ITEM 1.  BUSINESS

All of the operations of AirTran Holdings, Inc. are conducted by our wholly owned subsidiary, AirTran Airways, Inc., which is the second-largest affordable-fare scheduled airline in the United States in terms of departures. We offer scheduled airline service serving short-haul markets, primarily from our hub in Atlanta, Georgia. As of March 22, 2002, we operated 61 aircraft making approximately 367 flights per day serving 37 cities throughout the eastern United States.

We have created a successful niche in selected markets by targeting two primary segments: price sensitive business and leisure travelers. In addition to offering an affordable-fare alternative to higher-priced airlines, we contribute towards the overall growth of the markets we serve by stimulating demand among travelers who may otherwise utilize ground transportation or not travel at all. Our service is intended not only to satisfy the transportation needs of our target customers, but also to provide customers with a travel experience worth repeating. The success of this strategy is evidenced by the 8.3 million revenue passengers we carried in the year ended December 31, 2001, a 9.7 percent increase from the 7.6 million revenue passengers we carried in the prior year ended December 31, 2000. With this traffic and revenue base, our operating margins, excluding special items (see Management's Discussion and Analysis of Financial Condition and Results of Operations), rank among the highest in the domestic airline industry. We achieved this result with a cost structure that ranks among the best in the industry (in terms of cost per available seat mile).

We have undertaken a number of key initiatives in recent years to strengthen our competitive position, the most noteworthy of which is our fleet renewal plan. We are in the process of replacing and upgrading our fleet of aircraft through the acquisition of 60 new Boeing 717 (B717) aircraft by October 2003, 30 of which we operated as of December 31, 2001. We were Boeing's launch customer for the B717, which was designed specifically for efficient short-haul service and is considered among the most modern, innovative, comfortable and environmentally friendly commercial aircraft available today. As a result, we believe the addition of the B717s will enhance our overall image and operating performance.

Our financial and operating results for any interim period are not necessarily indicative of those for the entire year, because the air transportation business is subject to seasonal fluctuations. Higher demand for air travel has traditionally resulted in more favorable financial and operating results for the second and third quarters of the year than for the first and fourth quarters.

Our passenger revenues for the period from September through December 2001 were significantly affected by the terrorist attacks on the United States which occurred on September 11, 2001 (the September 11 Events). In response to the terrorist attacks, the Federal Aviation Administration (FAA) immediately issued a federal ground stop order on September 11th, which prohibited all civil aviation flights from operation within the national airspace of the United States. The U.S. airspace was not reopened until September 13th, at which time we operated a portion of our pre-September 11th scheduled operations. Once flights resumed, passenger traffic and yields were significantly lower than we had experienced prior to September 11th. In an effort to match our capacity to the reduced level of demand, we reduced our operations to levels similar to those we operated during the same period in 2000, despite the fact that we had been successful in growing our capacity by 18 percent earlier in the year. In addition, many corporations curtailed their business travel and leisure travelers cancelled or postponed vacations, which forced airlines to reduce airfares in an attempt to stimulate demand. Despite these actions, our traffic dropped in the post-September 11th period by over 11 percent which resulted in our passenger load factor declining eight percentage points compared to the

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previous year. Passenger yields also suffered during the post-September 11th period declining nearly 15 percent year-over-year. This resulted in a $51.8 million, or 25 percent, decline in passenger revenues compared to the same time period in 2000. See Management's Discussion and Analysis of Financial Condition and Results of Operations.

On September 22, 2001, President Bush signed into law the Air Transportation Safety and System Stabilization Act (the Stabilization Act), which provides, in part, for all U.S. airlines and air cargo carriers to receive: $5 billion in compensation for direct losses, including lost revenues, incurred as a direct result of the FAA ground stop order and for incremental losses incurred through December 31, 2001 as a direct result of the terrorist attacks; up to $10 billion in federal government loan guarantees; reimbursement for certain insurance increases; and the extension in due dates for payment of certain excise taxes.

Under the Stabilization Act, each air carrier is entitled to receive the lesser of its direct and incremental losses for the period of September 11, 2001 to December 31, 2001 or its available seat mile (ASM) allocation of the $5 billion compensation. Our estimate of total federal compensation for which we are eligible under the Stabilization Act is $29.0 million, of which we had received $24.6 million from the U.S. Department of Transportation (DOT) as of December 31, 2001. As of December 31, 2001, we recognized $29.0 million as federal compensation under the Stabilization Act, which is included in Operating Expenses - Government Grant on the accompanying Consolidated Statements of Operations. Our direct and incremental losses for the period September 11, 2001 through December 31, 2001 included special charges of $2.5 million primarily representing operating costs incurred during the FAA's ground stop order.

Low Cost Structure. Our cost structure ranks among the lowest in the domestic airline industry, in terms of cost per available seat mile, allowing us to be profitable (excluding special items) with our affordable-fare pricing strategy, and offering us a measure of protection against potential price competition or declines in demand. Our relatively low operating costs are made possible through our company-wide emphasis on cost controls including what we believe to be our lower labor costs, lower distribution costs and the higher productivity of our workgroups. We expect further cost reductions to result from our growing fleet of B717 aircraft. The B717 has significantly lower operating costs than the DC-9, particularly as a result of fuel efficiency which is approximately 24 percent better. As of December 31, 2001, more than half of our operating fleet was comprised of B717s (30 of 59 operating aircraft). In 2002, we will add 20 new B717 aircraft and retire 14 DC-9s. See Management's Discussion of Financial Condition and Results of Operations.

Attractive Atlanta Hub and Route Network. We control 22 gates from a single concourse under long-term leases at Hartsfield Atlanta International Airport, where local passenger demand remains strong relative to other airports nationwide. Atlanta's location favorably positions the airport to provide connecting traffic to major population centers. We are the second-largest airline in Atlanta in terms of the number of departures and seats offered.

Diversified Traffic Base. In serving both the leisure and business traveler, we believe we had a revenue mix of 46 percent leisure and 54 percent business in 2001. In addition, we now have a hub traffic mix that consists of 51 percent local passengers and 49 percent connecting passengers. In addition to providing a number of marketing and cost synergies, this diversification adds stability to our revenues by protecting against factors that may impact individual segments of our business.

