UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2010~~2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-15991

AIRTRAN HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

NEVADA		58-2189551
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

9955 AirTran Boulevard, Orlando, Florida		32827
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (407) 318-5600

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o N/A ¨

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 in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Number of shares of Common Stock outstanding as of the close of business on ~~October~~April 2021, ~~2010~~2011: ~~135~~136,~~483~~246,~~620~~874 par value $0.001

AIRTRAN HOLDINGS, INC.

Form 10-Q

For the Quarter Ended ~~September~~March 3031, ~~2010~~2011

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Statements of Operations – Three and nine months ended September 30, 2010 and 2009		1
	Condensed Consolidated Statements of Operations – Three months ended March 31, 2011 and 2010		1
	Condensed Consolidated Balance Sheets – September 30, 2010 and December 31, 2009		2
	Condensed Consolidated Balance Sheets – March 31, 2011 and December 31, 2010		2
	Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2010 and 2009		4
	Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2011 and 2010		4
	Condensed Consolidated Statement of Stockholders’ Equity – Nine months ended September 30, 2010		5
	Condensed Consolidated Statement of Stockholders’ Equity – Three months ended March 31, 2011		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2425
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4237
Item 4.	Controls and Procedures		4540
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		4641
Item 1A.	Risk Factors		4742
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		4842
Item 3.	Defaults Upon Senior Securities		4843
Item 5.	Other Information		4843
Item 6.	Exhibits		4843
	Signatures
	Exhibit Listing
	Ex – 31.1 (Exhibit 31.1 CEO Certification)
	Ex – 31.2 (Exhibit 31.2 CFO Certification)
	Ex – 32.1 (Exhibit 32.1 CEO and CFO Certifications)

AirTran Holdings, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	Three Months Ended March 31,
	2010			2009			2010			2009
	2011			2010
Operating Revenues:
Passenger	$	~~602~~601,~~712~~781		$	~~529~~541,~~435~~704		$	~~1,778,477~~		$	~~1,552,507~~
Other		65,~~222~~250			6763,~~967~~437			~~195,155~~			~~190,503~~
Total operating revenues		667,~~934~~031			~~597~~605,~~402~~141			~~1,973,632~~			~~1,743,010~~
Operating Expenses:
Aircraft fuel		~~211~~270,~~115~~091			~~190~~200,~~235~~168			~~640,164~~			~~483,008~~
Salaries, wages and benefits		~~130~~146,~~913~~159			~~122~~130,~~895~~101			~~392,324~~			~~363,627~~
Aircraft rent		6061,~~576~~123			60,~~632~~581			~~181,722~~			~~181,621~~
Maintenance, materials and repairs		5966,~~075~~850			4959,~~973~~340			~~176,158~~			~~145,884~~
Distribution		2726,~~929~~900			25,~~306~~361			~~82,341~~			~~70,540~~
Landing fees and other rents		36,~~651~~792			3736,~~573~~472			~~115,607~~			~~108,722~~
Aircraft insurance and security services		65,~~001~~092			5,~~440~~932			~~17,651~~			~~15,756~~
Marketing and advertising		79,~~870~~260			9,~~349~~579			~~26,333~~			~~30,947~~
Depreciation and amortization		1513,~~338~~708			1314,~~899~~855			~~45,059~~			~~42,120~~
(Gain) loss on asset dispositions		—			(6,379	)		—			(3,073	)
Other operating		67,790			59,705
Other operating		55,795			51,446			168,328			152,952
Total operating expenses		703,765			602,094
Total operating expenses		611,263			560,369			1,845,687			1,592,104
Operating Income (Loss)		(36,734	)		3,047
Operating Income		56,671			37,033			127,945			150,906
Other (Income) Expense:
Other (Income) Expense:
Interest income		(288	)		(527	)
Interest income		(522	)		(3,835	)		(1,662	)		(5,212	)
Interest expense		15,871			22,987
Interest expense		17,625			20,089			63,597			61,068
Capitalized interest		(318	)		(511	)
Capitalized interest		(390	)		(179	)		(1,423	)		(1,244	)
Net gains on derivative financial instruments		(38,918	)		(6,877	)
Net (gains) losses on derivative financial instruments		(15,264	)		10,281			11,856			(17,944	)
Other (income) expense, net		(23,653	)		15,072
(Gain) loss on extinguishment of debt		—			18			—			(4,278	)
Loss Before Income Taxes		(13,081	)		(12,025	)
Other (income) expense, net		1,449			26,374			72,368			32,390
Income tax expense (benefit)		(4,270	)		—
Income Before Income Taxes		55,222			10,659			55,577			118,516
Net Loss	$	(8,811	)	$	(12,025	)
Income tax expense		18,959			233			18,959			945
Loss Per Share:
Net Income	$	36,263		$	10,426		$	36,618		$	117,571
Basic and Diluted	$	(0.06	)	$	(0.09	)
Earnings per Common Share
Weighted-Average Shares Outstanding:
Basic	$	0.27		$	0.09		$	0.27		$	0.98
Basic and Diluted		135,984			135,026
Diluted	$	0.22		$	0.08		$	0.24		$	0.86
Weighted-average Shares Outstanding
Basic		135,444			120,482			135,265			120,158
Diluted		173,443			140,625			172,678			139,617

See accompanying Notes to Condensed Consolidated Financial Statements.

AirTran Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands)

	September 30, 2010			December 31, 2009
	March 31, 2011			December 31, 2010
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	~~424~~497,~~506~~705		$	~~542~~453,~~619~~965
Short-term investments		—			1,663
Restricted cash		48,570			49,159
Restricted cash		57,560			52,390
Deposits held by counterparties to derivative financial instruments		3,430			3,570
Deposits held by counterparties to derivative financial instruments		7,950			—
Accounts receivable, net		54,230			36,335
Accounts receivable, net		52,508			27,067
Spare parts, materials and supplies, net		19,503			19,846
Spare parts, materials and supplies, net		19,215			16,133
Prepaid and stored fuel		42,890			26,339
Prepaid and stored fuel		44,940			34,338
Derivative financial instruments		80,845			44,986
Derivative financial instruments		22,404			47,037
Prepaid expenses and other current assets		37,888			29,993
Prepaid expenses and other current assets		34,266			31,970
Deferred income taxes		16,108			16,108
Deferred income taxes		4,568			4,206
Total current assets		801,169			680,301
Total current assets		667,917			757,423
Property and Equipment:
Flight equipment		1,~~397~~424,~~627~~068			1,~~384~~398,~~529~~444
Less: Accumulated depreciation and amortization		(~~196~~215,~~338~~421	)		(~~165~~206,~~694~~282	)
		1,201,289			1,218,835
		1,208,647			1,192,162
Purchase deposits for flight equipment		6151,~~893~~350			4952,~~720~~476
Other property and equipment		~~124~~123,~~537~~371			~~119~~120,~~150~~816
Less: Accumulated depreciation and amortization		(7374,~~375~~655	)		(6771,~~666~~434	)
		51,162			51,484
		48,716			49,382
Total property and equipment		1,~~314~~308,~~344~~713			1,~~320~~294,~~039~~020
Other Assets:
Trademarks and trade names		21,567			21,567
Debt issuance costs		1413,~~813~~758			1614,~~017~~285
Prepaid aircraft rent		7570,~~773~~291			8273,~~062~~443
Derivative financial instruments		8,~~462~~754			144,~~783~~136
Other assets		7491,~~250~~648			7291,~~281~~596
Total Assets	$	2,~~177~~315,~~126~~900		$	2,~~284~~179,~~172~~348

See accompanying Notes to Condensed Consolidated Financial Statements.

