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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

For the fiscal year ended December 31, 2005

For the transition period from              to             

Commission file number 1-15991

AIRTRAN HOLDINGS, INC

(Exact name of registrant as specified in its charter)

9955 AirTran Boulevard

Orlando, Florida 32827

(Address, including zip code, of registrant’s principal executive offices)

(407) 318-5600

Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.001 par value

(Title of class)

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2005, was approximately $805,000,000 (based on the last reported sale price on the New York Stock Exchange on that date). The number of shares outstanding of the registrant’s common stock as of March 1, 2006 was 89,385,940 shares.

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Amendment No. 1 Overview

AirTran Holdings, Inc. is filing this Amendment No. 1 on Form 10-K/A to our Form 10-K for the year ended December 31, 2005 to reflect the restatement of our previously issued financial statements and other information to correct inadvertent errors in accounting for fuel expense and to revise certain other disclosure language following comments received in connection with a review of certain of our periodic filings by the Staff of the Securities and Exchange Commission. For further discussion of the restatement, see Note 1 to our consolidated financial statements and Item 9A contained herein.

In March 2006, we identified certain inadvertent errors that had resulted in misstatements of previously reported fuel expenses and recorded an adjustment for the cumulative effect of the errors in the quarter ended March 31, 2006. Based on our initial assessment that the misstatements were not material to our previously issued financial statements and the cumulative adjustment would not be material to our expected 2006 operating results, we recorded a $6.8 million favorable adjustment to fuel expense for the quarter ended March 31, 2006. However, on August 4, 2006, management and the Audit Committee of the Board of Directors concluded that we would amend our previously filed Annual Report on Form 10-K for the year ended December 31, 2005 and our previously filed Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 to correct our reported fuel expense in 2004, 2005 and the first quarter of 2006, rather than solely in the first quarter of 2006. We arrived at this conclusion during the course of responding to inquiries arising from comments from the Staff relating to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. Accordingly, our financial statements for 2004, 2005 and the first quarter of 2006 in our original filings should no longer be relied upon. In connection with the filing of amended periodic reports, management determined also to revise such reports to modify or amplify certain disclosures that we had indicated to the Staff would be addressed in our future periodic filings. Management and the Chairman of our Audit Committee also discussed these matters with our independent registered public accountants.

The information contained in this Amendment, including the financial statements and the notes hereto, amends only Items 1, 1A, 6, 7, 7A, 8, 9A and 15 of our originally filed Annual Report on Form 10-K for the year ended December 31, 2005 and no other items in our originally filed Form 10-K are amended hereby. In accordance with Rule 12b-15 of the Securities and Exchange Act of 1934, the complete text of those items in which amended language appears is set forth herein, including those portions of the text that have not been amended from that set forth in the original Form 10-K. Except for the aforementioned adjustment, this Form 10-K/A does not materially modify or update other disclosures in the original Form 10-K, including the nature and character of such disclosure to reflect events occurring after March 9, 2006, the filing date of the original Form 10-K. Accordingly this Form 10-K/A should be read in conjunction with our filings made with the Securities and Exchange Commission, or the SEC. In addition, currently-dated certifications from our Chief Executive Officer and Chief Financial Officer have been included as exhibits to this amendment.

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The following table sets forth the effects of the restatement on certain line items within our previously reported financial statements (in thousands, except per share data):

Impact on Management’s Assessment of Internal Control over Financial Reporting: In connection with the restatement, we reevaluated our disclosure controls and procedures. We concluded that our failure to correctly account for fuel expense constituted a material weakness in our internal control over financial reporting. As a result of this material weakness, we concluded that our disclosure controls and procedures were not effective as of December 31, 2005.

We have performed an extensive review of our fuel accounting in an effort to ensure that this amendment reflects all necessary adjustments. As discussed in our Form 10-K/A for the year ended December 31, 2005 and the Form 10-Q/A for the quarter ended March 31, 2006, we have adopted a remediation plan to address this material weakness. As part of such remediation plan, we have also designed new internal control procedures to help remediate the issues associated with controls over fuel expense reporting and to provide that our fuel expense will be properly accounted for in future periods, including the following:

