AirTran Quarterly Loss Widens On Fuel Hedges

January 28, 2009

"A number of our hedges that were put in place six, eight months ago were in the USD$80 to USD$100 range." -- AirTran chief executive Bob Fornaro.

AirTran Holdings, parent of AirTran Airways, said on Wednesday its quarterly net loss grew as falling oil prices diluted the value of its fuel hedges, but the company expects a profit in the first quarter.

AirTran said its first-quarter outlook was strong because of capacity cuts and new fuel hedges better suited to current fuel prices.

"We recognize we enter 2009 with a tremendous amount of uncertainty about the strength of the domestic US economy, as well as the future of oil and jet fuel prices," AirTran Chief Financial Officer Arne Haak said.

"It is clear to us that we cannot continue to rely upon growth in passenger travel or material improvements in passenger yields to manage through this uncertainty."

The the low-cost airline company's results were consistent with those posted by larger rivals, which also are grappling with volatile fuel prices and sagging travel demand.

The industry has downsized significantly to bolster fares. AirTran said it would shrink capacity 4 percent in 2009, with a 7 percent capacity reduction in the first quarter.

AirTran's fourth-quarter net loss was USD$118.4 million, or $1 per share, compared with a loss of USD$2.1 million, or 2 cents per share, a year earlier.

The company reported a one-time loss of USD$147.7 million related to fuel hedge contracts. Excluding items, AirTran said it earned USD$54.9 million in the quarter.

AirTran said that, in the fourth quarter, it unwound about 78 percent of its 2009 fuel hedge contracts to mitigate the potential for more losses on oil price declines.

The company has now hedged about 20 percent of its anticipated fuel consumption, capping its price at an equivalent to USD$60 per barrel of oil. AirTran said it dumped old hedges that offered protection near USD$100 per barrel.

"A number of our hedges that were put in place six, eight months ago were in the USD$80 to USD$100 range," AirTran chief executive Bob Fornaro said. "We didn't think those hedges were going to protect us. In fact, they were hurting us."

AirTran's revenue grew 1 percent to USD$589.4 million and it ended the quarter with USD$340.5 million in unrestricted cash and investments.

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