AirTran Holdings, Inc.

Condensed Consolidated Balance Sheets (Continued)

(In thousands)

	September 30, 2010			December 31, 2009
	March 31, 2011			December 31, 2010
	(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	5052,~~762~~943		$	57,~~482~~793
Accrued and other liabilities		~~152~~206,~~176~~969			~~145~~173,174
Air traffic liability		~~320~~403,~~043~~469			~~226~~251,~~891~~945
Derivative financial instruments		14,~~314~~660			14,~~903~~993
Current maturities of capital lease obligations		24,~~951~~642			13,~~085~~024
Borrowing under revolving line of credit		—			125,000
Borrowing under revolving line of credit facility		15,000			50,000
Current maturities of long-term debt		6166,~~520~~538			~~156~~66,~~004~~459
Total current liabilities		~~601~~764,~~766~~221			~~726~~617,~~539~~388
Long-term capital lease obligations		1636,~~208~~012			14,~~806~~388
Long-term debt		~~885~~847,~~890~~207			~~917~~862,~~122~~619
Other liabilities		~~109~~92,~~091~~925			~~111~~99,~~760~~587
Deferred income taxes		1930,~~382~~301			432,~~206~~414
Derivative financial instruments		2910,~~613~~516			713,~~796~~594
Commitments and Contingencies
Stockholders' Equity:
Preferred stock		—			—
Common stock		~~135~~136			~~135~~136
Additional paid-in capital		~~592~~594,~~272~~640			~~586~~594,~~727~~033
Accumulated deficit		(4653,~~771~~657	)		(8344,~~389~~846	)
Accumulated other comprehensive loss		(306,~~460~~401	)		(19,~~530~~965	)
Total stockholders' equity		~~515~~534,~~176~~718			~~501~~539,~~943~~358
Total Liabilities and Stockholders' Equity	$	2,~~177~~315,~~126~~900		$	2,~~284~~179,~~172~~348

See accompanying Notes to Condensed Consolidated Financial Statements.

AirTran Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2010			2009
	2011			2010
Operating activities:
Net income	$	36,618		$	117,571
Net loss	$	(8,811	)	$	(12,025	)
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		5116,~~512~~216			5117,~~127~~388
Amortization of deferred gains from sales/leaseback of aircraft		(31,~~930~~333	)		(31,~~883~~310	)
Amortization of debt discount		~~3,632~~—			51,~~484~~839
Provision for uncollectible accounts		~~664~~132			~~621~~161
Deferred income taxes		18(4,~~959~~270	)		~~945~~—
(Gain) loss on asset dispositions		~~805~~(789	)		~~(3,272~~288	)
Gain on debt extinguishment		—			(4,278	)
Other		967			1,714
Other		4,939			1,228
Changes in certain assets and liabilities:
Restricted cash		~~(5,170~~589	)		~~30,910~~(693	)
Derivative financial instruments		19(38,~~179~~088	)		(~~83,563~~416	)
Accounts receivable		(2618,~~105~~027	)		(1219,~~582~~152	)
Spare parts, materials and supplies		~~(3,749~~80	)		(12,~~408~~003	)
Prepaid and stored fuel		(1016,~~602~~550	)		~~(14~~10,~~462~~900	)
Deposits held by counterparties to derivative financial instruments		~~(7,950~~140	)		~~48,820~~—
Prepaid aircraft rent		63,~~271~~152			13,~~069~~104
Other assets		(9,~~741~~190	)		(713,~~300~~777	)
Accounts payable, accrued and other liabilities		(123,~~342~~626	)		~~(21~~34,~~079~~940	)
Air traffic liability		93151,~~152~~524			16112,~~362~~994
Net cash provided by operating activities		~~167~~99,~~142~~368			~~122~~133,~~310~~952
Investing activities:
Sale of available-for-sale securities		~~1,696~~—			261,~~623~~696
Purchases of property and equipment		(185,~~323~~301	)		(865,~~092~~010	)
Return (payment) of aircraft purchase deposits, net		~~(12~~1,~~173~~126	)		21(2,~~112~~523	)
Other		—			2,225
Net cash used for investing activities		(4,175	)		(5,837	)
Net cash used for investing activities		(28,800	)		(36,132	)
Financing activities:
Issuance of long-term debt		~~51,842~~—			4952,~~427~~058
Payments on long-term debt and capital lease obligations		(~~183~~16,~~868~~093	)		(8063,~~860~~231	)
Borrowings under revolving line of credit facility		—65,000			~~925,000~~—
Repayment of borrowings under revolving line of credit facility		(~~125~~100,000	)		(~~890~~125,000	)
Proceeds from issuance of stock for exercise of options and under employee stock purchase plan		~~931~~419			~~1,389~~282
Other		(~~360~~779	)		(~~127~~360	)
Net cash provided by (used for) financing activities		(256,455	)		4,829
Net cash used for financing activities		(51,453	)		(136,251	)
Net change in cash and cash equivalents		~~(118~~43,~~113~~740	)		91(8,~~007~~136	)
Cash and cash equivalents at beginning of period		~~542~~453,~~619~~965			~~315~~542,~~078~~619
Cash and cash equivalents at end of period	$	~~424~~497,~~506~~705		$	~~406~~534,~~085~~483
Supplemental Disclosure of Cash Flow Activities:
Non-cash investing activities:
Acquisition under capital leases	$	524,~~287~~000		$	—1,973

See accompanying Notes to Condensed Consolidated Financial Statements.

AirTran Holdings, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(In thousands)

(Unaudited)

	Common Stock				Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Shares		Amount
Balance at January 1, 2010		134,726	$	135	$	586,727		$	(83,389	)	$	(1,530	)	$	501,943
Balance at January 1, 2011		135,643	$	136	$	594,033		$	(44,846	)	$	(9,965	)	$	539,358
Net income		—		—		—			36,618			—			36,618
Net loss		—		—		—			(8,811	)		—			(8,811	)
Unrealized loss on derivative instruments, net of income taxes of $4.1 million		—		—		—			—			(28,857	)		(28,857	)
Unrealized gain on derivative instruments, net of income taxes of $2.2 million		—		—		—			—			3,642			3,642
Other		—		—		—			—			(7378	)		(7378	)
Total comprehensive income															7,688
Total comprehensive loss															(5,247	)
Issuance of common stock for exercise of options		19		—		80130			—			—			80130
Stock-based compensation		~~563~~533		—		~~4,641~~188			—			—			~~4,641~~188
Issuance of common stock under employee stock purchase plan		~~165~~39		—		~~851~~289			—			—			~~851~~289
Other		—		—		(27	)		—			—			(27	)
Balance at March 31, 2011		136,234	$	136	$	594,640		$	(53,657	)	$	(6,401	)	$	534,718
Balance at September 30, 2010		135,473	$	135	$	592,272		$	(46,771	)	$	(30,460	)	$	515,176

See accompanying Notes to Condensed Consolidated Financial Statements.

AirTran Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 –Accounting Policies and Business

Basis of Presentation

Our unaudited Condensed Consolidated Financial Statements include the accounts of AirTran Holdings, Inc. (the Company, AirTran, or Holdings) and our wholly-owned subsidiaries, including our principal subsidiary, AirTran Airways, Inc. (AirTran Airways or Airways) (collectively, we, our, or us). All significant intercompany accounts and transactions have been eliminated in consolidation for all periods presented. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, which, except as otherwise disclosed, are of a normal recurring nature, necessary to present fairly the Company’s financial position, results of operations, cash flows and stockholders’ equity for the periods presented. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) for reports on Form 10-Q. These unaudited interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2009~~2010.