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FORWARD-LOOKING INFORMATION

Statements in this Form 10-K/A report (or otherwise made by AirTran or on AirTran’s behalf) contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which represent our management’s beliefs and assumptions concerning future events. When used in this document and in documents incorporated by reference, forward-looking statements include, without limitation, statements regarding financial forecasts or projections, our expectations, beliefs, intentions or future strategies that are signified by the words “expects”, “anticipates”, “intends”, “believes” or similar language. These forward-looking statements are subject to risks, uncertainties and assumptions that could cause our actual results and the timing of certain events to differ materially from those expressed in the forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date of this report. It is routine for our internal projections and expectations to change as the year or each quarter in the year progress, and therefore it should be clearly understood that the internal projections, beliefs and assumptions upon which we base our expectations may change. Although these expectations may change, we may not inform you if they do. Our policy is generally to provide our expectations only once per quarter, and not to update that information until the next quarter.

You should understand that many important factors, in addition to those discussed in this report, could cause our results to differ materially from those expressed in the forward-looking statements. Potential factors that could affect our results include, in addition to others not described in this report, those described in Item 1A of our report on Form 10-K/A under “Risk Factors”. In light of these risks and uncertainties, the forward-looking events discussed in this report might not occur.

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PART I

ITEM 1. BUSINESS

The Company

All of the operations of AirTran Holdings, Inc. (the Company, we, us, or AirTran) are conducted by our wholly owned subsidiary, AirTran Airways, Inc. (Airways). Airways is one of the largest low cost scheduled airlines in the United States in terms of departures and seats offered. We operate scheduled airline service primarily in short-haul markets principally in the eastern United States, with a majority of our flights originating and terminating at our hub in Atlanta, Georgia. As of March 1, 2006, we operated 85 Boeing 717-200 (B717) and 23 Boeing 737-700 (B737) aircraft operating approximately 600 scheduled flights per day to 47 locations in United States as well as Freeport, Bahamas.

We are one of only a few domestic airlines to report profitable operations for the year ended December 31, 2005. We have created what we believe to be a successful business model by targeting value oriented business and leisure travelers with high quality service at affordable fares. Our service is designed 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 16.6 million revenue passengers who flew AirTran during 2005, a 26.3 percent increase from the 13.2 million revenue passengers we served in the prior year. We achieved these results with a cost structure that ranks among the lowest in the airline industry.

In 2005, we undertook a number of key initiatives to strengthen our competitive position, including expanded distribution agreements, improvements to our website, including our online ticketing software, improvements in our self-service ticketing and check-in kiosks, and the installation of XM Satellite Radio on our fleet. With the addition of new B737 aircraft, Airways operates one of the youngest fleets in the aviation industry today.

We were the launch customer for the B717, which was designed specifically for efficient short-haul service. We believe the B717 will continue to enhance our overall image while also improving our operating performance. In July 2003, we announced our plans to add up to 100 new Boeing 737-700/800 (B737) aircraft to our fleet, the first of which was delivered in June 2004. The B737 aircraft provides us with a larger aircraft, increased range and lower unit operating costs.

Our principal executive offices are located at 9955 AirTran Boulevard, Orlando, Florida 32827, and our telephone number is (407) 251-5600. Our official website address is www.airtran.com. Our audit committee charter, code of conduct and ethics, and filings with the U.S. Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports, are accessible free of charge at www.airtran.com. Any waiver of the terms of our code of conduct and ethics for the chief executive officer, the chief financial officer, any accounting officer and all other executive officers will be disclosed on our website. During 2005, we posted in a timely manner all Exchange Act reports required to be filed during the period.

The reference to our website does not constitute incorporation by reference of any information contained at that site.

Seasonality

Our financial and operating results for any interim period are not necessarily indicative of those for the entire year. 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 and western United States. Advertising and promotional expenses may be greater in lower traffic periods, as well as when entering a new market, as we seek to stimulate demand and promote the AirTran Airways brand.

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Business Strategy

Quality Low Fare Service. We established our competitive position by providing affordable fares that appeal to price conscious travelers. We have grown our business through innovative product offerings designed to enhance the entire airline travel experience of our customers while maintaining affordable fares. The AirTran experience features:

Through the AirTran experience, we have created an air travel product with broad appeal which generates a growing number of repeat customers.

We believe our comparatively low-cost structure will enable us to continue our existing successful strategies, expand our network, provide us with opportunities to further enhance the AirTran experience in innovative ways and stimulate increased demand for air travel from existing and new customers.

