Air Tran Authored by Jason

Air Tran authored by Jason Garcia for OrlandoSentinel.com on July 8, 2008, there are several environmental and economic factors that are forcing the management of this airline to take drastic action in order to stay viable. The environmental factors include those both from a natural resources and political standpoint. The natural resources environmental factors include a lack of alternative and lower cost fuels and energy sources for operating their jet aircraft, and the emerging shortage of oil as a natural resource for operating jets economically for the foreseeable future. The political environmental factors are also adversely affecting the airline. These include over-regulation of their pricing strategies and bureaucratic requirements concerning their re-introduction of the airline. Additionally the political environment has become indifferent to managing down the cost per barrel of oil nationally and is apparently not seeking an urgent solution to this problem affecting so many industries. Indifference on the part of the executive branch of the U.S. government, most notably the White House, as to how to solve the escalating price of oil now instead of drilling offshore that will only yield production in years to come, is not going to help AirTran stay solvent today. There are very difficult environmental factors for AirTran to contend with today and to a large part, out of their control.

These natural resource and political environmental factors also have a direct influence on the economic factors that are making the airlines' solvency all the more difficult to sustain.

The costs of oil and the company's lack of foresight in purchasing options or "futures" as they are called in the airline business for the right to purchase jet fuel at lower prices, is seriously impacting AirTran's ability to stay in business. Southwest Airlines had begun this practice as early as 2000, and the current CEO Gary Kelly earned the airlines' top job by initiating this strategy. As a result, Southwest continues to be one of the few profitable airlines in existence today. In conjunction with the cost of fuel, the costs of maintaining their aircraft is escalating, as many of the aircraft producers are beginning to compete with third party service providers to gain a part of this market. The quality in maintenance coverage is however markedly different between these two types of suppliers and the cost of maintenance, repair and overhaul for the specific planes that AirTran is reliant on are inordinately more expensive to maintain, as they are older 737s. Southwest overcame this by vertically integrating their maintenance and repair business into the company. AirTran still outsources portions of this and as a result suffers with widely varying pricing. On top of all these other factors is the slowing pace of air travel for both personal and business use. This is also making individual flights unprofitable, as it is widely known in the airline industry that any given flight generates single-digit gross contribution margins due to the escalating cost of fuel and personnel costs, in addition to allocated overhead from the entire corporation. Taken together, all these economic factors are making the turn-around of the losses AirTran is experiencing extremely difficult. The reductions in employees will not fix the more systemic and more strategic issues the company faces; it will however buy them time to get their fundamental business reorganized and downsized to a point where they can operate profitably given the severe constraints on their business today. It is a very tough time to run an airline today as is shown in the article.

The greatest challenge internally is to keep the existing employees motivated and focused on working productively while 480 job cuts were announced for September of this year. Everyone is literally wondering if they will be let go, and in this type of environment, not much work is going to get down. The article states that "the announcement comes less than a week after AirTran said it would seek an average 10% pay cut across its 8,900-employee workforce." Morale has got to be quite low in the company right now as a result. The article further states that "They will be timed to coincide with overall service cuts that AirTran plans to make beginning in early September, when it will reduce its flying schedule by at least 5%." This strategy of reducing routes and correspondingly reducing headcount with pilots by 12%, reducing flight attendants by 15%, initiating a 10% pay cut across the entire employee base, and the pay cuts from senior officers of between 5% and 15%, and offering a voluntary exit program for employees with five years seniority are all short-term solutions and reflect how salary-intensive the airline business model is. These are all interim steps that don't cause too much pain for the company yet they are short-term and just delay the inevitable.