The preparation of the accompanying unaudited Condensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying Notes. Actual results may differ from those estimates and such differences may be material to the Condensed Consolidated Financial Statements.

We manage our operations on a system-wide basis due to the interdependence of our route structure in the various markets we serve. Most of our revenues are earned in the United States. Because we offer only one service (i.e., air transportation), management has concluded that we only have one segment of business.

Business

Through AirTran Airways, we offer scheduled airline services, using Boeing B717-200 aircraft (B717) and Boeing B737-700 aircraft (B737), ~~to 69 locations~~ throughout the United States, ~~Mexico,~~ and ~~the~~to ~~Caribbean~~selected international locations. Approximately half of our flights originate or terminate at our largest hub in Atlanta, Georgia and we serve a number of markets with non-stop service from our ~~focus~~hubs ~~cities~~in of Baltimore, Maryland; Milwaukee, Wisconsin; and Orlando, Florida. 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. The second quarter tends to be our strongest revenue quarter.

Recent Development – Proposed Acquisition of AirTran by Southwest Airlines

On September 26, 2010, AirTran, Southwest Airlines Co., a Texas corporation (Southwest), and a wholly-owned subsidiary of Southwest entered into an Agreement and Plan of Merger (the Merger Agreement), providing for the acquisition of AirTran by Southwest. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, the Southwest merger subsidiary will be merged with and into AirTran (the Merger), with AirTran continuing as the surviving corporation and as a wholly-owned subsidiary of Southwest. Following the effective time of the Merger, AirTran will merge with and into a wholly-owned limited liability company subsidiary of Southwest.

~~The~~Expected ~~Merger~~Acquisition ~~Agreement contains certain termination rights for both AirTran and Southwest, including if the Merger is not consummated on or before September 26, 2011 (subject to extension by mutual agreement~~ of ~~the parties) and if the approval of~~ AirTran’s ~~stockholders is not obtained. The Merger Agreement further provides that, upon termination of the Merger Agreement under specified circumstances, including termination of the Merger Agreement~~ by ~~AirTran as a result of an adverse change in the recommendation of AirTran’s board of directors, AirTran may be required to pay to~~ Southwest ~~a termination fee of $39 million.~~Airlines

~~Reclassification~~On September 26, 2010, AirTran, Southwest Airlines Co., a Texas corporation (Southwest), and a wholly-owned subsidiary of Southwest (the Southwest merger subsidiary) entered into an Agreement and Plan of Merger (the Merger Agreement), providing for the acquisition of AirTran by Southwest. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, the Southwest merger subsidiary will be merged with and into AirTran (the Merger), with AirTran continuing as the surviving corporation and as a wholly-owned subsidiary of Southwest. Following the effective time of the Merger, AirTran will merge with and into a wholly-owned limited liability company subsidiary of Southwest.

~~Certain~~On ~~2009~~March ~~amounts~~23, ~~have~~2011, ~~been~~AirTran’s ~~reclassified~~stockholders toapproved ~~conform~~the acquisition of AirTran by Southwest. Additionally, the United States Department of Justice (the DOJ) has informed AirTran and Southwest that it will not seek to ~~2010~~oppose ~~presentation~~the acquisition of AirTran by Southwest. ~~These~~The ~~reclassifications~~acquisition ~~have~~of noAirTran ~~material~~by ~~impact~~Southwest is expected to occur on or after May 2, 2011. When consummated, the ~~Condensed~~acquisition ~~Consolidated~~of ~~Statements~~AirTran by Southwest will combine AirTran with the largest low cost airline in the United States. We believe Southwest possesses one of ~~Operations,~~the ~~Condensed~~strongest ~~Consolidated~~brands ~~Balance~~in ~~Sheets~~the industry and, ~~Condensed~~based ~~Consolidated~~on ~~Statements~~U.S. Department of ~~Cash~~Transportation ~~Flows~~data oras ~~Condensed~~of ~~Consolidated~~September ~~Statement~~30, 2010, was the largest domestic air carrier in the United States based on the number of ~~Stockholders’~~passengers ~~Equity~~carried.

~~Fuel~~When ~~Tax~~consummated, ~~Expense~~the acquisition of AirTran by Southwest will be accounted for using the acquisition method of accounting. Consequently, Southwest will allocate the purchase price to the fair value of AirTran’s tangible and intangible assets and liabilities at the acquisition date, with the excess purchase price recorded as goodwill. The application of acquisition accounting will likely have material impacts on the financial accounting values of AirTran’s assets and liabilities. The accompanying consolidated financial statements do not incorporate or address either the impact of acquisition accounting or the impacts of changes to liquidity, financial commitments, or financial position of AirTran resulting from the acquisition of AirTran by Southwest.

~~Our~~Morgan ~~fuel~~Stanley ~~tax~~provided ~~expense~~AirTran ~~for~~financial ~~the~~advisory ~~third~~services ~~quarter~~and ~~2010~~a ~~was~~financial ~~reduced~~opinion byin ~~$10.1~~connection ~~million~~with ~~due~~the Merger, and AirTran agreed to apay ~~claim~~Morgan ~~for~~Stanley a ~~refund~~fee of ~~fuel~~$15.0 ~~taxes~~million, ~~paid~~of ~~between~~which ~~April~~$14.8 ~~2007~~million ~~and~~is ~~February~~contingent ~~2009~~upon ~~and~~completion ~~between~~of ~~January~~the ~~2010~~Merger. ~~and~~AirTran’s ~~June~~engagement ~~2010.~~letter ~~Our~~with ~~fuel~~Morgan ~~tax~~Stanley ~~expense~~also ~~for~~provides ~~the~~that ~~nine~~AirTran ~~months~~will ~~ended~~consider ~~September~~paying 30Morgan Stanley, ~~2010~~in ~~was~~AirTran’s ~~reduced~~sole byand ~~$7.5~~absolute ~~million~~discretion ~~due~~and towithout aany ~~claim~~obligation ~~for~~on athe ~~refund~~part of ~~fuel~~AirTran, ~~taxes~~an ~~paid~~additional ~~between~~fee ~~April~~of ~~2007~~up ~~and~~to ~~February 2009~~$3.5 ~~Fuel~~million ~~tax~~for ~~expense~~Morgan isStanley’s ~~a component of aircraft fuel expense~~services.

AirTran has adopted an Employee Retention Plan to address potential employee concerns related to the expected Merger. The Employee Retention Plan covers certain officers and certain other managerial and administrative employees (each a covered employee). Under the Employee Retention Plan, a maximum of $10.2 million has been allocated to the payment of retention bonuses for covered employees.

As of March 31, 2011, we have not accrued the Morgan Stanley contingent fee or the retention bonuses because they are contingent upon closing of the acquisition transaction.