New and Modern Fleet. Our entire fleet is comprised of B717 and B737 aircraft. We had a combined total of 108 such aircraft as of March 1, 2006, giving us an average fleet age among the lowest in the industry at approximately three years.

As part of a comprehensive plan to replace, upgrade and expand our fleet of aircraft, we took delivery of our first B717 in September 1999 and as of March 1, 2006, our fleet included 85 B717 aircraft. We believe the B717 remains ideally suited for the short-haul, high-frequency service that we primarily operate and provides operating efficiencies which support our low cost structure. In January 2005, the manufacturer of the B717 announced the discontinuation of the production of the aircraft in 2006.

In July 2003, we announced an aircraft order of up to 100 new Boeing 737-700/800 aircraft. We took delivery of the first of such new B737-700 aircraft in June 2004 and, as of March 1, 2006, our fleet included 23 B737 aircraft. In addition to the 23 B737 aircraft, we hold firm orders for 53 B737 aircraft and options and purchase rights for 24 aircraft to be delivered through 2010. We believe the B737 is an ideal complement to our B717 aircraft, offering us a larger aircraft, increased range and even lower unit operating costs. The B737 allows us to extend our network to selected cities in the western United States and offers us the ability to expand our international operations to locations in Canada, Mexico, Central America and the Caribbean should we chose to do so. We believe the B737 will continue to enhance the AirTran brand while offering improvements in our operating performance.

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Growing Atlanta Hub and Expanding Network System. As the second largest carrier at Hartsfield –Jackson Atlanta International Airport, the world’s busiest airport, we have a strong presence in Atlanta. The city’s large population base represents one of the largest travel markets in the United States and its geographic position provides a strong hub from which we continue to expand our route network. In 2005, we increased service to a number of existing locations and added four new cities, Richmond, Virginia; Indianapolis, Indiana; Charlotte, North Carolina; and Detroit, Michigan. In January 2006, we announced new service to White Plains, New York and Seattle, Washington, which will commence later in 2006.

We believe that there are a number of markets in the United States that are underserved or overpriced by major airlines that present opportunities for expanding our quality low fare service. As a result, we intend to grow our network by increasing the number of flights in markets we currently serve, by adding new routes between cities already in our system and service to new cities as opportunities arise. Expansion of our network allows us to build upon our existing infrastructure, which should reduce unit costs and improve productivity and aircraft utilization.

Diversification of Route Network. Since 2000, we have expanded the scope of our route structure to include coast to coast flying and have increased our number of flights both from our Atlanta hub as well as other airports. We have diversified our route structure by increasing the amount of non-Atlanta departures from approximately 10 percent of our daily departures as of December 31, 2001 to approximately 32 percent of daily operations in March 2006 (see table below). For example, our expansion at Baltimore/Washington International Airport enabled us to initiate many new non-stop routes. In the future, we may selectively add new “point-to-point” routes between cities other than Atlanta that we currently serve, as well as create additional “focus” cities similar to our operations at Baltimore/Washington and Orlando.

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Increase Sales Through Our Website. We utilize the Internet as an integral portion of our marketing strategy utilizing our website. Sales booked directly on airtran.com represent our most cost-effective form of distribution. In addition to being user-friendly and simple, our website is designed to sell tickets efficiently. We continue to add functionality to airtran.com that allows customers to easily book and manage their travel including a new fare matrix and the ability to retrieve and change future flight reservations. In the fall of 2005, we unveiled a new and updated website and plan additional enhancements to be announced in 2006. The airtran.com website is an important distribution channel, producing 58% of our sales at the end of 2005, up from 52% at the end of 2004.

Competitive Strengths

Low Cost Structure. Our cost structure ranks among the lowest in the domestic airline industry in terms of cost per available seat mile, providing a competitive advantage against higher cost carriers. Our low operating costs are made possible through a company-wide focus on cost controls with emphasis on lower labor costs, lower distribution cost and, higher productivity. In addition, we realize operating efficiencies from the operation of only two aircraft types from a single manufacturer as well as enhanced efficiencies from the introduction of new modern B737 aircraft to our fleet.

Attractive Atlanta Hub and Route Network. We operate 22 gates from a single concourse under long-term leases at Hartsfield-Jackson Atlanta International Airport, the world’s busiest airport, and have use agreements for four additional gates on an adjacent concourse with potential for expansion. With our 2005 expansion to Charlotte, Detroit, Indianapolis and Richmond we now offer low fare quality service to 48 destinations from Atlanta, including many of the largest travel markets within the United States.

