The US low-fares sector remains the main driver of industry growth, with recent aircraft order and financing action from AirTran and JetBlue Airways.
The sector now accounts for almost a quarter of US domestic capacity, while the only major US airport to make a substantial increase in airline capacity over the last three years was Florida's Fort Lauderdale/Hollywood, helped by the presence of AirTran, JetBlue, Southwest and Spirit Airlines.
AirTran, the Atlanta-based low-fares rival to dominant Delta Air Lines, is set for a massive expansion with a $4 billion package for as many as 110 Boeing twinjets, mostly 737-700s and possibly -800s. Its order follows a $3.8 billion JetBlue deal for up to 115 Airbus A320s earlier this year, and a $3 billion order for at least 100 Embraer 100-seaters. JetBlue is also attracting fervid investor interest in recent secondary offerings.
AirTran, long confined to the eastern half of the US by its fleet of Boeing 717s and older McDonnell Douglas DC-9s, has wanted larger jets to operate longer routes from its Atlanta hub to Western cities such as Denver, Las Vegas and Los Angeles. But its 717s do not have sufficient range and AirTran has had to wet-lease two Airbus A320s from Ryan International Airlines for its recently inaugurated service between Atlanta and both Las Vegas and Los Angeles.
AirTran chairman Joe Leonard says that with its new aircraft, AirTran could fly cross-country and throughout the Caribbean, Canada and Mexico within two years. The expansion, which Leonard calls "a relaunch of the company", may lead to a second hub "somewhere east of the Mississippi".
AirTran had urged Boeing to consider a stretch of the 717, a possible -300 or -ER model, but Leonard says the manufacturer had not shown decisiveness.
Although the order puts Boeing back in the low-fare contest in which Airbus has made gains, it does not bode well for the 717 project. Teal Group analyst Richard Aboulafia says: "After Airbus successfully penetrated the low-cost market with JetBlue and easyJet, it appeared the balance was tipping in this important growth area. AirTran was one of the few remaining low-cost carriers that was up for grabs." But, Aboulafia adds: "This is a profound message that the 717 is in a very weak market position."
Leonard says AirTran remains in a strong cash position. So does JetBlue, which could raise as much as $297.8 million through a second offering of common stock and a new offering of convertible notes.
JetBlue says it will use the proceeds of both offerings to fund "working capital and capital expenditures, including expenditures related to the purchase of aircraft and construction of facilities on or near airports".
JetBlue has also garnered public attention with its announcement that it will take a row of seats out of each of its A320s to increase legroom in part of the aircraft. Despite the higher interest costs and slightly lower capacity, Raymond James & Associates analyst Jim Parker is raising his earnings forecast for JetBlue.
The first aircraft with the additional legroom is expected to be in service in September. All of its 44 A320s will be reconfigured by mid-November giving the aircraft 102 seats at 34in (86.4cm) pitch and 54 remaining at 32in.
Elsewhere, Spirit Airlines, a Florida-based low-fares specialist, is planning to raise $25-50 million for a doubling of its Boeing MD-80 fleet to 50 aircraft over the next five years.
DAVID FIELD WASHINGTON
Source: Airline Business
