Fuel represents 44% of AirTran’s total costs but CEO Bob Fornaro said the USA’s second largest low-cost carrier not only has the lowest non-fuel costs in the business (lower than traditional leader Southwest Airlines), even with fuel prices, we’re still 30% to 35% lower than most carriers. The carrier is heading for seven consecutive years of cost reductions.
Fornaro made the remarks at the JP Morgan Aviation & Transportation Conference earlier today in New York.
AirTran has modest fuel hedges, and indicative of how quickly the fuel situation has changed, Fornaro said, “If we can get fuel in the low 90s and cap our ranges, we’re willing to do it. Fuel prices have moved from 12%-13% of our expenses to 44%.”
“Most [US legacy] airlines don’t make money at $70 a barrel domestically,” Fornaro said. “The legacies don’t make money domestically, so you will see capacity come out and redundancy come out,” he said, referring to the large number of hubs or focus cities operated by the legacy carriers.
Consolidation, however defined, is necessary in the US domestic market, Fornaro said on the day that news was reported that Delta Air Lines pilots said “no” to merging with Northwest Airlines.
Delta is AirTran’s primary competitor and AirTran is slowly building up service in Milwaukee, where Northwest has a focus operation and recently bought a 47% share in Midwest Airlines, whose hub is in Milwaukee.
“I think you will see capacity come down 3%-5% domestically. Ultimately that self-help will help this industry get through $110bbl oil,” he said.