DE LA SALLE LIPA
COLLEGE OF BUSINESS, ACCOUNTANCY, AND MANAGEMENT
In Partial Fulfillment of the Requirements in
Strategic Financial Management (FINSTRA)
A CASE ANALYSIS ON:
AirTran Holdings, Inc.
De las Alas, Clarisse
Llagas, Sarah Jane
Montes, Jose Miguel
Obnial, Ruth Jael
Ms. Wilfreda Dimaano
February 1, 2013
After the large amount of negative publicity surrounding the Flight 592 disaster, ValuJet Airlines suffered serious financial problems. In 1997, ValuJet merged with AirTran Airways Corporation to form AirTran Holdings, Inc. (AAI).
Airtran had reached its current position because it was able to employ right techniques at the right time. The company who has a low-cost structure was able to withstand their competitors by offering first class comfort at a lower price. We became cost leader in the industry making competitors to drive-down their fare so as not to lose market share. AirTran focused in segmenting their product for customers who are price-sensitive and those who travel for leisure. Market segmentation contributed a lot in our success through which, they are able to have a focal point to which their product lines will fall. In addition, we targeted underserved market to increase market share like young travelers whose age ranges from 18 to 22, and those individual business travelers. Lining up corporate and community support via public-private partnerships also give significant impact to the company. Both elements help to build loyalty and serve as a cushion against the early losses of expanding into a new city and the invariable backlash from bigger competitor. Also, the company in response to the disappointing loss of gates to Southwest diversifies their route system by adding new flights to connect cities already in its system. Lastly, the AirTran’s award-winning websites help in the rapid increase in sales through online booking of their flights with a cost per booking online of less than $1.
A major weakness of AirTran is its high operating cost per seat mile compared to other low-cost providers like Southwest and JetBlue. Concentrated to East US, through increased competition, especially Southwest, AirTran is only available mainly in the eastern United States. Customers needing to travel to the western US probably will choose another airline that could create brand loyalty for another airline. Another thing that would cause for travelers to consult another airline is the company’s weakness of one-way fares, and mostly is non-refundable. Environmental occurrences such as the four hurricanes that struck Florida (2004) continued to have a major economic impact on the state in the affected area resulting with a weak revenue environment and record high fuel costs, affecting AirTran’s financial standing for both the third and fourth quarters. Even though AirTran received a high position in airline quality rating (AQR) there are still areas that AirTran lags in, like on-time performance and denied boardings performance. AirTran has high dependency on fuel. Although mainly out of AirTran’s control, their income and costs are highly associated to the cost of fuel. The company also lost at a bidding war to buy leases on 14 gates at Midway Airport in Chicago from ATA Holdings, had invariable backlash from bigger competitors that often responded by slashing their own fares and expanding services. There has also been a decline in passengers after tightening of security and fewer flights after the 9/11 attack.
Consumers may switch their choice of airline company to AirTran because of their flexible operations such as the A+ Rewards, their ability to be price-sensitive, and their concerns for every age in their capacity to pay. Since they offer the program A+...
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