Flexibility. We quickly responded to the September 11 Events by reducing capacity by approximately 20 percent. Our employee crew members quickly agreed to a variety of cost reduction measures, including both pay and work rule changes, which reduced our costs and allowed us to avoid furloughs. By retaining our workforce we were able to quickly respond to new market opportunities. As a result, we were able to expand

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service to Tallahassee, FL, Baltimore/Washington, MD, Rochester, NY and Wichita, KS following the post September 11 period.

Management Team. We have in place an experienced management "Leadership Team," all but two of whom joined us in 1999 and 2000. The members of our Leadership Team average 23 years of experience in the airline industry. This Leadership Team is lead by Joseph Leonard, our Chairman and Chief Executive Officer and Robert Fornaro, our President and Chief Operating Officer. Messrs. Leonard and Fornaro have held senior management positions with AlliedSignal, Northwest Airlines, Eastern Air Lines, US Airways and American Airlines.

Continue Affordable Pricing and Other Programs to Generate Additional Customer Traffic. We have consistently maintained our competitive position by providing affordable fares to appeal to price sensitive travelers. We intend to continue this successful strategy, which is made possible by our comparatively low cost structure, to stimulate new demand for air travel. We also believe our fare strategy will continue to attract customers from other higher-priced airlines. We will continue to enhance our affordable approach with innovative marketing, pricing and customer loyalty programs such as offering a business class cabin, advanced seat assignment and a frequent flyer program.

Expansion with Public-Private Partnerships. In order to mitigate the risk of expansion into new markets, we have entered into agreements with communities that provide various incentives designed to lower our operating costs and, in some cases, ensure a guaranteed amount of revenue. These partnerships allow us to expand into markets that we believe have long-term potential and for the communities to gain the economic benefits associated with low fare competition. We have partnership agreements with Grand Bahama Island, Bahamas, Gulfport/Biloxi, MS, Newport-News/Williamsburg, VA, Pensacola and Tallahassee, FL, Rochester, NY and Wichita, KS. We are continuing to evaluate other potential new market proposals as well.

Leverage Growing Atlanta Hub to Selectively Expand Route Structure. We have a strong presence in Atlanta, a market that has grown rapidly in recent years. Atlanta's large traffic base and geographic position provides a strong hub from which we plan to selectively expand our routes. We believe that there are numerous markets in the United States that are underserved by major airlines or present opportunities for an affordable-fare airline. As a result, we intend to selectively add to our route structure from Atlanta by increasing the number of flights to markets we currently serve and by adding new cities and markets. Expansion of our Atlanta hub allows us to leverage our existing infrastructure, which will reduce unit costs and contribute to improvement of our operating margins. In addition, we may selectively add new "point-to-point" routes between cities other than Atlanta that we currently serve and create additional focus cities.

Diversification of Route Network. Since 2000, we have expanded the scope and growth of our route structure to increase the amount of non-Atlanta flights; going from approximately 10 percent outside of Atlanta to approximately 13 percent by year-end 2001, to approximately 20 percent in the first quarter of 2002. With our expansion at Baltimore/Washington, we initiated seven new non-stop routes. The new service from Baltimore/Washington to airports already served from our Atlanta hub improves our cost efficiencies by better utilizing airport facilities and personnel and more importantly creates new revenue sources. As market conditions permit, we will continue to grow both the Atlanta hub and Baltimore/Washington service. Additionally, we may selectively add new "point-to-point" routes between cities other than Atlanta and Baltimore/Washington.

Increase Bookings Through the Internet and Other Distribution Channels. We believe we are the leader in the U.S. airline industry with respect to bookings via the internet, offering lower costs and improved product availability as compared to more traditional direct and agency channels. We employ the internet as an

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integral portion of our marketing strategy utilizing our website, airtran.com, which was launched in May 1998. In addition to being user-friendly and simple, our website is designed to sell tickets efficiently. As a result, we have experienced rapid growth in our internet bookings, which generated approximately half of our total passenger revenue for the fourth quarter ended December 31, 2001.

Fleet Renewal Program. In September 1999, we took delivery of our first B717 as part of a comprehensive plan to replace and upgrade our fleet of aircraft. The B717 is ideally suited for the short-haul, high-frequency service that we operate. The B717 offers additional operating efficiencies to our already low cost structure. Despite having greater thrust, the new aircraft burns approximately 24 percent less fuel per hour than our DC-9 aircraft. With up to 60 percent fewer parts in its environmental, avionics and electrical systems than the DC-9s, we expect the B717 to significantly reduce our fleet maintenance costs. As of December 31, 2001, we had contracted with Boeing for the acquisition of 53 B717 aircraft for delivery through October 2003, 30 of which had been delivered. With respect to future B717 option deliveries, we had 21 options, 20 purchase rights and five rolling options at December 31, 2001.

On March 21, 2002, we amended our B717 purchase contract as follows: (i) our commitments to acquire B717s in 2002 increased from 12 aircraft to 20 aircraft, comprised of 13 firm and seven option aircraft; (ii) our commitments to acquire B717s in 2003 decreased from 11 aircraft to 10 aircraft, comprised of nine firm and one option aircraft; and (iii) purchase deposits that were previously paid for aircraft deliveries in 2002 will be applied to future aircraft deliveries, rather than reducing the balance of the total purchase price due at delivery.

We have signed a lease financing proposal from Boeing Capital for 19 (20 at Boeing Capital's option) new or previously owned B717 aircraft to be delivered in 2002. According to this proposal, the lease term for each of these aircraft commences upon delivery and will continue for 18 to 19 years, at which time we can renew the lease at fair market rental or purchase the aircraft at the greater of a predetermined amount or its fair market value. If completed as contemplated, this lease financing will reduce our aggregate funding requirements for aircraft commitments from $470.2 million to $211.3 million representing the aircraft to be purchased for 2003. Funding is subject to finalization of definitive agreements and other conditions.

The markets we serve are located predominantly in the eastern United States. These markets are attractive to us due to the concentration of major population centers within relatively short distances from Atlanta, historically high air fares and the potential for attracting a significant number of leisure and business customers.

We presently serve 36 cities from Atlanta and eight from Baltimore/Washington. Our schedules are designed to provide convenient service and connections for our business and leisure travelers and to facilitate connections for our passengers traveling through our hubs and focus cities.

