Airtran 2003 Annual Report Download

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FLYING IN THE FA C E O F C O N V E N T I O N A L W I S D O M .
A N N U A L R E P O R T 2 0 0 3
GO. THERE’S NOTHING STOPPING YOU.
AIRTRAN HOLDINGS, INC.

Table of contents

  • Page 1
    GO. THERE'S NOTHING STOPPING YOU. F LY I N G I N T H E FA C E O F C O N V E N T I O N A L W I S D O M . ANNUAL REPORT 2003 AIRTRAN HOLDINGS, INC.

  • Page 2
    CRITICS SAID DISCOUNT TRAVELERS WOULDN'T PAY FOR BUSINESS CLASS.

  • Page 3
    ... turns out people like our combination of low fares - even at the last minute - affordable Business Class, new planes and friendly service. It turns out our competitors like our approach, too, since they're starting to copy it. But, originally, this model wasn't expected to succeed. Keep reading and...

  • Page 4
    PEOPLE ASSUME THAT WHEN THE ECONOMY'S DOWN, AIRLINES HAVE TO MAKE CUTS.

  • Page 5
    ...most airlines were busy cutting way back, we were experiencing our seventh straight profitable quarter. Those profits made it possible to order 110 all-new Boeing airplanes and expand our service to new destinations, like Los Angeles, Las Vegas, San Francisco, Denver and Washington-Reagan National...

  • Page 6
    WHO SAYS MANAGEMENT AND CREW AREN'T SUPPOSED TO GET ALONG?

  • Page 7
    ... "WORKING TOGETHER." At AirTran Airways, we've always believed in sharing our vision with Crew Members and giving them a voice in our decisions. That leads to a happier crew. A happier crew leads to better customer service. Better customer service means a more positive experience for our passengers...

  • Page 8
    JOE LEONARD Chairman and Chief Executive Officer

  • Page 9
    ...new Boeing planes on July 1, and a 200% increase in stock price, it was another fantastic year. Amidst difficult circumstances, AirTran Airways has once again proven that our business plan is sustainable. By keeping things simple, we'll have even more success and growth in the future. The year 2003...

  • Page 10
    UNCOMMON THINKING LED TO UNCOMMON RESULTS.

  • Page 11
    ... REVENUE PASSENGER MILES (RPMs) HERE ARE SOME COLORFUL BAR GRAPHS TO PROVE IT. IN CENTS 74 65 59 53 47 8.19 8.51 8.28 9.27 9.33 DOLLARS IN MILLIONS 918 733 665 624 523 99 00 01 02 03 99 00 01 02 03 99 00 01 02 03 AIRCRAFT IN FLEET OPERATING COST PER AVAILABLE SEAT MILE (CASM...

  • Page 12
    ... Headquarters AirTran Holdings, Inc. 9955 AirTran Blvd. Orlando, FL 32827 Phone: 407-251-5600 For reservations, book online at airtran.com Independent Certified Public Accountants Ernst & Young LLP 600 Peachtree St. N.E. Suite 2800 Atlanta, GA 30308 Transfer Agent American Stock Transfer...

  • Page 13
    ...Memphis Atlanta Dallas / Ft. Worth Gulfport / Biloxi New Orleans Tallahassee Pensacola Tampa Ft. Myers Myrtle Beach Savannah / Hilton Head Jacksonville Houston (Hobby) Orlando West Palm Grand Bahama Island Beach Ft. Lauderdale Miami AirTran Airways AirTran JetConnect AirTran Airways & AirTran...

  • Page 14
    2003 FINANCIALS

  • Page 15
    ... stock for the foreseeable future. Future payments of cash dividends, if any, will depend on our financial condition, results of operations, business conditions, capital requirements, restrictions contained in agreements, future prospects and other factors deemed relevant by our Board of Directors...

  • Page 16
    ... one passenger pays to ï¬,y one mile (10) Passenger revenue divided by ASMs (11) Operating expenses, excluding special items, divided by ASMs (12) Operating expenses, excluding aircraft fuel expense and special items, divided by ASMs (13) The average amount of time per day that an aircraft ï¬,own...