Diversified Traffic Base. We serve both the leisure and business traveler and continue to see strong demand for business travel. As our overall base grew by more than 23 percent in 2005, business travelers accounted for approximately 40 percent of our total revenue in 2005. Over the past four years, we have also diversified our network increasing operations in key business markets like Baltimore/Washington International Airport (BWI), Chicago-Midway (MDW) and Dallas-Ft. Worth (DFW), as well as adding a number of new direct routes from Florida. As a percentage of total operations, Atlanta represents approximately 68 percent of our network, down from approximately 90 percent at the end of 2001. This market diversification provides a number of marketing and cost synergies and adds stability to our revenues by protecting against risks that may impact individual segments of our business.

Flexibility. We have consistently demonstrated our ability to adjust to changes in the economy, market conditions and a competitive industry environment. We responded rapidly to the effects on our business from the September 11, 2001 terrorist attacks (the September 11 Events) by reducing capacity approximately 20 percent. Working with our labor groups, we quickly reached agreement on a variety of temporary cost reduction measures, including both pay and work rule changes, which reduced our costs consistent with capacity. By retaining our workforce we were able to quickly respond to market opportunities and expand service to a number of new markets including Florida to points throughout our network. The ability to move quickly to meet the changing market was demonstrated with our 2001 expansion into BWI and more recently with our announcement of expanded service to/from Chicago-Midway and Indianapolis.

Innovative Marketing. Our marketing efforts target both business and leisure travelers. We have developed a number of unique and innovative programs designed to stimulate demand for travel, create customer loyalty, highlight our unique product attributes, like affordable Business Class, and target both business and leisure travelers. Our popular leisure programs include Net Escapes Internet specials and the X-fares student program. Our A2B Corporate Program and Event Savers Meeting & Convention program effectively attract business customers.

A-Plus Rewards. In 2003, we automated our popular frequent traveler program, A-Plus Rewards, making it accessible online. The A-Plus Rewards program offers a number of ways to earn free travel including the use of the AirTran Visa card, Hertz car rentals and bonus earnings for business class travel. We believe this program creates strong brand loyalty and provides opportunities for incremental revenue through credit sales and partnerships. As of January 2006, we had registered more than 3.1 million members, an increase of one million members versus the prior year.

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Competition

The airline industry is highly competitive. 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 markets across the United States. We may face greater competition from existing or new carriers in the future that could negatively impact our financial and operating results.

Competitors with greater liquidity and access to capital may price their fares at or below our fares or increase the frequency of 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.

We believe that our competitive strengths are our low cost structure, friendly service, competitive fares and strong route network anchored by our hub at Hartsfield-Jackson Atlanta International Airport. Our growing brand and our presence in Baltimore/Washington, Chicago and a number of Florida markets augments operations from our Atlanta hub and provides us with a strong and defensible route system.

Fares, Route System and Scheduling

The majority of markets we currently serve are located in the eastern United States. These markets are attractive due to the concentration of major population centers within relatively short distances from Atlanta, Baltimore/Washington and Florida, the historically high airfares charged by our competitors in these markets and the significant number of both current and potential business and leisure customers.

As of March 2006, we serve or have announced service to 50 cities from Atlanta, 21 from Orlando, and 12 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. Our network strength in Atlanta provides a strong base of local and connecting traffic as we expand the hub and increase the range and scope of the markets we serve.

We offer an easy to understand fare structure with a variety of fares at differing advance purchase intervals of fourteen days, seven days, three days as well as “walk-up” fares. We manage the availability of seats at each fare level by day of week and by flight to maximize revenue. All of our fares are one-way and most are nonrefundable but can be changed prior to departure with a service charge. Our fares never 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 which typically feature many different price offerings and restrictions for seats on any one flight. We have established interline ticketing and baggage agreements with Delta Air Lines, United Airlines, US Airways, Frontier Airlines, Midwest Airlines, Icelandair, Aer Lingus and British Airways, which we believe can increase our revenue opportunities and assist us with accommodating passengers during irregular operations.

In the future, we may add new markets to our existing routes and/or additional service between cities that are already served by us. If necessary, we may exit unprofitable routes. Our selection of markets depends on a number of factors existing at the time we consider service. In our city selection process, we evaluate the market demographics, the potential for service diversification, the ability to stimulate air travel and various competitive factors. Consequently, there can be no assurance that we will continue to provide service to all of the markets we currently serve.