We offer a range of fares based on advance purchases of 14 days, seven days, three days and "walk-up" fares. We manage the availability of seats, at each fare level, by day of week and by flight to maximize revenue on peak-travel days. All of our fares are one-way and most are nonrefundable, but can be changed prior to departure with a service charge. Our fares generally do not require a round trip purchase or a minimum stay (e.g., Saturday night stay). Our fare offerings are in direct contrast to prevalent pricing policies in the industry where there are typically many different price offerings and restrictions for seats on any one flight. We have established interline ticketing and baggage agreements with Delta, United, US Airways, and American Trans Air, which we believe can increase revenue opportunities for us and assist with accommodating passengers during irregular operations.

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In the future, we may add additional service between cities already served by us or may add service to new markets. Alternatively, we may terminate unprofitable routes. Our selection of markets depends on a number of factors existing at the time service to such market is being considered. In our city selection process, we consider the market demographics, the support offered by the airport communities to be served, the ability to stimulate air travel and competitive factors. Consequently, there can be no assurance that we will continue to provide service to all of the markets we currently serve or that we will not provide service to any other particular market.

The airline industry is highly competitive and is served by numerous companies. Airlines compete on the basis of markets served, price, schedule (frequency and flight times), quality of service, amenities, frequent flyer programs and other services. We compete with other airlines primarily on the basis of price, which is made possible by our low cost structure relative to other airlines, and by focusing on selected short-haul markets in the eastern United States. We may face greater competition from existing or new carriers in the future which could result in a negative impact to our business and operating results.

Competitors with greater financial resources than ours may price their fares at or below our fares or increase their service. This competition could prevent us from attaining a share of the passenger traffic necessary to sustain profitable operations. Our ability to meet price competition depends on our ability to operate at costs equal to or lower than our competitors or potential competitors.

Despite the intense competition in the airline industry, we believe that one of our competitive strengths is our control of 22 contiguous gates on a single concourse at Hartsfield Atlanta International Airport. Atlanta's central location in the southeastern United States favorably positions the airport to provide connecting traffic to major population centers. We are the second largest airline in Atlanta in terms of the number of departures offered and we consider our position in this major hub to be a significant competitive advantage.

Our operating fleet consists of B717 and DC-9 aircraft. As of December 31, 2001, the weighted-average age of our B717 fleet was 1.2 years. Since all of our DC-9 aircraft were manufactured more than 20 years ago, they will generally require higher maintenance expense than our newer B717 aircraft. However during 2002, we anticipate retiring 14 DC-9 aircraft and replacing these aircraft with new B717 aircraft. We believe the long-term estimated cost of maintenance to fly our aircraft will be within industry norms for these fleet types. Amendments to FAA regulations are under consideration, which would require certain heavy maintenance checks and other maintenance requirements for aircraft operating beyond certain operational limits. We would be required to comply with these proposals, if adopted, and with any other aging aircraft issues, regulations or Airworthiness Directives that may be promulgated in the future. There can be no assurance that our maintenance expenses (including costs to comply with aging aircraft requirements) will fall within industry norms.

Aircraft maintenance and repair consists of routine daily or "turn-around" maintenance and major overhaul. Routine daily maintenance is performed at Atlanta by our employees and by contractors at the other cities served by us. Heavy maintenance and other work which require hangar facilities are currently performed at outside maintenance contractors. Other routine daily maintenance contractors are provided by other airlines, which operate DC-9 aircraft or other maintenance companies approved by the FAA, both of which have employees qualified in DC-9 aircraft maintenance. We expect that our maintenance expenses will decline with the addition of the B717 aircraft as a result of the reduced maintenance requirements associated with operating new equipment. However, the B717 aircraft will initially require greater capital expenditures for inventories of spare parts and other costs.

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Our maintenance technicians undergo extensive initial and ongoing training to ensure the safety of our aircraft. The FAA recently awarded us with the Air Maintenance Technical Diamond Certificate of Excellence for Maintenance Training, the FAA's highest maintenance award. This marks the sixth year in a row we have been bestowed with this award for exceeding the required levels of safety training for our maintenance technicians.

Aircraft fuel is a significant expenditure for us. Aircraft fuel accounted for 22.9 percent and 25.9 percent of our 2001 and 2000 operating expenses, respectively, excluding special items. Increases in fuel prices or a shortage of supply could have a material adverse effect on our operations and operating results. Subject to market conditions, we may implement fare increases to offset increases in the price of fuel. There can be no assurance that any such fare increase will completely offset higher fuel costs or not adversely impact our competitive position. Despite the significant impact of this cost on our operating results, we have been able to achieve improvements in our operating margins through the addition of new, fuel-efficient B717 aircraft which consume approximately 24 percent less fuel than the aircraft they are replacing.

Aircraft fuel costs are highly correlated to oil prices and thus fluctuate with changes in supply and demand for oil. Due to the effect of world and economic events on the price and availability of oil, the future availability and cost of aircraft fuel cannot be predicted with any degree of certainty. Based on our 2002 projected fuel consumption, we estimate that a 10 percent increase in the average price per gallon of aircraft fuel for the year ended December 31, 2001, would increase our fuel expense for the next 12 months by approximately $14.4 million, net of hedging instruments outstanding at December 31, 2001. As of December 31, 2001, we had hedged approximately 30 percent of our projected fuel requirements for 2002, as compared to approximately 50 percent of our projected fuel requirements for the first quarter of 2001 and 30 percent for the remainder of 2001 at December 31, 2000.

Recent terminations of our aircraft fuel hedges in place as of December 31, 2001, are discussed in Note 16 to our consolidated financial statements. On November 28, 2001, the credit rating of the counterparty to all of our fuel-related hedges was downgraded, and the counterparty declared bankruptcy on December 2, 2001. Due to the deterioration of the counterparty's creditworthiness, we no longer consider the financial contracts with the counterparty to be highly effective in offsetting our risk related to changing fuel prices because of the consideration of the possibility that the counterparty will default by failing to make contractually required payments as scheduled in the derivative instrument. As a result, on November 28, 2001, hedge accounting treatment was discontinued prospectively for our derivative contracts with this counterparty in accordance with SFAS 133. Gains and losses previously deferred in "Accumulated other comprehensive loss" will continue to be reclassified to earnings as the hedged item affects earnings. Beginning on November 28, 2001, changes in fair value of the derivative instruments have been marked to market through earnings. This resulted in a charge of $0.2 million, which is included in the amount presented as "SFAS 133 adjustment" in our Consolidated Statements of Operations. See Notes 2, 5 and 16 to the consolidated financial statements.