New Accounting Pronouncements

InAs ~~October~~of ~~2009~~January 1, 2011, we have adopted the Financial Accounting Standards Board’s (FASB) ~~issued an~~ Accounting Standards Update (ASU) No. 2009-13), ~~pertaining~~“Revenue toArrangements ~~multiple-deliverable~~with ~~revenue~~Multiple ~~arrangements~~Deliverables.” The new guidance ~~will~~affects ~~affect~~ accounting and reporting for companies that enter into multiple-deliverable revenue arrangements with their customers when those arrangements are within the scope of Accounting Standards Codification (ASC) 605-25 “Revenue Recognition - Multiple-Element Arrangements”.” The new guidance ~~will~~eliminates ~~eliminate~~ the residual method of allocation and ~~require~~requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The new guidance ~~will~~was be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. ~~Early~~Since ~~adoption~~January is1, ~~permitted~~2011, ~~and~~we ~~the~~have ~~guidance~~not ~~may~~entered beinto ~~applied~~any ~~retrospectively.~~material Werevenue ~~are~~arrangements ~~currently~~with ~~evaluating~~multiple ~~the~~deliverables ~~impact~~nor ~~that ASU No. 2009-13 will~~ have onwe ~~our~~materially ~~condensed~~modified ~~consolidated~~any ~~financial~~existing ~~position,~~revenue ~~results~~arrangements ofwith ~~operations,~~multiple ~~and cash flows~~deliverables.

In January 2010, the FASB issued ASU 2010-06 “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 requires additional disclosures about fair value measurements including transfers in and out of Levels 1 and 2 and more disaggregation for the different types of financial instruments. This ASU is effective for annual and interim reporting periods beginning after December 15, 2009 for most of the new disclosures and for periods beginning after December 15, 2010 for the new Level 3 disclosures. Comparative disclosures are not required in the first year the disclosures are required. We did not have any significant transfers in or out of Level 1 and Level 2 fair value measurements during the nine months ended September 30, 2010 and 2009.

In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements.” ASU 2010-06 requires additional disclosures about fair value measurements including transfers in and out of Levels 1 and 2 and more disaggregation for the different types of financial instruments. This ASU was effective January 1, 2010 for most of the new disclosures and effective January 1, 2011 for the new Level 3 disclosures. Comparative disclosures are not required in the first year the disclosures are required. We did not have any significant transfers in or out of Level 1 and Level 2 fair value measurements during the three months ended March 31, 2011 and 2010.

Note 2 – Commitments and Contingencies

Aircraft Related Commitments, Financing Arrangements and Transactions

We have contractual obligations to purchase 51 additional B737 aircraft from The Boeing Company (Boeing) between ~~2011~~2012 and 2017. In June 2010, December 2010, and February 2011, we entered into amendments to our aircraft purchase agreements with Boeing to defer delivery dates for ~~nine~~13 B737 aircraft originally scheduled for delivery between 2011 and 2014 to delivery dates between 2015 and 2017. ~~Simultaneously,~~ Boeing Capital Corporation (BCC), a wholly-owned subsidiary of Boeing, also exercised a previously negotiated contractual right requiring us to lease two used B717 aircraft for a term of 10 years commencing in 2011. We took delivery of both used B717 aircraft in February 2011. For financial accounting purposes, the two aircraft leases are capital leases and we recorded additions to flight equipment and capital lease obligations aggregating $24 million during the quarter ended March 31, 2011. In April 2011, we also deferred one B737 scheduled for delivery in February 2012 until June 2012.

The table below summarizes, as of ~~September~~March 3031, ~~2010~~2011, all scheduled aircraft fleet additions:

	B737 Aircraft Purchases		~~B717 Aircraft Leases~~		~~Total Aircraft Additions~~
Remainder of 2010		—		—		—
Remainder of 2011		—
2011		4		2		6
2012		6
2012		6		—		6
2013		6
2013		6		—		6
2014		8
2014		8		—		8
2015		12
2015		12		—		12
2016		14
2016		10		—		10
2017		5
2017		5		—		5
Total		51
Total		51		2		53

AsIn ofaddition ~~September~~to ~~30,~~the ~~2010~~above, ~~our~~we ~~aircraft~~hold ~~purchase commitments for the remainder of 2010 and for the next five years and thereafter~~options, inexercisable ~~aggregate, are (~~in ~~millions): 2010—$10;~~ 2011~~—$140; 2012—$270; 2013—$280; 2014—$370; 2015—$510; and thereafter—$580. These amounts include payment commitments~~, including payment of pre-delivery deposits and buyer-furnished equipment, for aircraft on firm order. Aircraft purchase commitments include the forecasted impact of contractual price escalations. Our intention is to ~~finance the aircraft on order through either debt financing, lease financing, or a mix thereof. We have debt financing commitments from two lenders to finance a significant portion of the~~ purchase ~~price of~~ two B737 aircraft ~~scheduled for delivery to us~~ in ~~2011 and two other B737 aircraft from those to be delivered in 2011 or 2012. AirTran has no current arrangements for~~ the ~~financing~~fourth ofquarter B737s other than as described in the immediately preceding sentence. In addition, BCC has the right to require us to lease up to three additional used B717s for up to 10 years provided that to the extent BCC shall so require, we have the right to cancel a like number of ~~B737 aircraft from our B737 order book with Boeing~~2012.

As of March 31, 2011, our aircraft purchase commitments for the remainder of 2011 and for the next five years and thereafter, in aggregate, are (in millions): 2011—$10; 2012—$270; 2013—$280; 2014—$370; 2015—$530; 2016—$540; and thereafter—$200. These amounts include payment commitments, including payment of pre-delivery deposits and buyer-furnished equipment, for aircraft on firm order. Aircraft purchase commitments include the forecasted impact of contractual price escalations. Our intention is to finance the aircraft on order through either debt financing, lease financing, or a mix thereof. We have debt financing commitments from a lender to finance a significant portion of the purchase price of two B737 aircraft scheduled for delivery to us in 2012. AirTran has no existing arrangements for the financing of B737s other than as described in the immediately preceding sentence. In addition, BCC has the right to require us to lease up to three additional used B717s for lease terms of up to 10 years per aircraft. If BCC requires us to lease any such used B717 aircraft, we have the right to cancel a like number of B737 aircraft from our B737 order book with Boeing.

There are multiple variables including capital market conditions, asset valuations, and our own operating performance that could affect the availability of satisfactory financing for our future B737 aircraft deliveries. While there was limited availability of satisfactory aircraft financing in early 2009, it is our view that the aircraft financing market has improved. While we cannot provide assurance that sufficient financing will be available, we expect to be able to obtain acceptable financing for future deliveries. Our view is based upon our discussions with prospective lenders and lessors, the consummation of aircraft financing transactions by other airlines, our own operating performance, and our recent ability to refinance B737 aircraft.

Our B737 contract with Boeing requires us to make pre-delivery deposits to Boeing. Although we typically have financed a significant portion of our pre-delivery deposit requirements with debt from banks or other financial institutions, we currently have no such financing in place for future deliveries. In recent years, we have rescheduled new aircraft deliveries to moderate our rate of growth and accordingly, we have stretched out our aircraft purchase obligations through 2017. We currently believe that our cash resources will be sufficient to satisfy our pre-delivery deposit obligations. Should our existing cash resources be insufficient, we may seek to: obtain additional debt financing or equity capital; further revise our aircraft delivery schedule; and/or amend the terms of our aircraft purchase agreement, including those provisions relating to pre-delivery deposits.

Credit Card Processing Arrangements

We have agreements with organizations that process credit card transactions arising from purchases of air travel by customers of Airways. Each of our agreements with our credit card processors allows, under specified conditions, the processor to retain cash related to future travel that such processor otherwise would remit to us (i.e., a holdback). Holdbacks are classified as restricted cash on our consolidated balance sheets. Our exposure to credit card holdbacks consists of advanced ticket sales that customers purchase with credit cards. Once the customer travels, any related holdback is remitted to us.