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Distribution, Marketing and e-Commerce

Our marketing efforts are focused on price-sensitive business travelers and leisure travelers who are vital to our success as we seek to position our product and stimulate new customer demand. These are the market segments in which consumers seek value and which we believe offer the greatest opportunity for growing our revenue base.

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 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 Internet, as well as public relations efforts. These communications typical feature our destinations, quality of product such as business class, XM radio, our all new Boeing aircraft, assigned seating, everyday affordable fares, special sales promotions and customarily encourage the use of our airtran.com website.

Customers may book flights with us through our website, other Internet websites, travel agencies booking via global distribution systems (GDS) and our own reservation call centers. The Internet is our primary distribution channel, and during 2005, it represented more than 70 percent of our total bookings. Our Internet sales reflect both bookings made directly through airtran.com, as well as sales transacted through third-party websites such as Travelocity.com and Orbitz.com. Traditional travel agencies represented approximately 12 percent of our bookings while our reservation call centers generated the remainder of our bookings.

Our award-winning website is a recognized leader in the field of airline e-commerce. During 2005, we enhanced the functionality to allow passengers booking reservations at airtran.com to make changes and reissue tickets online. Passengers can select their seat, check-in and print their own boarding passes, purchase trip insurance, and book hotel accommodations and car rentals with Hertz.com. As we continue to enhance our website, we expect this channel to represent a greater percentage of our distribution mix. We have also introduced our Bye-Pass self-service kiosks. Bye-pass facilitates check-ins at the airport for our customers and provides them with an additional opportunity to purchase business class upgrades. Over half of our customers now check-in using airtran.com or Bye-Pass self-service kiosks.

We offer our customers an affordable business class product. The business class cabin is configured with 2 by 2 oversized seats with more leg and seat room than the typical coach cabin. Our business class is currently available for $35-$75 over the full coach fare on a confirmed basis and for certain other fares on a walk-up, standby basis. Members of our A2B Corporate program receive complimentary business class upgrades when purchasing certain fares.

In contrast to other low-cost airlines, we offer our customers the ability to select seats in advance. Full fare passengers, A-Plus Reward Elite members and members of our A2B Corporate travel program, many of whom tend to purchase tickets at the last minute, are allowed to reserve seats at the time of purchase. All other customers may reserve seats at the time they check-in, either at the airport or online at airtran.com.

We also offer our automated 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. A-Plus Rewards credits can also be earned for purchases made with an AirTran Airways A-Plus Visa card, when renting from Hertz, and in conjunction with marketing promotions that we may run form time to time.

We also offer AirTran Airways Vacations, an online travel planning product in partnership with Travelocity. This arrangement provides airtran.com customers with a full range of vacation packages including Airways’ flights, Hertz rental cars and access to more than 40,000 hotels, including specially negotiated rates at over 7,000 properties.

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We perform all of our marketing, promotional and media relations in-house And utilize an outside firm for advertising and public relations.

Computer Reservations

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

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 used for customer check-in either at the ticket counter or by use of the self-service kiosks, which helps to alleviate long lines and improve customer service.

Employees

As of December 31, 2005, we employed approximately 6,900 employees representing approximately 6,700 full-time equivalents.

Both initial and recurrent training is provided for all employee groups. The average training period for new employees is approximately one to eight weeks depending on classification. Both pilot training and mechanic training are provided by in-house training instructors.

Federal Aviation Administration (FAA) regulations require pilots to be licensed commercial pilots, with specific ratings for the 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 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 also meet experience standards prescribed by FAA regulations. Management personnel attend management-training classes to meet government mandated requirements as well as skills development training. All safety-sensitive employees are subject to pre-employment, random and post-accident drug testing.

We have employee groups that are represented by labor unions and are covered by collective bargaining agreements. The Railway Labor Act governs our relations with these labor organizations. The agreement with our dispatchers, who are represented by the Transport Workers Union (TWU), was ratified in October 2004 and becomes amendable in January 2009. Our agreement with our pilots, who are represented by the National Pilots Association (NPA), was ratified in August 2001 and became amendable in 2005. The agreement is currently in mediation under the auspices of the National Mediation Board.