Our marketing efforts are vital to our success as we seek to position our product to stimulate new customer demand. We focus on two primary market segments: the price sensitive business and leisure travelers. These are the market segments in which the consumers seek value and in which we believe we offer the greatest opportunity for stimulating new demand.

The primary objectives of our marketing activities are to develop an innovative brand identity that is visibly unique and easily contrasted with our competitors. We communicate directly with our existing customer base and attempt to reach potential customers through advertising as well as active public relations efforts. We communicate regularly and frequently with existing and potential customers through the use of advertisements in newspapers, radio, television, billboards, direct mail, e-mail, movie theatres and the

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internet. These communications feature our destinations, everyday affordable fares and special sales promotions.

We distribute our product through various channels including direct to the consumer via the internet and through travel agents and global distribution systems (GDS). During the fourth quarter of 2001, 16.7 percent of passenger bookings were made through our reservation centers, 54.5 percent were booked from the consumer and travel agents via the internet, up from 37.6 percent last year, and 32.8 percent were booked through travel agents' GDS, down 5.3 percentage points from the fourth quarter 2000 level. Travel agents presently receive standard commissions for all travel agency bookings.

Our website is a leader in the field of airline electronic commerce. Travel Agent magazine ranked our website an "A" for the user friendliness of our online booking engine. In 2002, our website is being enhanced with additional functionality. In addition, we expect to add new features such as automated seat selection for select classes of service, corporate account log-ins and automated A-Plus Rewards.

To attract more business fliers, we launched a business class product in late 1997. The business class cabin is configured with 2 by 2 oversized seats with more leg and seat room than the typical coach cabin. Targeted to the price sensitive business flier, our business class is currently available for $25 over the full coach fare on a confirmed basis or $25 over certain of our other fares on a walk-up standby basis.

In contrast to most other low-cost airlines, we offer advanced seat selection. Full fare passengers and members of our A2B Corporate travel program, who tend to purchase tickets at the last minute, are allowed to reserve seats at the time of purchase. All other customers may reserve seats one hour prior to departure.

We also offer a self-administered frequent flier program known as "A-Plus Rewards." Our customers may earn either free roundtrip travel or business class upgrades on AirTran Airways, or under certain circumstances free travel on other airlines.

We perform marketing, promotional and media relations in-house. An outside firm assists us in handling advertising and public relations.

We have a marketing agreement with The Hertz Corporation to operate a reservation call and internet booking solicitation agreement under which our customers are able to reserve a Hertz rental car at discounted rates when making a reservation for our flights. In addition, we have marketing programs with American Express to send direct mail to American Express cardholders who regularly fly over our route system. American Express customers who charge their airfare on their American Express card earn free tickets in our A-Plus Rewards program at an accelerated rate.

Air travel in our markets tends to be seasonal, with the highest levels occurring during the winter months to Florida and the summer months to the northeastern United States. Advertising and promotional expenses may be greater in lower traffic periods, as well as when entering a new market, in an attempt to stimulate air travel.

We are a participant in the major travel agency GDSs, including Amadeus, Galileo, SABRE, SystemOne, and WorldSpan. These systems provide flight schedules, pricing information and allow travel agents to electronically process a flight reservation without contacting our reservations facility.

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For direct reservations, either through our call centers or airtran.com, we provide our customers with a confirmation number, similar to the systems used by hotels and car rental agencies. At the airport this information is available for customer check-in, which helps to alleviate long lines and achieve a quicker turnaround of aircraft. After the flight has departed, our internal information system calculates and records passenger revenue.

As of February 2002, we employed approximately 4,250 employees comprising approximately 3,800 full-time equivalents.

Training, both initial and recurrent, is provided for all employee groups. The average training period for new employees is approximately one to three weeks, depending on classification. Both pilot training and mechanic training are provided by in-house training instructors and at times, may be performed by professional training organizations.

FAA regulations require pilots to be licensed commercial pilots, with specific ratings for aircraft to be flown, and to be medically certified as physically fit. FAA and medical certifications are subject to periodic renewal requirements including recurrent training and recent flying experience. Mechanics, quality-control inspectors and flight dispatchers must be certificated and qualified for specific aircraft. Flight attendants must have initial and periodic competency fitness training and qualification. Training programs are subject to approval and monitoring by the FAA. Management personnel directly involved in the supervision of flight operations, training, maintenance and aircraft inspection must meet experience standards prescribed by FAA regulations. All of these employees are subject to pre-employment, random and post-accident drug testing.

We have employee groups which are represented by labor unions and covered by collective bargaining agreements. Our relations with these labor organizations are governed by the Railway Labor Act.

During 2001, amended collective bargaining agreements were ratified with our pilots and stores clerks, in addition to the ratification of a new agreement with our technical training instructors. The agreement with our pilots, represented by the National Pilots Association (NPA), was ratified in August 2001 and becomes amendable in April 2005. The agreement with our stores clerks, represented by the International Brotherhood of Teamsters (Teamsters), was ratified in June 2001 and becomes amendable in June 2006. A new agreement with our technical training instructors, also represented by the Teamsters, was ratified in March 2001 and becomes amendable in March 2006. Each of the aforementioned agreements were reached in direct negotiations without the assistance of federal mediators.

We have a collective bargaining agreement with our flight attendants represented by the Association of Flight Attendants. The flight attendant contract becomes amendable on October 21, 2002. Our maintenance technicians and inspectors and ground service equipment employees are represented by the Teamsters under separate collective bargaining agreements. The ground service equipment employees contract becomes amendable August 19, 2003. The maintenance technicians and inspectors contract becomes amendable October 1, 2005. We have a collective bargaining agreement with our dispatchers represented by the Transport Workers Union. The dispatcher contract becomes amendable on October 1, 2004.

In January 2002, our customer service, ramp and reservation agents rejected a unionization proposal by the Teamsters in a vote that received less than 33 percent support. We are unable to predict whether any of our other employees will elect to be represented by a labor union or other collective bargaining unit. The election by our employees for representation in such an organization could result in employee compensation and working condition demands that may affect operating performance and expenses.

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We conduct complete handling services in 26 airports, including Atlanta. At other airports, the operations not conducted by our employees are contracted to other air carriers, ground handling companies or fixed base operators. We have employees at each of these cities to oversee our operations.

