Earnings Preview: AirTran Holdings Inc. (NYSE: AAI) Third Quarter 2010
Friday, October 15, 2010 9:36 AM

AirTran Holdings Inc. (NYSE: AAI) is scheduled to release its third quarter earnings after the closing bell on Wednesday, October 20, 2010. Analysts, on average, expect the company to report earnings of 17 cents per share on revenue of $685.87 million. In the year ago period, the company reported earnings of 8 cents per share on revenue of $597.40 million.

AirTran Holdings, Inc., through its subsidiary, AirTran Airways, Inc., provides scheduled airline services in the United States. It operates scheduled airline service primarily in short-haul markets in the eastern United States, with flights originating and terminating at its hub in Atlanta, Georgia. AirTran's revenues and operating income, excluding special items, for the twelve months ending June 30, 2010, were $2.5 billion and $128 million, respectively.

Late in September, AirTran Holdings agreed to be acquired by Southwest Airlines (NYSE: LUV), in a cash and stock deal for $7.69 per share, or approximately $1.4 billion in the aggregate, including AirTran's outstanding convertible notes. Including the existing AirTran net indebtedness and capitalized aircraft operating leases, the deal value is about $3.4 billion. The transaction is expected to close by the first half of 2011, subject to regulatory and shareholder approvals. Under the agreement, AirTran shareholders would receive Southwest stock and cash valued between $7.25 and $7.75, subject to certain adjustments. At least $3.75 of the merger consideration will be in cash. AirTran stockholders would receive approximately 57 million Southwest shares that represent about 7% of the pro forma Southwest common shares as well as approximately $670 million in cash.

The combined organization would serve more than 100 million customers annually from more than 100 different airports in the U.S. and near-international destinations. The two airlines currently serve 106 communities from coast-to-coast, Mexico and the Caribbean, with 685 all-Boeing aircraft. The combined airline will benefit from greater economies of scale and the integration of operations will be aided by significant fleet commonality. The proposed transaction is expected to generate net synergies of approximately $400 million by 2013.

In the preceding second quarter, the Orlando, Florida-based company's net income was $12.38 million, or 9 cents per share, compared to $78.44 million, or 56 cents per share, in the year-ago quarter. On an adjusted basis, the company earned 23 cents per share in the latest quarter. Total operating revenues increased 16.1% to $700.56 million from $603.65 million in the same quarter last year. Analysts, on average, expected the company to report earnings of 25 cents per share on revenue of $706.89 million.

At its last earnings call in late July, the company said that it expects third quarter passenger unit revenues to increase between 14.5% and 16.5% and our total unit revenues to increase between 12.5% and 14.5%.

The company has benefited from an uptick in travel demand as well as a rebound in economic activity. The company recently reported that its traffic for September increased 1.7% to 1.39 billion revenue passenger miles or RPMs from 1.37 billion RPMs in the prior year month. In August, the company's traffic increased 1.7% to 1.88 billion revenue passenger miles or RPMs from 1.85 billion RPMs in the prior year month. For the month of July, the company reported a 2.2% increase in traffic to 2.00 billion revenue passenger miles or RPMs from 1.96 billion RPMs last year.

In terms of stock performance, AirTran shares have gained nearly 41 percent since the beginning of the year.

Disclosure: Author doesn't own any of the stocks discussed here.


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