We have four separate agreements with employee groups represented by the International Brotherhood of Teamsters (IBT). Our agreement with our maintenance technicians and inspectors was ratified in October 2005 and becomes amendable in October 2009. The agreement with our technical training instructors was ratified in March 2001 and becomes amendable in March 2006. The agreement with our stores clerks was ratified in June 2001 and becomes amendable in June 2006. Our agreement with our ground service equipment employees was effective October 2001 and becomes amendable in October 2006.

We have a collective bargaining agreement with our flight attendants who are represented by the Association of Flight Attendants (AFA). Our agreement with the flight attendants was ratified in June 2005 and becomes amendable in December 2008.

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We also have many employees who are not represented by labor unions. Our customer service, ramp and reservations agents are not represented by labor unions and recently rejected, for the third time, unionization by a substantial margin in December 2005. We are unable to predict whether any of our non-union employee groups will elect to be represented by a labor union or become covered by a collective bargaining agreement. The election of a bargaining representative could result in employee compensation and/or working condition demands that may impact operating performance and expenses.

Fuel

Aircraft fuel is a significant expenditure and accounted for 32.4 percent, 24.8 percent and 21.5 percent of our 2005, 2004 and 2003 operating expenses, respectively. Increases in fuel prices or a shortage of supply could have a material adverse effect on our operations and operating results. We utilize fuel purchase contracts consisting of both fixed-price and cap arrangements. Fixed-price arrangements consist of an agreement to purchase defined quantities of aviation fuel from a third party at defined prices. Cap arrangements consist of an agreement to purchase defined quantities of aviation fuel from a third party using pricing mechanisms that are designed to minimize our exposure to fuel price fluctuations.

Subject to market conditions, we may implement fare increases to offset increases in the price of fuel. Due to competitive pressures, the airline industry has frequently been unable to pass on such fuel price increases through higher fares. There can be no assurance that any such fare increases will completely offset higher fuel costs or not adversely impact our competitive position. Despite the significant impact of fuel costs on our operating results, we have been able to achieve improvements in our operating margins through the addition of new, fuel-efficient B717 and B737 aircraft which consume significantly less fuel than the aircraft that have been replaced. In September 2005, we began installing winglets on a number of our B737’s which will further improve their fuel efficiency. While we believe the fuel efficiency of our fleet offers us a competitive advantage over many of our competitors who operate less fuel-efficient aircraft, increases in fuel costs which are not offset by our fuel purchase arrangements or fare increases may be expected to have an adverse effect on our future operating margins.

Maintenance, Repairs and Training

As of March 1, 2006, our operating fleet consisted of 85 B717’s and 23 B737’s having a weighted-average age of approximately three years. In June 2004, we took delivery of our first new B737 aircraft. Our B737 airframes and engines will be under warranty for a minimum of three years from the date of delivery. We also believe the long-term estimated cost of maintenance to fly our aircraft will be within industry norms. We will be required to comply with new FAA 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 airframe maintenance and repair consists of routine and non-routine daily maintenance and heavy maintenance checks. Routine and non-routine daily maintenance is performed in Atlanta, Orlando, Baltimore, Fort Lauderdale, Dallas and Tampa by our employees and by contractors at the other cities we serve. Heavy maintenance is performed by outside maintenance contractors. Maintenance repair costs for major components on our B717 aircraft fleet, including engines and auxiliary power units (APUs) are covered under maintenance agreements with FAA approved contractors and are expensed as incurred. As aircraft age, the manufacturer’s warranty period ends. During 2004, the warranty period for certain of the B717 aircraft ended, and all engine warranties expired at December 31, 2003. We expect maintenance costs will increase as aircraft come out of warranty and as more scheduled maintenance becomes due.

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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 tenth consecutive year we have received this award for exceeding the required levels of safety training for our maintenance technicians.

Insurance

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 which we believe are 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.

Following the terrorist attacks, commercial aviation insurers significantly increased the premiums and reduced the amount of war-risk coverage available to commercial carriers. The federal government stepped in to provide supplemental third-party war-risk insurance coverage to commercial carriers for renewable 60-day periods, at substantially lower premiums than prevailing commercial rates and for levels of coverage not available in the commercial market. In November 2002, Congress passed the Homeland Security Act of 2002, which mandated the federal government to provide third party, passenger, and hull war-risk insurance coverage to commercial carriers through August 31, 2003, and which permitted such coverage to be extended by the government through December 31, 2003. The Emergency Wartime Supplemental Appropriations Act (see Note 2 to the Consolidated Financial Statements) extended the government’s mandate to provide war-risk insurance until December 31, 2004. Pursuant to the Consolidated Appropriations Act of 2005, Congress further extended the government’s mandate to provide war-risk insurance until August 31, 2005 at the discretion of the Secretary of Transportation. During 2005, the coverage was extended in six month increments. Currently we have received certification of coverage through August 31, 2006.