We carry customary levels of passenger liability insurance, aircraft insurance for aircraft loss or damage, war-risk insurance and other business insurance. We believe our insurance coverage in these areas is adequate. We are exposed to potential catastrophic losses that may be incurred in the event of an aircraft accident. Any such accident could involve not only repair or replacement of a damaged aircraft and its consequent temporary or permanent loss from service, but also significant potential claims of injured passengers and others. We currently maintain liability insurance in amounts and of the type consistent with industry practice. Although we currently believe our insurance coverage is adequate, there can be no assurance that the amount of such coverage will not be changed or that we will not be forced to bear substantial losses from accidents. Substantial claims resulting from an accident in excess of related insurance coverage or not covered by our insurance could have a material adverse effect on us.

After the September 11th Events, aviation insurers provided notice to all air carriers that coverage for aircraft hull and liability war risk would be canceled in seven days. Upon cancellation of our policies, we purchased new policies in the commercial insurance market at significantly higher rates and, in certain cases, at reduced levels of coverage compared to our previous policies. Pursuant to the Stabilization Act, the FAA currently provides coverage for the gap between the coverage that is available in the commercial insurance market and what air carriers require for third party liabilities arising from war risks. While the FAA currently has the authority to provide the aforementioned gap coverage until May 19, 2002, there is no assurance that the FAA will continue to provide similar coverage after that date.

The airline industry is highly competitive, primarily due to the effects of the Airline Deregulation Act of 1978, which has substantially eliminated government authority to regulate domestic routes and fares. Deregulation has increased the ability of airlines to compete with respect to destination, flight frequencies and fares. Nevertheless, the airline industry remains highly regulated in other aspects, as more fully described below.

Although regulation of domestic routes and fares was abolished by the Airline Deregulation Act of 1978, the United States Department of Transportation (DOT) retains the authority to alter or amend any airline's certificate or to revoke such certificate for intentional failure to comply with the terms and conditions of the certificate. In addition, the DOT has jurisdiction over international tariffs and pricing, international routes, computer reservation systems, and economic and consumer protection matters such as advertising, denied boarding compensation, smoking and codeshare arrangements and has the authority to impose civil penalties for violation of the United States Transportation Code or DOT regulations.

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The FAA has issued several Airworthiness Directives (ADs) mandating modifications to the older aircraft maintenance programs. These ADs were issued to ensure that the oldest portion of the nation's aircraft fleet remains airworthy and require structural modifications to or inspections of those aircraft. We believe that all of our aircraft are in compliance with the aging aircraft mandates.

We cannot predict the cost of compliance with all present and future rules and regulations and the effect of such compliance on our business, particularly our expansion plans and aircraft acquisition program.

In 1997, a law was enacted imposing new aviation ticket taxes as part of larger tax legislation designed to balance the nation's budget, provide targeted tax relief and fund air traffic control, other FAA programs and airport development. As enacted, these new taxes will be imposed through September 30, 2007. Currently, the federal excise tax on tickets is 7.5% of the base fare, with a segment fee of $3.00 per enplanement. Additionally, in conjunction with the Transportation Security Administration taking responsibility for airport security on February 18, 2002, there is a new security tax of $2.50 per enplaned passenger, up to $5.00 each way.

In August 1993, the federal government increased taxes on fuel, including aircraft fuel, by 4.3 cents per gallon. We paid approximately $13.8 million in fuel taxes in 2001.

During 1990, Congress enacted legislation to permit airport authorities, with prior approval from the DOT, to impose passenger facility charges (PFCs) as a means of funding local airport projects. These charges, which are intended to be collected by the airlines from their passengers, range from $3.00 to $4.50 per enplanement and up to $18 per round trip. To date, we have passed on the cost of the PFCs to our passengers.

In 1996 and 1997, the President's Commission on Aviation Safety and Security issued recommendations and the U.S. Congress and the FAA adopted increased safety and security measures designed to increase airline passenger safety and security and protect against terrorist acts. Such measures have resulted in additional operating costs to the airline industry. Examples of increased safety and security measures include the introduction of a domestic passenger manifest requirement, increased passenger profiling, enhanced pre-board screening of passengers and carry-on baggage, positive bag match for profile selections, continuous physical bag search at checkpoints, additional airport security personnel, expanded criminal background checks for selected airport employees, significantly expanded use of bomb sniffing dogs, certification of screening companies, aggressive testing of existing security systems, expansion of aging aircraft inspections to include nonstructural components, development of a new systems approach for air carriers and the FAA to monitor and improve safety oversight and installation of new ground proximity warning systems on all commercial aircraft. In conjunction with the Transportation Security Administration taking responsibility for airport security on February 18, 2002, there is a new security tax of $2.50 per enplaned passenger, up to $5.00 each way. We cannot forecast what additional security and safety requirements may be imposed in the future or the costs or revenue impact that would be associated with complying with such requirements.

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Our operations may become subject to additional federal regulatory requirements in the future. Our labor relations are covered under Title II of the Railway Labor Act of 1926, as amended, and are subject to the jurisdiction of the National Mediation Board. During a period of past fuel scarcity, air carrier access to jet fuel was subject to allocation regulations promulgated by the Department of Energy. We are also subject to state and local laws and regulations at locations where we operate and the regulations of various local authorities that operate the airports we serve.

All international service is subject to the regulatory requirements of the appropriate authorities of the other country involved. We currently operate international service to Grand Bahama Island. To the extent we seek to provide additional international air transportation in the future, we will be required to obtain necessary authority from the DOT.

The Airport Noise and Capacity Act of 1990 (ANCA) generally recognizes the rights of airport operators with noise problems to implement local noise abatement programs so long as they do not interfere unreasonably with interstate or foreign commerce or the national air transportation system. The ANCA generally requires FAA approval of local noise restrictions on Stage 3 aircraft first effective after October 1990. While we have had sufficient scheduling flexibility to accommodate local noise restrictions imposed to date, our operations could be adversely affected if locally-imposed regulations become more restrictive or widespread.

The Environmental Protection Agency (EPA) regulates operations, including air carrier operations, which affect the quality of air in the United States. We believe we have made all necessary modifications to our fleet to meet emission standards issued by the EPA.

We commenced operations in 1993 as ValuJet Airlines, Inc. (ValuJet) with two DC-9 aircraft serving three cities from Atlanta with eight flights per day. In 1995, ValuJet became a wholly owned subsidiary of ValuJet, Inc. ValuJet's operations were interrupted by the suspension of service on June 17, 1996, resuming on September 30, 1996 with limited operations.