  • Page 17
    ..., AirTran Airways, Inc., which is the secondlargest low-fare scheduled airline in the United States in terms of departures. We offer scheduled airline service principally serving short-haul markets, primarily from our hub at Hartsfield-Jackson Atlanta International Airport in Atlanta, Georgia...

  • Page 18
    ... our unit costs, or operating expenses per ASM, for 2003 and 2002: Year Ended December 31, 2003 Salaries, wages and benefits Aircraft fuel Aircraft rent Maintenance, materials and repairs Distribution Landing fees and other rents Aircraft insurance and security services Marketing and advertising...

  • Page 19
    ..., and 2.0 percent on a CASM basis) reï¬,ecting landing fee rate increases, growth in the number of ï¬,ights we operated and the leasing of facilities at the new destinations added to our route network. Aircraft insurance and security services declined $9.6 million (32.9 percent or 44.4 percent on...

  • Page 20
    ... related to the September 11 Events. Our non-operating results for 2001 included a special item of $4.3 million representing additional debt discount amortization resulting from the exercise of conversion rights on approximately two-thirds of our 7.75% Series B Senior Convertible Notes and a credit...

  • Page 21
    ... in 2003 as we retire the remaining 15 DC-9 aircraft and operate an all-Boeing 717 aircraft ï¬,eet by the end of the year. The results of our terminated derivative contracts increased aircraft fuel expense by $6.0 million and $2.5 million during 2002 and 2001, respectively. Our fixed-price fuel...

  • Page 22
    ...improved 7.3 percent on a CASM basis) reï¬,ecting landing fee rate increases, growth in the number of ï¬,ights we operated and the leasing of facilities at the new destinations added to our route network. Aircraft insurance and security services increased $16.8 million (134.4 percent or 89.5 percent...

  • Page 23
    ... million shares of stock in a secondary offering in October 2003, receiving net proceeds of $139.2 million. Financing activities for 2002 consisted primarily of scheduled payments of debt obligations. COMMITMENTS As of December 31, 2003, AirTran Airways has contracted with The Boeing Company (Boeing...

  • Page 24
    ... that we could operate B717 aircraft more efficiently in short-haul markets. The phase-out of service will begin in July 2004 and all regional jet service will end in August 2004. At December 31, 2003, we had commitments to purchase aircraft fuel under fixed-price contracts for use during 2004 and...

  • Page 25
    ... effective in October 2003. AirTran Holdings' 7% Convertible Notes due 2023 contain provisions which allow the holders to redeem the notes at various dates beginning on July 1, 2010. We may, at our option, elect to pay the repurchase price in cash, in shares of AirTran Holdings' common stock or in...

  • Page 26
    ...aircraft, crew, maintenance on the aircraft and the hull and liability insurance in exchange for a fixed block hour rate for ï¬,ights operated on our behalf. During 2003, we paid this charter airline approximately $17.9 million. These payments are recorded on a net basis as a reduction to passenger...

  • Page 27
    ...E L Our results of operations are impacted by changes in the price of aircraft fuel. Excluding special items, aircraft fuel accounted for 21.5 percent and 22.0 percent of our operating expenses in 2003 and 2002, respectively. Based on our 2004 projected fuel consumption, a 10 percent increase in the...

  • Page 28
    ... Landing fees and other rents Aircraft insurance and security services Marketing and advertising Depreciation Other operating Impairment loss/lease termination Special charges Total operating expenses OPERATING INCOME OTHER (INCOME) EXPENSE: Interest income Interest expense Government grant Payment...

  • Page 29
    ... Total property and equipment OTHER ASSETS: Intangibles resulting from business acquisition Trademarks and trade names Debt issuance costs Other assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable Accrued and other liabilities Air traffic liability Current...

  • Page 30
    ... aircraft purchase deposits Proceeds from disposal of equipment NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES FINANCING ACTIVITIES: Issuance of long-term debt Debt issuance costs Payments of long-term debt Buy back of detachable stock purchase warrants Proceeds from sale of common stock, net...