Airport Operations

Ground handling services typically are of two types: under-wing only and complete ground handling. Under-wing ground handling services include, but are not limited to, marshaling the aircraft into and out of the gate, baggage and mail loading and unloading, lavatory and water servicing, de-icing and certain other services. Complete ground handling consists of public contact and under-wing services combined.

We conduct complete ground handling services in 37 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.

Government Regulations

The airline industry is highly competitive, primarily due to the effects of the Airline Deregulation Act of 1978, which 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.

DOT Oversight

Although the Airline Deregulation Act of 1978 abolished regulation of domestic routes and fares, the United States Department of Transportation (DOT) retains the authority to alter or amend any airline’s certificate or

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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.

Aircraft Maintenance and Operations

We are subject to the jurisdiction of the FAA with respect to aircraft maintenance and operations, including equipment, dispatch, communications, training, flight personnel and other matters affecting air safety. The FAA has the authority to issue new or additional regulations. To ensure compliance with its regulations, the FAA conducts regular safety audits and requires all airlines to obtain operating, airworthiness and other certificates, which are subject to suspension or revocation for cause.

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.

Federal Aviation Taxes and Passenger Facility Charges

In 1997, a law was enacted imposing new aviation ticket taxes as part of larger tax legislation designed to balance the nation’s budget and provide targeted tax relief as well as 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 percent of the base fare with a segment fee of $3.30 per passenger enplanement, up to $6.60 each way or $13.20 per round trip.

During 1990, Congress enacted legislation to permit airport authorities, with prior approval from the DOT, to impose passenger facility charges 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 up to $18 per round trip.

Fuel Tax

We pay federal, state, and other taxes on fuel. We paid approximately $41.4 million, $28.8 million, and $20.2 million in fuel taxes during 2005, 2004 and 2003, respectively.

Additional Security and Safety Measures

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 and 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.

The Aviation and Transportation Security Act, or the Aviation Security Act, was enacted in November 2001 and federalized substantially all aspects of civil aviation security and required, among other things, the creation of the Transportation Security Administration, or the TSA, to oversee all aviation security and the implementation of certain security measures by airlines and airports, such as the requirement that all passenger bags be screened for explosives. Funding for airline and airport security under the law is partially

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provided by a per enplanement ticket tax of up to $5.00 each way or $10.00 per round trip, with authority granted to the TSA to impose additional fees on the air carriers if necessary to cover additional federal aviation security costs. The security tax is currently $2.50 per enplaned passenger each way and has been imposed since February 18, 2002, the date the TSA began taking responsibility for airport security. Pursuant to its authority, the TSA may revise the way it assesses this fee, which could result in increased costs for us. 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.

Miscellaneous

All air carriers are subject to certain provisions of the Communications Act of 1934, as amended, because of their extensive use of radio and other communication facilities, and are required to obtain an aeronautical radio license from the Federal Communications Commission (FCC). To the extent we are subject to FCC requirements, we have taken and will continue to take all necessary steps to comply with those requirements.

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. Our operations may become subject to additional federal regulatory requirements in the future.

All international service is subject to the regulatory requirements of the appropriate authorities of the other country involved. We currently operate scheduled international service to Grand Bahamas 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 and the applicable foreign government.

Environmental Regulations

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 the aircraft in our fleet meet all emission standards issued by the EPA.

ITEM 1A. RISK FACTORS

In addition to the risk factors set forth elsewhere in this annual report, including, without limitation, in Item’s 1, 7, 7a, and 9a, investors should carefully consider the following risk factors before making investment decisions regarding our securities.

Our business is dependent on the availability and price of aircraft fuel.