ValuJet changed its name to "AirTran Airlines, Inc." (Airlines), and ValuJet, Inc. changed its name to "AirTran Holdings, Inc." in connection with our acquisition of Airways Corporation and its subsidiary, AirTran Airways, Inc. (Airways), in November 1997. As part of that transaction, Airways became a wholly owned subsidiary of AirTran Holdings. From November 1997 until April 1998, we operated under the FAA operating certificates of both Airlines and Airways. Since April 1998, all of our airline operations have been conducted under the Airways operating certificate. The Airlines operating certificate was extinguished in August 1998. In August 1999, Airlines merged with and into Airways.

Our principal executive offices are located at 9955 AirTran Boulevard, Orlando, Florida 32827, and our telephone number is (407) 251-5600. We maintain an internet site at airtran.com. The reference to our internet site does not constitute incorporation by reference of the information contained at the site.

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We recorded net losses in each year from 1996 to 1999 and in 2001. Our earnings before fixed charges for each of these years were inadequate to cover fixed charges. Our incurrence of losses or failure to cover fixed charges in the future may have a material adverse effect on our financial condition and our ability to repay our financing obligations.

We are highly leveraged and will continue to have significant debt obligations. Additionally, we may incur substantial additional debt related to aircraft deliveries. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.

Our ability to make scheduled payments of principal or interest for our financing obligations depends on our future performance and financial results. These results are subject to general economic, financial, competitive, legislative, regulatory, and other factors that are, to some extent, beyond our control.

The amount of our debt could have important consequences to investors, including the following:

• a substantial portion of our cash flow from operations must be dedicated to debt service and will not be available for operations;
• our ability to obtain additional financing for aircraft purchases, capital expenditures, working capital, or general corporate purposes could be limited;
• our vulnerability to adverse economic and industry conditions may be greater than our larger and more financially secure competitors;
• substantially all of our existing assets (including flight and other equipment, inventory, receivables and our maintenance hangar) are pledged as collateral to secure the obligations under the Boeing refinancing transactions; and
• future B717 aircraft to be acquired by us will be pledged as collateral to secure aircraft acquisition debt we incur.

Our debt instruments contain covenants that, among other things, restrict our ability to:

• incur additional indebtedness;
• pay dividends and make other distributions;
• prepay subordinated indebtedness;
• make investments and other restricted payments;
• create liens;
• sell assets;
• enter into certain mergers; and
• engage in certain transactions with affiliates.

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Our current and future financing arrangements contain and are expected to continue to contain similar or more restrictive covenants. As a result of these restrictions, we may be limited in how we conduct business, and we may be unable to raise additional debt or equity financing to operate during general economic or business downturns, to compete effectively, or to take advantage of new business opportunities. This may affect our ability to generate revenues and make profits. Without sufficient revenues and cash, we may not be able to pay interest and principal on our indebtedness.

Our failure to comply with the covenants and restrictions contained in our indentures and other financing agreements could lead to a default under the terms of those agreements. If such a default occurs, the other parties to these agreements could declare all amounts borrowed and all amounts due under other instruments that contain provisions for cross-acceleration or cross-default due and payable. If that occurs, we may not be able to make payments on our debt, meet our working capital and capital expenditure requirements, or be able to find additional alternative financing. Even if we obtain additional alternative financing, we cannot guarantee investors that this financing would be on favorable or acceptable terms.

Aircraft fuel is a significant expenditure for us. Aircraft fuel accounted for 22.9 percent and 25.9 percent of our 2001 and 2000 operating expenses, respectively, excluding special items. Aircraft fuel costs are highly correlated to oil prices and thus fluctuate with changes in supply and demand for oil. Due to the effect of world and economic events on the price and availability of oil, the future availability and cost of aircraft fuel cannot be predicted with any degree of certainty. Increases in fuel prices or a shortage of supply could have a material adverse effect on our operations and operating results. Subject to market conditions, we may implement fare increases to offset increases in the price of fuel. There can be no assurance that any such fare increase will completely offset higher fuel costs or not adversely impact our competitive position.

Based on our 2002 projected fuel consumption, we estimate that a 10 percent increase in the average price per gallon of aircraft fuel for the year ended December 31, 2001, would increase our fuel expense for the next 12 months by approximately $14.4 million, net of hedging instruments outstanding at December 31, 2001. As of December 31, 2001, we had hedged approximately 30 percent of our projected fuel requirements for 2002, as compared to approximately 50 percent of our projected fuel requirements for the first quarter of 2001 and 30 percent for the remainder of 2001 at December 31, 2000.

Recent terminations of our aircraft fuel hedges in place as of December 31, 2001, are discussed in Note 16 to our consolidated financial statements. On November 28, 2001, the credit rating of the counterparty to all of our fuel-related hedges was downgraded, and the counterparty declared bankruptcy on December 2, 2001. Due to the deterioration of the counterparty's creditworthiness, we no longer consider the financial contracts with the counterparty to be highly effective in offsetting our risk related to changing fuel prices because of the consideration of the possibility that the counterparty will default by failing to make contractually required payments as scheduled in the derivative instrument. As a result, on November 28, 2001, hedge accounting treatment was discontinued prospectively for our derivative contracts with this counterparty in accordance with SFAS 133. Gains and losses previously deferred in "Accumulated other comprehensive loss" will continue to be reclassified to earnings as the hedged item affects earnings. Beginning on November 28, 2001, changes in fair value of the derivative instruments have been marked to market through earnings. This resulted in a charge of $0.2 million, which is included in the amount presented as "SFAS 133 adjustment" in our Consolidated Statements of Operations. See Notes 2, 5 and 16 to the consolidated financial statements.

The airline industry, in general, and the low-fare sector in particular, is highly competitive and is served by numerous companies. We may face greater competition in the future. Any increased competition could have a negative impact on our business and operating results.

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The profitability of our operations is influenced by the condition of the U.S. economy, that may impact the demand for discretionary travel and our competitive pricing position. A substantial portion of our business is discretionary travel, which declines during economic downturns.

Our business strategy has historically focused on adding flights to and from our Atlanta base of operations. Since 2000, we have expanded the scope and growth of our route structure to increase the amount of non-Atlanta flights; going from approximately 10 percent outside of Atlanta to approximately 13 percent by year-end 2001, to approximately 20 percent in the first quarter of 2002. A nonstrategic, external reduction in our share of the Atlanta market or reduced passenger traffic to or from Atlanta could have a material adverse effect on our financial condition and results of operations. In addition, our dependence on a primary hub and on a route network operating largely on the East Coast makes us more susceptible to adverse weather conditions and other traffic delays along the East Coast than some of our competitors that may be better able to spread these traffic risks over larger route systems.