Each agreement with our two largest credit card processors provides that a processor may holdback amounts that would otherwise be remitted to us in the event that a processor reasonably determines that there has been a material adverse occurrence or certain other events occur. Our agreement with our largest credit card processor also provides that the processor may holdback amounts that would otherwise be remitted to us in the event that our aggregate unrestricted cash and investments (as defined) falls below agreed upon levels. Should the processor be entitled in the future to withhold amounts that would otherwise be remitted to us, we retain the contractual right to ~~eliminate or~~ reduce the amounts withheld by providing the processor with letters of credit. As of ~~September~~March 3031, ~~2010~~2011, a $50 million letter of credit had been issued under our letter of credit facility for the benefit of our largest credit card processor. Drawings on the letter of credit may be made by the processor only if we do not satisfy our obligations to reimburse the processor for chargebacks.

As of ~~September~~March 3031, ~~2010~~2011, we had advance ticket sales of $~~331~~365.36 million related to all credit card sales, we were in compliance with our credit card processing agreements, and our two largest processors were holding back no cash remittances from us. Our ~~maximum~~ potential cash exposure to ~~cash~~ holdbacks by our two largest credit card processors, based ~~upon~~on advance ticket sales as of ~~September~~March 3031, ~~2010~~2011, was $~~262~~296.61 million (after considering the $50 million letter of credit issued in favor of our largest credit card processor). Even had there been no letter of credit issued for the benefit of our largest credit card processor, as of ~~September~~March 3031, ~~2010~~2011, neither of our two largest credit card processors would have been entitled to holdback any cash remittances from us.

Taxes

We remit a variety of taxes and fees to various governmental authorities, including income taxes, transportation fees and taxes collected from our customers, property taxes, sales and use taxes, payroll taxes, and fuel taxes. The taxes and fees remitted by us are subject to review and audit by the applicable governmental authorities which could result in liability for additional assessments. Contingencies for taxes, which are not based on income, are accounted for in accordance with the ASC Contingencies Topic. Uncertain income tax positions taken on income tax returns are accounted for in accordance with the ASC Income Taxes Topic. Although management believes that the positions taken on previously filed tax returns are reasonable, we nevertheless have recorded accrued liabilities in recognition that various taxing authorities may challenge certain of the positions we have taken, which may also potentially result in additional liabilities for taxes and interest in excess of accrued liabilities. These accrued liabilities are reviewed periodically and are adjusted as events occur that affect the estimates, such as the availability of new information, the lapsing of applicable statutes of limitations, the conclusion of tax audits, the measurement of additional estimated liability based on current calculations, the identification of new tax contingencies, or the rendering of relevant court decisions.

Litigation

As of ~~October~~April 2521, ~~2010~~2011, ~~seven~~ eight purported class action lawsuits have been filed on behalf of AirTran ~~individual~~ shareholders ~~and~~in ~~similarly~~connection ~~situated~~with AirTran's ~~stockholders~~proposed inmerger ~~state~~with ~~court~~Southwest inAirlines. ~~Nevada~~Four ~~(three~~ cases) ~~and~~were brought in ~~state~~Nevada: three ~~court~~ in ~~Florida~~Nevada ~~(four~~state ~~cases)~~court ~~against~~(Leonelli, ~~each~~No. 10-OC-00448 ~~member~~1B; ofFrohman, ~~the~~No. 10-OC-00449 ~~AirTran~~1B; ~~board~~Church, ~~of directors~~No. A-10-626971-C), ~~Southwest~~ and ~~Merger~~one ~~Sub~~in ~~(the~~federal ~~“Merger~~court ~~Litigation Cases”)~~(Nesbit, ~~and~~No. 2:11-cv-00092 ~~certain officers of the Company~~(PMP)(GWF)). ~~Each~~Four ofcases ~~the~~were ~~Merger~~brought ~~Litigation~~in ~~Cases~~Florida ~~alleges~~state ~~substantially~~court (DeBardelaben, ~~the~~No. ~~same~~2010-CA-022893-O; ~~claims~~Hoffner, ~~including~~No. ~~that~~2010-CA-022143-O; ~~the~~Loretisch, ~~consideration~~No. to2010-CA-023520-O; beRosenberger, ~~received~~No. by2010-CA-023117-O). ~~our~~The ~~stockholders~~allegations in ~~the~~all ~~merger~~eight iscomplaints ~~unfair~~were ~~and~~similar. ~~inadequate~~In ~~and~~each ~~that~~case, ~~those~~plaintiffs ~~AirTran~~allege ~~officers~~that ~~and~~the ~~directors~~members ~~named~~of asthe ~~defendants~~board ~~(the~~of ~~“individual~~directors of AirTran ~~defendants”)~~ violated their fiduciary duties byto ~~approving~~ the ~~merger agreement through an unfair and flawed process and~~ company by ~~approving~~voting ~~certain~~to ~~deal~~approve ~~protection mechanisms contained in~~ the proposed merger ~~agreement~~ and that AirTran, Southwest and Merger Sub aided and abetted the ~~individual~~board ~~AirTran~~in breaching ~~defendants~~those induties. (AirTran and the ~~breach~~defendant ofdirectors ~~their~~will ~~fiduciary~~be ~~duties~~referred to as the "AirTran’s ~~stockholders~~Defendants".) ~~The~~In ~~Merger~~each ~~Litigation~~case, ~~Cases~~ plaintiffs generally seek injunctive relief: (i) enjoining the defendants from consummating the merger unless AirTran adopts and implements a procedure or process to obtain the highest possible price for AirTran’s stockholders and discloses all material information to AirTran’s stockholders, (ii) directing the ~~individual AirTran defendants~~ board to exercise their fiduciary duties to obtain a transaction that is in the best interests of AirTran’s stockholders, (iii) rescinding, to the extent already implemented, the merger agreement, including the deal protection devices that may preclude premium competing bids for AirTran, (iv) awarding ~~plaintiff’s~~plaintiffs' costs and disbursements of the action, including reasonable attorneys’ and experts’ fees, and (v) granting such other and further equitable relief as the court may deem just and proper. ~~Each~~The ofLeonelli and Frohman cases were consolidated on November 24, 2010, and plaintiffs filed a Consolidated Complaint on December 14, 2010. The AirTran Defendants moved to dismiss the ~~Merger~~Consolidated ~~Litigation~~Complaint ~~Cases~~on January 7, 2011. Plaintiffs in the consolidated case have not yet filed an opposition to that motion. Discovery in the consolidated case is in its early stages. The plaintiff in Church voluntarily dismissed that case on November 30, 2010, and filed a ~~preliminary~~new ~~stage~~complaint in the United States District Court for the District of Nevada on December 2, 2010. ~~AirTran~~The federal action raises substantially the same claims as in the state case, except plaintiff added claims under Sections 14(a) and 20(a) of the ~~individual~~Securities ~~AirTran~~Exchange ~~defendants~~Act ~~named~~based on the preliminary proxy statement. On December 9, 2010, the plaintiff in Church moved for expedited discovery, which was denied on December 29, 2010. On December 20, 2010, the AirTran Defendants moved to dismiss the complaint, and ~~Merger~~on December 22, 2010, the AirTran Defendants moved to stay discovery pursuant to the Private Securities Litigation ~~Cases~~Reform ~~believe~~Act. ~~that~~The plaintiff filed an opposition to the ~~lawsuits are~~motion ~~without~~to ~~merit~~stay discovery on January 7, 2011, but has not yet filed an opposition to the motion to dismiss. The complaint in Nesbit was filed on January 18, 2011. On February 9, 2011, after the plaintiff refused to voluntarily withdraw the complaint, the AirTran Defendants and ~~intend~~the Southwest Defendants moved for a stay pending approval of the Memorandum of Understanding described below. Over the Plaintiff’s objections, the magistrate judge recommended approval of the motion to ~~defend~~stay on March 31, 2011. The magistrate also recommended that the plaintiff’s motion for expedited discovery, which had been filed in connection with his opposition to the stay motion, be denied. The plaintiff moved for reconsideration of the magistrate’s recommendations on April 11, 2011. The AirTran Defendants filed motions to stay the ~~them~~four ~~vigorously~~Florida cases in favor of the cases in Nevada. The court granted such motions on December 2, 2010.

