negotiations, but I think the trend is positive and sometime this year we're going to get a fair deal for both parties.

Helane, on the unit cost question, there were no unusual items in terms of accruals.

I think it just tends to be the natural seasonality of how our business moves from the summer to the fourth quarter.

It's what happened last and it happened this year again, as well.

Okay.

Thank you very much for your help.

Sure.

Your next question comes from Steve O'Hara with Sidoti.

Yes, hi.

You were talking about the unit cost being the key and being the leader of the industry and on they're going to be on upswing this year, a lot of that's due to maintenance.

I guess you look at that as more of an absolute number of where you want to be, or more of a spread versus the industry?

That's a good question, I think you want to look at it really both ways.

It's been a pretty good spread versus the industry but that can create a situation where you get too comfortable.

That's the industry today and I think when you go out and think about it, the absolute number becomes very, very important because things in the industry will change.

And over the years within this industry we've seen a change in leadership.

If you use Orlando, as an example, which is a very strong market for us and for a few other carriers, the top carrier on this market has changed over several decades and a lot of it has to do with the absolute cost structure.

So I think both of them are important at the end of the day because if our costs get out of line ultimately it provides an opportunity for somebody else in the marketplace.

So I think you've got to keep an eye on both of them.

In the very, very near term I think the difference versus the legacy carriers and even Southwest is more important, but in the long terms the absolute cost that is the driver.

This is Arne and just to follow on Bob's remarks, we always have to be mindful that there will be -- there's always been somebody that comes in who's younger and tries to have a lower cost structure and I think we're very unique in that we have a cost structure where we can com -- if you look at the competitive landscape that we face, we successfully compete with the world's largest carrier in Atlanta.

We can successfully compete with the world's largest low-cost airline in both Orlando and Baltimore.

And even a start-up airline, like Allegiant Airlines, who are -- that is coming into central Florida, we can compete very, very effectively because we have been disciplined on our cost structure.

So as Bob said, we can't lose site of it.

This is what -- there's more correlation in this business to having good unit costs than there is to having size or where are you are on the S-curve and that's what we have to remain absolutely focused on as we go forward.

Okay, that's great.

Turning to the tax situation, just a modeling question for 2010, are you still assuming very little tax situation this year?

Yes, for the first quarter there will be no -- we don't foresee ourselves accruing taxes.

Potentially it could happen later on in the year.

I think it's too early to the say exactly where we think could be because it's going to depend a lot on revenue and fuel.

As we get more -- a clearer look at it we'll revise our guidance if necessary.

Okay.

And then lastly, quickly -- if you jumped -- if your touched on this I apologize -- but in terms of where the booking curve is has there been a -- you talked about those accelerating trends, do you see -- has the booking curve opened up to where it used to be, or is it still kind of compressed?

It's one of those interesting things.

When you look at the curves right now on a year-over- year basis they're very, very strong, but part of that is the approach last year with anticipating a weakening economy the approach, this year is anticipating a much stronger one.

When we look at it versus 2008 it's very good, both in terms of volumes and average fares, so it's and encouraging and the question is just how much can it improve going through the year.

Okay, thank you.

Or how much more, rather.

(Operator Instructions).

We'll go next to Bob McAdoo with Avondale Partners.

Hi, thanks.

Just one more quick nit on costs for 2010.

You talk about your full-year cost being up 3% to 4% and you said, if I remember right, about half of that is due to maintenance and revenue related, can you give us a little further beyond that -- those two items what might be the next couple items that are -- where we should from our models and whatever else be looking to watch for trends?

Yes, for the most part salaries is one of the areas.

When we're -- everyone at AirTran will have an increase.

The seniority increases on the salaries, there's no growth, so salaries is a bigger line.

The benefits line, obviously, as a part of that is also a challenge with the cost of healthcare.

You're seeing above average growth there, as well, in terms of what it costs for to us provide our employees benefits.

I think probably the last area, which is difficult for a couple of years, is what's going on in a number of the stations.

We've -- there's very little relationship between -- on airplane activity and departures and some of the fees charged at the airports, so I think you may have heard a lot of carriers complain about that.

People get very concerned about new projects at airports that provide very little function.

So that one's been going on for a couple of years and there doesn't seem to be a whole lot slowing it down.