The strategic environment in the airline industry changes from time to time as carriers implement varying strategies in pursuit of profitability, including consolidation to expand operations and increase market strength, and entering into global alliance arrangements. We are unable to predict what effect, if any, changes in the strategic landscape might have on our business, financial condition and results of operations.

Our operating fleet consists of B717 and DC-9 aircraft. As of December 31, 2001, the weighted-average age of our B717 fleet was 1.2 years. Since all of our DC-9 aircraft were manufactured more than 20 years ago, they will generally require higher maintenance and other operating costs associated with older aircraft.

We are required to comply with all applicable regulations and airworthiness directives issued by the FAA with respect to aging aircraft. As a result, our future costs of maintenance, including costs to comply with aging aircraft requirements for our DC-9 aircraft, may increase and therefore negatively impact our business and financial results.

As of December 31, 2001, we had an agreement to purchase 53 B717 aircraft of which we had taken delivery of 30 of these aircraft (two additional aircraft were delivered in February 2002). Although we expect to finance the acquisition of these aircraft, we did not have financing in place for these aircraft as of December 31, 2001.

We have since signed a lease financing proposal from Boeing Capital for 19 (20 at Boeing Capital's option) new or previously owned B717 aircraft to be delivered in 2002. According to this proposal, the lease term for each of these aircraft commences upon delivery and will continue for 18 to 19 years, at which time we can renew the lease at fair market rental or purchase the aircraft at the greater of a predetermined amount or its fair market value. If completed as contemplated, this lease financing will reduce our aggregate funding requirements for aircraft commitments from $470.2 million to $211.3 million representing the aircraft to be purchased for 2003. Funding is subject to finalization of definitive agreements and other conditions.

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On March 21, 2002, we amended our B717 purchase contract as follows: (i) our commitments to acquire B717s in 2002 increased from 12 aircraft to 20 aircraft, comprised of 13 firm and seven option aircraft; (ii) our commitments to acquire B717s in 2003 decreased from 11 aircraft to 10 aircraft, comprised of nine firm and one option aircraft; and (iii) purchase deposits that were previously paid for aircraft deliveries in 2002 will be applied to future aircraft deliveries, rather than reducing the balance of the total purchase price due at delivery. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources. The amendments provide for the delivery of 30 B717 aircraft between January 2002 and October 2003.

We cannot guarantee that we will be able to obtain satisfactory financing for the portion of aircraft deliveries not included in Boeing Capital's financing support. Should we default on our obligations, Boeing would have the right to exercise remedies including the right to terminate the purchase contract and its financing commitments. If we are unable to purchase these aircraft, our ability to increase our number of flights could be negatively impacted. On the other hand, if our growth slows or air travel in general decreases, we may not be able to utilize all the aircraft we have committed to purchase. If we cannot use such aircraft, we may be required to sell or lease such aircraft on terms which will depend upon market conditions at the time. We could suffer a financial loss from any such sales or leases. The retirement of other aircraft in our fleet may also be accelerated in the event our growth slows, air travel decreases generally in our markets, or if significant regulatory requirements are imposed on older aircraft.

A major accident involving our aircraft could involve not only repair or replacement of a damaged aircraft and its consequent temporary or permanent loss from service, but also significant potential claims of injured passengers and others. Moreover, any aircraft accident, even if fully insured, could cause a public perception that our aircraft are less safe or reliable than other airlines, and that could have a negative effect on our business. The occurrence of one or more incidents or accidents involving our aircraft could have a material adverse effect on the public's perception of us and our future operations.

We are required by the DOT to carry liability insurance on each of our aircraft. We currently maintain liability insurance in amounts and of the type consistent with industry practice. Although we currently believe our insurance coverage is adequate, the amount of such coverage may be changed in the future or we may be forced to bear substantial losses from accidents. Substantial claims resulting from an accident in excess of related insurance coverage could have a material adverse impact on our business and financial results.

We are subject to a wide range of governmental regulation, including regulation by the FAA. For example, in the last several years, the FAA has issued a number of maintenance directives and other regulations relating to, among other things, retirement of older aircraft, security measures, collision avoidance systems, airborne windshear avoidance systems, noise abatement, and increased inspections and maintenance procedures to be conducted on older aircraft. A modification, suspension or revocation of any of our FAA authorizations or certificates could adversely impact our business. We expect to continue to incur expenses for the purpose of complying with the FAA's aging aircraft regulations. In addition, several airports have recently sought to increase substantially the rates charged to airlines, and the ability of airlines to contest such increases has been restricted by federal legislation, DOT regulations, and judicial decisions.

Additional laws and regulations have been proposed that could significantly increase the cost of airline operations by imposing additional requirements or restrictions on operations. Laws and regulations have also been considered that would prohibit or restrict the ownership and/or transfer of airline routes or takeoff and

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landing slots. Also, the availability of international routes to United States carriers is regulated by treaties and related agreements between the United States and foreign governments that are amendable. We cannot predict what laws and regulations may be adopted or their impact and we cannot guarantee that laws or regulations currently proposed or enacted in the future will not adversely affect us.

We operated the following owned and leased aircraft as of December 31, 2001:

For information concerning the estimated useful lives, residual values, lease terms, operating rent expense and firm orders on additional aircraft, see Notes 1, 4 and 8 to the consolidated financial statements.

As of December 31, 2001, all of our owned operating aircraft were encumbered under debt agreements.

We took delivery of 14 B717s in 2001 and have since taken delivery of two additional B717s in February 2002. As of December 31, 2001, we planned to take delivery of 12 B717 aircraft during 2002. On March 21, 2002, we amended our B717 purchase contract to acquire at total of 20 B717s in 2002 and 10 B717s in 2003 (see Management's Discussion and Analysis of Financial Condition and Results of Operations). These aircraft will be used to replace the DC-9s currently in operation and for growth.

A preliminary retirement schedule of our DC-9 aircraft as of March 21, 2002 is as follows:

The delivery and retirement schedules shown above represent our best estimates as of March 21, 2002. See Management's Discussion and Analysis of Financial Condition and Results of Operations. These estimates are regularly reviewed and subject to change based upon certain conditions including, but not limited to, our future operating and financial results.