In addition to the above litigation, AirTran is a party to other claims, and litigation incidental to its business, for which it is not currently possible to determine the ultimate liability, if any. While the outcome of such claims and litigation is subject to uncertainty, based on an evaluation of information currently available and consultation with legal counsel, management believes that resolution of such claims, and litigation is not likely to have a material effect on the financial position, cash flows, or results of operations of the Company. The Company expenses legal costs as they are incurred.

While Southwest, AirTran, and the individual AirTran defendants believe that each of the above described lawsuits is without merit, the parties to the Leonelli consolidated complaint and the Church federal complaint entered into a Memorandum of Understanding (MOU) on January 26, 2011 to settle those lawsuits. The settlement provides for the inclusion of additional disclosures with respect to various aspects of the merger in the proxy statement/prospectus with respect to the proposed merger with Southwest. In addition, it provides for the payment of plaintiffs’ attorneys’ fees and expenses, subject to court approval. The MOU further provides that the parties will enter into a stipulation of settlement which will provide, among other things, for the conditional certification of a settlement class. The MOU and stipulation of settlement are subject to various conditions, including court approval following notice to AirTran stockholders, completion of certain discovery (which is ongoing now) and consummation of the merger. If the settlement is finally approved, it will resolve and release on behalf of the entire class of AirTran stockholders, all claims that were or could have been brought challenging any aspect of the merger, the merger agreement and any disclosure made in connection therewith, among other claims.

A complaint alleging violations of federal antitrust laws and seeking certification as a class action was filed against Delta Air Lines, Inc. (Delta) and AirTran in the United States District Court for the Northern District of Georgia in Atlanta on May 22, 2009. The complaint alleges, among other things, that AirTran attempted to monopolize air travel in violation of Section 2 of the Sherman Act, and conspired with Delta in imposing $15-per-bag fees for the first item of checked luggage in violation of Section 1 of the Sherman Act. The initial complaint sought treble damages on behalf of a putative class of persons or entities in the United States who directly paid Delta and/or AirTran such fees on domestic flights beginning December 5, 2008. Subsequent to the filing of the May 2009 complaint, various other nearly identical complaints also seeking certification as class actions were filed in federal district courts in Atlanta, Georgia; Orlando, Florida; and Las Vegas, Nevada. All of the cases were consolidated before a single federal district court judge in Atlanta. A Consolidated Amended Complaint filed in the consolidated action on February 1, 2010 broadened the allegations to add claims that Delta and AirTran conspired to cut capacity on competitive routes and raise prices in violation of Section 1 of the Sherman Act, and that Delta attempted to monopolize air travel in violation of Section 2 of the Sherman Act. In addition to treble damages, the Consolidated Amended Complaint seeks injunctive relief against a broad range of alleged anticompetitive activities, as well as attorneys’ fees. On August 2, 2010, the Court dismissed plaintiffs’ claims that AirTran and Delta had violated Section 2 of the Sherman Act; the Court let stand the claims of a conspiracy with respect to the imposition of a first bag fee and the airlines’ capacity and pricing decisions. AirTran denies all allegations of wrongdoing, including those in the Consolidated Amended Complaint, and intends to defend vigorously any and all such allegations.

In addition to the above litigation, AirTran is a party to other claims, and litigation incidental to its business, for which it is not currently possible to determine the ultimate liability, if any. While the outcome of such claims and litigation is subject to uncertainty, based on an evaluation of information currently available and consultation with legal counsel, management believes that resolution of such claims and litigation is not likely to have a material effect on the financial position, cash flows, or results of operations of the Company. The Company expenses legal costs as they are incurred.

Restricted Cash and Letters of Credit

Restricted cash consists primarily of amounts escrowed related to aircraft leases, letters of credit for airports and insurance, credit card holdbacks for advance ticket sales, derivative financial instruments, and cash escrowed for future interest payments. As of ~~September~~March 3031, ~~2010~~2011, $1715.01 million of restricted cash relates to outstanding letters of credit, primarily for airport facilities and insurance.

We provide counterparties to our derivative financial instrument arrangements with collateral when the fair value of our obligation exceeds specified amounts. The collateral is classified as restricted cash if the funds are held in our name. The collateral is classified as deposits held by counterparty to derivative financial instruments if the funds are held by the counterparty. As of March 31, 2011, we provided interest rate swap counterparties with collateral aggregating $20.4 million, of which $17.0 million was classified as restricted cash.

We have a letter of credit facility which provides for a financial institution to issue letters of credit for the benefit of our credit card processors. The letter of credit facility is supported by a variety of assets. As of ~~September~~March 3031, ~~2010~~2011, no amount was drawn against the $50 million letter of credit.

Note 3 – Financial Instruments

The estimated fair value of financial instruments, excluding debt, approximates their financial statement carrying amount.

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, ~~short-term investments,~~ accounts receivable, and derivative financial instruments (including deposits held by counterparties). We maintain cash and cash equivalents ~~and short-term investments~~ in what we believe are high-credit-quality financial institutions or in what we believe are in short-duration, high-quality debt securities. ~~Investments are stated at fair value.~~ We periodically evaluate the relative credit standing of those financial institutions that are considered in our investment strategy. We use specific identification of securities for determining gains and losses. ~~All of our investments are available for sale securities. As of September 30, 2010, we had no short-term investments.~~

The majority of our receivables result from the sale of tickets to individuals, mostly through the use of major credit cards. These receivables are generally settled shortly after sale subject to any applicable holdbacks.

We enter into various derivative financial instruments with financial institutions to seek to reduce the variability of the ultimate cash flows associated with fluctuations in jet fuel prices. From time to time, we enter into fuel-related swap and option derivative financial arrangements. We do not hold or issue derivative financial instruments for trading purposes. Under jet fuel swap arrangements, we pay a fixed rate per gallon and receive the monthly average price of Gulf Coast jet fuel. The fuel-related option arrangements may include collars, purchased call options, and sold call options. Depending on market conditions at the time a derivative contract is entered into, we generally use jet fuel, heating oil, or crude oil as the underlying commodity. Additionally, from time to time, we enter into refinery-margin swap ~~agreements pursuant to which we pay a fixed rate per gallon~~ and/or ~~receive~~refinery-margin ~~the~~call ~~monthly~~option ~~average price of jet fuel refinery costs~~agreements.

As of ~~September~~March 3031, ~~2010~~2011, we had entered into fuel-related option agreements which pertain to 53186 million gallons or 5863 percent of our projected ~~October~~April through December ~~2010 fuel requirements, 185 million gallons or 48 percent of our projected~~ 2011 fuel requirements, and 20 million gallons or 5 percent of our projected 2012 fuel requirements. AsWe ofhave ~~September~~also ~~30,~~acquired ~~2010,~~call weoptions ~~had~~on nojet ~~swap~~fuel ~~agreements~~refinery ormargins ~~refinery-margin~~which ~~swap~~pertain ~~agreements~~to 19 million gallons of fuel.