Some of the guys have had particular problems because volumes of departures or total activity at some of the airports have shrunk so much.

As I think about your airports like -- it seems like for the last year or so things like Atlanta or Orlando those seems to have not been shrinking in terms of activity levels.

Is that a reasonable way to think about it?

And Milwaukee -- out of Milwaukee it would appear that total activity there is not shrinking, is it?

I'm just trying to --?

No, Milwaukee and Orlando are actually pretty good.

Again I'm saying a market like Dulles is very expensive and will get more expensive because of the train coming on.

I think in terms of the -- what's going to happen in Atlanta, I think you're aware of Delta's new agreement with the city and we should have one soon, I think that's going to keep Atlanta a low-cost airport given the way we view it.

I think that's a real plus, as well.

But if you go look around a lot of other places where you see 10% less capacity and overall costs go up a couple percent, again, that drives a lot of cost.

In your four biggest airports -- four or five biggest airports you haven't -- those haven't been airports where total activity has actually dropped that much, has it --

No, but I think we're going to --

-- as compared to what some of the other guys.

We're seeing some substantial increases in Baltimore this year and some of that's related to some new projects and some -- I guess issues that we had in the past where in theory we were undercharged and now they've -- they are now putting the full charges out there, [of course] there's some very major construction going on.

I believe our costs are going up about 20%, 25% for departure, so a pretty big number there.

Got it.

All right, well, thanks for the color on that.

Okay.

E'll go next, Gary Chase with Barclays Capital.

Hey, guys, just one quick one on hedging, Arne, just wondering if you could -- is there a way to generalize about the cost of your hedging program the way you're looking at it.

As you move away from a lot of the collars or the tighter collars or cashless collars that people used to do, we're seeing more option premium expense show up in the fuel line.

So I'm wondering if there's a way for us to think what it costs you per gallon that you're hedged to construct a hedge book the way it is, because it feels like that's going to add $0.05 to $0.07 a gallon to fuel costs above and beyond what it would have been, say, over the last several years?

Yes, Gary, it's a good question.

I don't think we want to communicate what our targets are or what we're prepared to spend.

I think what we look at and you kind of think of it like an insurance of the expe-- it's an insurance policy around your fuel, and the problem we have -- and if you've been following you'll see Bob is very vocal in how he speaks about the volatility and how destructive it is to potentially our transportation infrastructure because it really makes it much, much harder for to us manage this risk and it's much more expensive than it was, say, three, four year ago, because of all the volatility in the oil markets.

But you're thinking about it the right way.

We tends to look at it as we should think about a certain portion of our fuel price on a per gallon basis that we're going to use that to protect our fuel budget and then we have to figure out the best way to do it.

But you look at what Southwest has done, some very different things, I think it really highlights, it's a real challenge to go out more than a year or two because of the volatility to have options over prices and to commit to a swap we've seen what that happens, as well.

So I think it is a challenge for our Company, but you're thinking about it the right way.

We're not going to give you any kind of specific number that we;re targeting as to what we're going to send.

Would you say when it -- well, I guess we can back into it.

We know the -- could you just remind us what the differentials between spot and P&L fuel are, you just quickly --?

I guess if you look at this year and it's going to depend on how well do you do on you're hedging, this year in the fourth quarter it really didn't cost us anything.

Our old hedges that we have left over from 2008 costs us money, our new hedges this year saves us money and net it was about breakeven on the hedge in the fourth quarter.

Okay, guys, thank you.

This concludes the question-and-answer session.

At this time I would like to turn the conference back over to Bob Fornaro for any additional or closing comments.

I'd like to thank everyone for joining us on the call this morning.

A year ago not people would have thought we would have been talking about four consecutive quarters of profitability or record annual earnings.

This has been a year that everyone at AirTran should be proud of.

Looking forward, we are encouraged by the recent trend in yield improvements but we're certainly mindful of the continued fuel price volatility.

AirTran successfully stepped up to many challenges over the last decade and in each case we've emerged as a stronger, more vibrant carrier.

I'm confident that we have the Company well positioned for the year ahead.

Thank you for your time today and we look forward to talking to you in April.

Have a great day.

This does conclude your conference.

We thank you for your participation.