Our principal executive offices are located at the Orlando International Airport in a leased facility consisting of approximately 34,000 square feet of office space. The facility houses our executive offices as well as our operations staff (including in-flight operations and station operations), general administrative staff, computer systems and personnel training facility. The lease agreement for this facility expires in 2007 and may be extended an additional ten years through the exercise of options in five-year increments.

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We own an aircraft hangar of approximately 70,000 square feet at the Orlando International Airport, subject to a ground lease with the Greater Orlando Aviation Authority. The ground lease agreement for this facility expires in 2011 and may be extended an additional ten years through the exercise of options in five-year increments. The hangar houses a portion of our maintenance staff, maintenance records and parts inventory.

We also lease the following facilities:

• approximately 20,000 square feet of office space in Atlanta for use as a reservations center under a lease which expires September 30, 2004;
• approximately 25,000 square feet of space in Atlanta for use as a training center under a lease which expires October 31, 2005;
• approximately 13,000 square feet of space in Savannah, Georgia for a reservations center under a lease which expires in February 2003; and
• approximately 91,000 square feet of space in Atlanta for a warehouse and engine repair facility under a lease which expires in May 2002.

We have signatory status on the lease of facilities at Hartsfield Atlanta International Airport, which expires in 2010. The check-in-counters, gates and airport office facilities at each of the other airports we serve are leased from the appropriate airport authority or subleased from other airlines. These arrangements may include baggage handling, station operations, cleaning and other services. If these facilities at any additional cities to be served by us are not available at acceptable rates, or if such facilities become no longer available to us at acceptable rates, then we may choose not to service those markets.

From time to time, we are engaged in litigation arising in the ordinary course of our business. We do not believe that any such pending litigation will have a material adverse effect on our results of operations or financial condition.

None.

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Market Information

Our common stock, $.001 par value, is traded on the New York Stock Exchange under the symbol "AAI." Prior to August 15, 2001, our common stock was traded on the American Stock Exchange under the symbol "AAI." The following table sets forth the reported high and low sale prices for our common stock for each quarterly period during 2001 and 2000:

As of February 28, 2002, there were approximately 4,925 stockholders of record.

Dividends

Historically we have not declared cash dividends on our common stock. In addition, our debt indentures restrict our ability to pay cash dividends. We intend to retain earnings to finance the development and growth of our business. Accordingly, we do not anticipate that any dividends will be declared on our common stock for the foreseeable future. Future payments of cash dividends, if any, will depend on our financial condition, results of operations, business conditions, capital requirements, restrictions contained in agreements, future prospects and other factors deemed relevant by our Board of Directors.

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The following financial information for the five years ended December 31, 2001 has been derived from our consolidated financial statements. This information should be read in conjunction with the consolidated financial statements and related Notes thereto included elsewhere herein.

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Looking forward to 2002, we anticipate returning to profitability in the second quarter and for the remainder of the year. We expect operating revenues to grow as we increase ASM capacity by 20 percent (including a resumption of flights which were curtailed following the September 11 Events representing approximately five percent). We plan to add 20 B717 aircraft while retiring 14 DC-9s, resulting in a net increase of six aircraft on a year-over-year basis. In 2001, particularly following the September 11 Events, certain operating expenses, primarily security and aircraft insurance costs, significantly increased compared to historical averages while fuel prices declined. Our security and aircraft insurance expenses are expected to remain significantly higher in 2002 compared to the costs we have experienced in the past. Although we were able

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to offset these increased operating expenses in 2001 with lower fuel prices, there can be no assurance we will be able to continue to offset any additional expenses resulting from further changes to security procedures or modifications to aircraft insurance costs.


RESULTS OF OPERATIONS

2001 Compared to 2000

Summary
We recorded a net loss, before the cumulative effect of a change in accounting principle, of $2.1 million in 2001 ($0.03 per diluted share) compared to 2000 net income of $47.4 million ($0.69 per diluted share). The cumulative effect of a change in accounting principle for 2001, which related to our adoption of Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," was $0.7 million ($0.01 per diluted share), net of taxes of $0.1 million (see Note 2 to the consolidated financial statements). Our operating income for 2001, including special items of $19.6 million, was $35.7 million compared to $81.2 million in 2000. The 2001 special items in operating income reflect reductions in aircraft fleet values, aircraft lease termination charges, special charges related to the September 11 Events and the entire amount of compensation we expect to receive from the U.S. government pursuant to the Stabilization Act. Our nonoperating expenses for 2001, including a special item of $4.3 million, was $34.6 million compared to $33.7 million in 2000. The 2001 special item in nonoperating expenses represents additional debt discount amortization resulting from the exercise of conversion rights on approximately two-thirds of our 7.75% Convertible Notes. Upon conversion, we expensed $3.8 million of the debt discount and $0.5 million of debt issuance costs associated with our 7.75% Convertible Notes. A summary of the 2001 special items, including where the amounts are recorded in our Consolidated Statements of Operations, is listed below (in millions):

The net effect of these special items reduced our net income (loss) from $21.7 million to $(2.8) million and reduced our earnings (loss) per common share from $0.32 to $(0.04).

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Our operating revenues for the year increased $41.1 million (6.6 percent) primarily due to an increase in passenger revenues. We increased our capacity (available seat miles or ASMs) by 11.6 percent due to the continuation of our fleet renewal program which resulted in the addition of 14 B717 aircraft and the retirement of four DC-9 and four B737 aircraft during the year. Our traffic (revenue passenger miles or RPMs) increased by 9.5 percent which when combined with the increase in ASMs resulted in a 1.3 percentage point decline in our passenger load factor. Our passenger yields also declined by 2.1 percent to 14.39 cents per RPM, which in conjunction with the higher traffic resulted in a $43.7 million increase in our passenger revenues. Cargo revenues declined by $2.2 million during the year due to the fact that we carried less mail for the U.S. Postal Service.

Our financial results for the first eight months of 2001 were considerably different from those of the remainder of the year primarily due to the impact of the September 11 Events on our passenger revenues. With the intent of providing a more meaningful understanding of this effect, we will further discuss the 2001 results in two time periods as follows: January through August, and September through December.

For the period of January through August 2001, the slowing of the U.S. economy resulted initially in greater price awareness by air travelers followed by an overall decline in the demand for air travel. This increased price awareness tended to benefit low fare airlines during this time period, as demonstrated by our revenue performance. Despite a nearly 18 percent increase in capacity during this period, we experienced even higher levels of passenger demand which resulted in our loa