11Realized and unrealized gains and losses on derivatives that are not designated as hedges for financial accounting purposes or that do not qualify for hedge accounting are recognized in Other (Income) Expense. In order to simplify the financial reporting for fuel-related derivatives, effective January 1, 2009, we ceased designating new fuel-related derivative financial instruments as accounting hedges.

Realized and unrealized gains and losses on derivatives that are not designated as hedges for financial accounting purposes or that do not qualify for hedge accounting are recognized in Other (Income) Expense. In order to simplify the financial reporting for fuel-related derivatives, effective January 1, 2009, we ceased designating new fuel-related derivative financial instruments as accounting hedges. As of January 1, 2010, all of our fuel-related derivative financial instruments accounted for as hedges have expired and no additional amounts remain in Other Comprehensive Income (Loss) (“OCI”). For our fuel-related derivative financial instruments entered into prior to January 1, 2009, a substantial portion did not qualify to be accounted for as hedges. Consequently, a majority of the gains and losses on such fuel-related derivative financial instruments were classified as Other (Income) Expense based on changes in estimated fair value. Realized gains and losses on other fuel-related derivative financial instruments, previously designated as hedges for financial accounting purposes, were classified as a component of fuel expense.

We have interest-rate swap agreements that effectively convert a portion of our floating-rate debt to a fixed-rate basis for the remaining life of the debt, thus reducing the impact of interest rate changes on future interest expense and cash flows. Under these agreements, which expire between 2016 and 2020, we pay fixed rates between 4.34 percent and 6.435 percent and receive either three-month or six-month USD London Interbank Offered Rate (LIBOR) on the notional values. During the nine months ended September 30, 2010, we entered into three interest-rate swap arrangements pertaining to $65.0 million notional amount of outstanding debt. The notional amount of outstanding debt related to interest-rate swaps as of September 30, 2010 was $487.5 million. The primary objective for our use of interest-rate swaps is to reduce the impact of the volatility of interest rates on our operating results. These interest-rate swap arrangements are accounted for as cash flow hedges. The ineffective portion of the change in fair value of each derivative is recognized in Other (Income) Expense, and the effective portion of the change in fair value is recorded as a component of OCI. The effective portion is reclassified to interest expense during the period in which the hedged transaction affects earnings. The differences to be paid or received under the swap agreements are reflected as an adjustment to interest expense.

We have interest-rate swap agreements that effectively convert a portion of our floating-rate debt to a fixed-rate basis for the remaining life of the debt, thus reducing the impact of interest rate changes on future interest expense and cash flows. Under these agreements, which expire between 2016 and 2020, we pay fixed rates between 4.34 percent and 6.435 percent and receive either three-month or six-month USD London Interbank Offered Rate (LIBOR) on the notional values. The ~~following~~notional ~~table~~amount ~~summarizes~~of outstanding debt related to interest-rate swaps as of March 31, 2011 was $469.6 million. The primary objective for our use of interest-rate swaps is to reduce the impact of the volatility of interest rates on our operating results. These interest-rate swap arrangements are accounted for as cash flow hedges. The ineffective portion of the change in fair value of ~~our~~each derivative ~~financial~~is ~~instruments~~recognized (in ~~thousands~~Other (Income): Expense, and the effective portion of the change in fair value is recorded as a component of OCI. The effective portion is reclassified to interest expense during the period in which the hedged transaction affects earnings. The differences to be paid or received under the swap agreements are reflected as an adjustment to interest expense.

			Derivative Assets				Derivative Liabilities
	Balance Sheet Location		September 30, 2010		December 31, 2009		September 30, 2010		December 31, 2009
Derivatives designated as hedging instruments
Interest-rate contracts	Current	$	-	$	-	$	(14,313)	$	(13,902)
Interest-rate contracts	Noncurrent		-		11,492		(29,613)		(7,796)
Jet fuel swaps and options	Current		-		147		-		(108)
Total			-		11,639		(43,926)		(21,806)
Derivatives not designated as hedging instruments
Crude swaps and options	Current		18,355		35,970		-		(833)
Crude swaps and options	Noncurrent		8,462		-		-		-
Heating oil options	Current		4,049		10,775		(1)		-
Heating oil options	Noncurrent		-		3,291		-		-
Other	Current		-		145		-		(60)
Total			30,866		50,181		(1)		(893)
Total derivatives		$	30,866	$	61,820	$	(43,927)	$	(22,699)

Fair value includes any premiums paid or received, unrealized gains and losses, and any amounts receivable or payable from or to counterparties. Fair value does not include collateral provided to counterparties.

Liability and asset amounts with one counterparty are netted against each other for financial reporting purposes for derivative contracts entered into as one trade and for derivatives entered into for the purpose of effectively settling open positions.

The following ~~tables~~table summarizes the ~~effects~~fair value of our derivative financial instruments ~~on the Statements of Operations and on Other Comprehensive Income~~ (in thousands):

	For the Three Months Ended September 30,
		Derivative Assets					Derivative Liabilities
	Effective Portion of Hedges												Ineffective Portion of Hedges
	Balance Sheet Location	March 31, 2011		December 31, 2010			March 31, 2011			December 31, 2010
	(Gain) loss reclassified from OCI into income					(Gain) loss recognized in OCI							(Gain) loss recognized in Other (Income) Expense
Derivatives designated as hedging instruments
	Location	2010		2009			2010			2009				2010			2009
Interest-rate contracts	Current	$	—	$	—		$	(14,660	)	$	(14,993	)
Derivatives designated as hedging instruments
Interest-rate contracts	Noncurrent		3,414		940			(10,516	)		(13,594	)
Interest-rate contracts	Interest expense	$	506	$	115		$	11,648		$	4,948			$	–		$	–
Total			3,414		940			(25,176	)		(28,587	)
Jet fuel swaps and options	Aircraft fuel		–		1,069			–			133				–			18
Derivatives not designated as hedging instruments
		$	506	$	1,184		$	11,648		$	5,081				–			18
Crude options	Current		74,378		40,525			—			—
Derivatives not designated as hedging instruments
Crude options	Noncurrent		5,340		3,196			—			—
Jet fuel options															–			2
Heating oil options	Current		5,691		4,461			—			—
Crude swaps and options															(13,779	)		5,256
Other	Current		776		—			—			—
Heating oil options															(1,485	)		–
Total			86,185		48,182			—			—
Other															–			5,005
Total derivatives		$	89,599	$	49,122		$	(25,176	)	$	(28,587	)
															(15,264	)		10,263
Total net (gain) loss recognized as a component of Other (Income) Expense														$	(15,264	)	$	10,281

Fair value includes any premiums paid or received, unrealized gains and losses, and any amounts receivable or payable from or to counterparties. Fair value does not include collateral provided to counterparties.

Liability and asset amounts with one counterparty are netted against each other for financial reporting purposes for derivative contracts entered into as one trade and for derivatives entered into for the purpose of effectively settling open positions.

	For the Nine Months Ended September 30,
	Effective Portion of Hedges											Ineffective Portion of Hedges
	(Gain) loss reclassified from OCI into income					(Gain) loss recognized in OCI						(Gain) loss recognized in Other (Income) Expense
	Location	2010		2009			2010		2009				2010			2009
Derivatives designated as hedging instruments
Interest-rate contracts	Interest expense	$	739	$	496		$	33,741	$	(4,453	)		$	–		$	–
Jet fuel swaps and options	Aircraft fuel		–		6,593			–		760				39			30
		$	739	$	7,089		$	33,741	$	(3,693	)			39			30
Derivatives not designated as hedging instruments
Jet fuel options														–			(469	)
Crude swaps and options														(711	)		(25,066	)
Heating oil options														12,518			–
Other														10			7,561
														11,817			(17,974	)
Total net (gain) loss recognized as a component of Other (Income) Expense													$	11,856		$	(17,944	)

The following table summarizes the effects of derivative financial instruments on the Statements of Operations and on Other Comprehensive Income (in thousands):

Based on fair values as of September 30, 2010, we do not expect to reclassify any material net (gains) losses on derivative instruments from accumulated other comprehensive income to earnings during the next twelve months.