Aircraft fuel is a significant expenditure and accounted for 32.4 percent, 24.8 percent and 21.5 percent of our 2005, 2004 and 2003 operating expenses, respectively. Due to the effect of economic events on the price and availability of oil, the future availability and cost of aircraft fuel cannot be predicted with any degree of

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certainty. Although we are currently able to obtain adequate supplies of aircraft fuel, it is impossible to predict the future availability or price of aircraft fuel. Political disruptions or wars involving oil-producing countries, changes in government policy concerning the production, transportation or marketing of aircraft fuel, changes in aircraft fuel production capacity, environmental concerns and other unpredictable events may result in fuel supply shortages and additional fuel price increases in the future. For 2006, if jet fuel increased $1 per barrel, our fuel expense, net of fuel contract arrangements, would increase approximately $5.3 million based on current and projected operations.

Our operations are largely dependant upon the availability of fuel in the Gulf Coast.

Our operations are largely concentrated in the Southeast United States with Atlanta being the highest volume fueling point in our system. In addition, over 70% of our fuel contracts are based on prices of jet fuel produced in the Gulf Coast area. Any disruption to the oil production or refinery in the Gulf Coast, as a result of weather or any other disaster could have a material adverse effect on our financial condition and results of operations not only in our East Coast routes but across our network due to disruptions in supply of jet fuel, dramatic escalations in the costs of jet fuel, and/or the failure of fuel providers to perform under our fixed-price fuel purchase agreements, among other potential effects.

Increased labor cost, employee strikes and other labor-related disruptions may adversely affect our results of operations.

Labor costs constitute a significant percentage of our total operating costs. A substantial portion of our workforce is represented by labor unions and covered by collective bargaining agreements. Our agreement with our dispatchers, who are represented by the Transport Workers Union (“TWU”), was ratified in October 2004 and becomes amendable in January 2009. Our agreement with our pilots, who are represented by the National Pilots Association (“NPA”), was ratified in August 2001 and became amendable April 2005. The agreement is currently in mediation under the auspices of the National Mediation Board. We have four separate agreements with employee groups represented by the International Brotherhood of Teamsters (“IBT”). Our agreement with our maintenance technicians and inspectors was ratified in October 2005 and becomes amendable in October 2009. The agreement with our technical training instructors was ratified in March 2001 and becomes amendable in March 2006. The agreement with our stores clerks was ratified in June 2001 and becomes amendable in June 2006. Our agreement with our ground service equipment employees was ratified October 2001 and becomes amendable in October 2006. We have a collective bargaining agreement with our flight attendants who are represented by the Association of Flight Attendants (“AFA”). Our agreement with the flight attendants was ratified in June 2006 and becomes amendable in December 2008.

While we believe that our relations with labor are generally good, any strike or labor dispute with our unionized employees may adversely affect our ability to conduct business. The outcome of our collective bargaining negotiations cannot presently be determined. If we are unable to reach agreement with any of our unionized work groups on future negotiations regarding the terms of their collective bargaining agreements or if additional segments of our workforce become unionized, we may be subject to work interruptions or stoppages.

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We have a significant amount of fixed obligations that could impair our ability to make principal and interest payments on our debt obligations and lease payments on our lease obligations.

We have significant debt obligations and lease obligations for aircraft and operating facilities. We may incur substantial additional debt related to aircraft deliveries, new facilities, or facility upgrades, or to fund potential acquisitions. 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:

Our business is dependent on technology

We are increasingly dependent on technology initiatives to reduce costs and to maintain and enhance customer service in order to compete in the current business environment. For example, we have made significant investments in our web site technology and Bye-Pass ™ check-in kiosks, and related initiatives across the system. The performance and reliability of our technology are critical to our ability to attract and retain customers and our ability to compete effectively.

Any internal technology error or failure, or large scale external interruption in technology infrastructure we depend on, such as power, telecommunications or the internet, may disrupt our technology network. Any individual, sustained or repeated failure of our technology could impact our customer service and result in increased costs. Like all companies, our technology systems may be vulnerable to a variety of sources of interruption due to events beyond our control including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues. While we have in place and continue to invest in technology security initiatives and disaster recovery plans, these measures may not be adequate or implemented properly to prevent a business disruption and its adverse financial consequences to our business.

Covenants in our debt instruments could limit how we conduct our business, which could affect our long-term growth potential.

Our debt instruments and financing agreements contain, or in the future may contain, covenants that, among other things, restrict our ability to:

As a result of these restrictive covenants, 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.

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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 on favorable or acceptable terms.

We are subject to various risks as a result of