  • Page 31
    ... stock under stock purchase plan Issuance of common stock for debt Issuance of common stock in secondary offering Issuance of common stock for detachable purchase stock warrants exercised Buy back of detachable stock purchase warrants Tax effects relating to reversal of tax valuation allowance Net...

  • Page 32
    ...cost or market using the first-in, first-out method (FIFO). These items are charged to expense when used. Allowances for obsolescence are provided over the estimated useful life of the related aircraft and engines for spare parts expected to be on hand at the date aircraft are retired from service...

  • Page 33
    ...Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees, " and related interpretations and, accordingly, only recognize compensation expense for stock options granted where the market price of the underlying stock exceeds the exercise price of the stock option on the date...

  • Page 34
    ... us to participate in increases in the value of the aircraft. This is the case in the majority of our aircraft leases, however, we have two aircraft leases that contain fixed-price purchase options that allow us to purchase the aircraft at predetermined prices on specified dates during the lease...

  • Page 35
    ... to six related spare engines, to be delivered between 2004 and 2010. Additionally, Airways has obtained financing commitments from an affiliate of Boeing for up to 80% of the purchase price of 16 of the B737 aircraft should Airways be unable to secure financing from the financial markets on...

  • Page 36
    ... rate for ï¬,ights operated on our behalf. During 2003, we paid this charter airline approximately $17.9 million. These payments are recorded on a net basis as a reduction to passenger revenues. At December 31, 2003, we had commitments to purchase aircraft fuel under fixed-price contracts for use...

  • Page 37
    ... 2005, including delivery to our operations hub in Atlanta and other locations. During the first quarter of 2004, we entered into an additional fixed-price fuel contract and a fuel cap contract. These new contracts increased our total future fuel purchase commitments to approximately 35 percent of...

  • Page 38
    ... number of customers comprising our customer base. The estimated fair value of other financial instruments, excluding debt described below, approximate their carrying amount. The fair values of our long-term debt are based on quoted market prices, if available, or are estimated using discounted...

  • Page 39
    ...intention to pay the repurchase price in cash. In June 2003, BCC exercised its remaining conversion rights related to Holdings' 7.75% Series B Senior Convertible Notes. The conversion resulted in a decrease of Holdings' overall debt of $5.5 million. In connection with the conversion, Holdings issued...

  • Page 40
    ...in thousands): As of December 31, 2003 Flight equipment Less: Accumulated depreciation $ 3,948 (1,270) $ 2,678 2002 $3,330 (576) $2,754 The following schedule outlines the future minimum lease payments at December 31, 2003, under non-cancelable operating leases and capital leases with initial terms...

  • Page 41
    ...-average shares outstanding used in computing diluted earnings (loss) per common share. On October 1, 2003, we completed a public offering of 9,116,000 shares of Holdings' common stock at a price of $16.00 per share, raising net proceeds of approximately $139.2 million, after deducting discounts and...

  • Page 42
    ... the market price on the date of grant was $4.35 and $4.60, respectively. There were no options granted during 2001 with option prices less than the market price of the stock on the date of grant. At December 31, 2003, we had reserved a total of 12,958,067 shares of common stock for future issuance...

  • Page 43
    ... as follows (in thousands): 2003 Tax computed at federal statutory rate State income tax, net of federal tax benefit Goodwill Debt discount amortization Utilization of preacquisition net operating loss carryforwards Other Valuation reserve, including the effect of changes to prior year deferred tax...

  • Page 44
    ... our 1995 Employee Stock Purchase Plan, employees who complete 12 months of service are eligible to make periodic purchases of our common stock at up to a 15 percent discount from the market value on the offering date. The Board of Directors determines the discount rate, which was increased to 10...

  • Page 45
    ...based on expected operating results and permanent differences between book and tax income. Adjustments are made each quarter for changes in the anticipated rates used in previous quarters. If the actual annual effective rates had been used in each of the quarters of 2003 and 2002, net income for the...

  • Page 46
    ... CERTIFIED PUBLIC ACCOUNTANTS THE STOCKHOLDERS AND BOARD OF DIRECTORS AIRTRAN HOLDINGS, INC. We have audited the accompanying consolidated balance sheets of AirTran Holdings, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity (de...