	For the Three Months Ended March 31,
	Effective Portion of Hedges											Ineffective Portion of Hedges
	(Gain) loss reclassified from OCI into income					(Gain) loss recognized in OCI						(Gain) loss recognized in Other (Income) Expense
	Location	2011		2010			2011			2010			2011			2010
Derivatives designated as hedging instruments
Interest-rate contracts	Interest expense	$	243	$	104		$	(5,557	)	$	4,982		$	–		$	–
Jet fuel swaps and options	Aircraft fuel		–		–			–			–			–			39
		$	243	$	104		$	(5,557	)	$	4,982			–			39

Derivatives not designated as hedging instruments
Crude options														(35,430	)		(10,223	)
Heating oil options														(4,212	)		3,297
Other														724			10
														(38,918	)		(6,916	)
Total net (gain) loss recognized as a component of Other (Income) Expense													$	(38,918	)	$	(6,877	)

~~Outstanding~~ Based ~~financial~~on ~~derivative~~fair ~~instruments~~values ~~expose~~as ~~us to credit loss in the event~~ of ~~nonperformance~~March by31, ~~the counterparties to the agreements. However~~2011, we do not expect ~~any of the counterparties~~ to ~~fail~~reclassify toany ~~meet~~material ~~their~~net ~~obligations.~~(gains) ~~Our~~losses ~~credit exposure related to these financial instruments is represented by the fair value of contracts reported as assets. To manage credit risk, we select and periodically review counterparties based~~ on credit ratings. We provide the counterparties with collateral when the fair value of our obligation exceeds specified amounts. The collateral is classified as restricted cash if the funds are held in our name. The collateral is classified as deposits held by counterparty to derivative ~~financial~~ instruments iffrom ~~the~~accumulated ~~funds~~other ~~are~~comprehensive ~~held~~income ~~by the counterparty. For financial reporting purposes, we do not offset the collateral provided~~ to ~~counterparties~~earnings ~~against~~during the ~~fair~~next ~~value~~twelve ~~of our obligation~~months. Any outstanding collateral is released to us upon settlement of the related derivative financial instrument liability. As of September 30, 2010, we provided interest rate swap counterparties with collateral aggregating $34.4 million, of which $26.4 million was classified as restricted cash.

Outstanding financial derivative instruments expose us to credit loss in the event of nonperformance by the counterparties to the agreements. However, we do not expect any of the counterparties to fail to meet their obligations. Our credit exposure related to these financial instruments is represented by the fair value of contracts reported as assets. To manage credit risk, we select and periodically review counterparties based on credit ratings. We provide the counterparties with collateral when the fair value of our obligation exceeds specified amounts. The collateral is classified as restricted cash if the funds are held in our name. The collateral is classified as deposits held by counterparty to derivative financial instruments if the funds are held by the counterparty. For financial reporting purposes, we do not offset the collateral provided to counterparties against the fair value of our obligation. Any outstanding collateral is released to us upon settlement of the related derivative financial instrument liability. As of March 31, 2011, we provided interest rate swap counterparties with collateral aggregating $20.4 million, of which $17.0 million was classified as restricted cash.

Note 4 –Debt

The components of debt were (in thousands):

	September 30, 2010			December 31, 2009
	March 31, 2011			December 31, 2010
B737 Aircraft Purchase Financing Facilities:
Floating-rate aircraft notes payable through 2021, 2.04 percent weighted-average interest rate as of September 30, 2010 (1)	$	634,649		$	665,694
Floating-rate aircraft notes payable through 2020, 1.96 percent weighted-average interest rate as of March 31, 2011 (1)	$	610,852		$	623,802
Fixed-rate aircraft notes payable through 2018, 7.02 percent weighted-average interest rate as of September 30, 2010		46,881			52,901
Fixed-rate aircraft notes payable through 2018, 7.02 percent weighted-average interest rate as of March 31, 2011		43,656			46,039
Fixed-rate B717 aircraft notes payable through 2017, 10.21 percent weighted-average interest rate as of September 30, 2010		75,908			76,708
Fixed-rate B717 aircraft notes payable through 2017, 10.21 percent weighted-average interest rate as of March 31, 2011		69,265			69,265
7.0% convertible senior notes		5,472			95,835
7.0% convertible notes		5,472			5,472
5.5% convertible senior notes due 2015		69,500			69,500
5.25% convertible senior notes due 2016		115,000			115,000
Other		—			1,120
Total long-term debt		913,745			929,078
Total long-term debt		947,410			1,076,758
Less current maturities of long-term debt		(66,538	)		(66,459	)
Less unamortized debt discount		—			(3,632	)
Long-term debt less current maturities	$	847,207		$	862,619
		947,410			1,073,126
Borrowing under revolving line of credit facility	$	15,000		$	50,000
Less current maturities of long-term debt		(61,520	)		(156,004	)
Long-term debt less current maturities	$	885,890		$	917,122
Borrowing under revolving line of credit facility	$	—		$	125,000

(1) The notional amount of outstanding floating-rate debt for which we have entered into interest-rate swap agreements at ~~September~~March 3031, ~~2010~~2011 and December 31, ~~2009~~2010 was $~~487~~469.56 million and $~~447~~479.01 million, respectively. These swaps expire between 2016 and 2020. The interest-rate swaps effectively result in us paying a fixed rate of interest on a portion of our floating-rate debt securities through the expiration of the swaps. As of ~~September~~March 3031, ~~2010~~2011, we had $~~487~~469.56 million of floating rate debt (1.8475% weighted average floating interest rate) for which we had entered into interest-rate swap agreements that effectively fixed interest rates on this debt (weighted average fixed interest rate of 5.01%).

As discussed below, we have a combined Credit Facility consisting of a letter of credit facility and a revolving line of credit facility.

Maturities of debt, prior to the impact of the expected acquisition of AirTran by Southwest, for the remainder of ~~2010~~2011 and for the next four years and thereafter, in aggregate, are (in millions): ~~2010-$18;~~ 2011-$66; 2012-$63; 2013-$73; 2014-$72; 2015-$86; thereafter-$~~655~~569. AsMaturities offor ~~September~~2011 ~~30,~~include ~~2010,~~$15 nomillion ~~amounts were~~ outstanding under the revolving line of credit facility, which was repaid in April 2011.

AirTran has advised the holders of the 5.25 % convertible notes and the 5.5% convertible notes that a make-whole fundamental change, as defined in the relevant indenture, will occur in the event that Southwest acquires AirTran. Consequently based on values as of April 27, 2011, AirTran estimates that (i) the holders of the 5.25% convertible notes would have the right to surrender their notes in exchange for up to approximately $700 in cash and up to approximately 60 shares of Southwest common stock for each $1,000 principle amount held and (ii) the holders of the 5.5% convertible notes would have the right to surrender their notes in exchange for up to approximately $1,042 in cash and up to approximately 89 shares of Southwest common stock for each $1,000 principle amount held. If all of the 5.25% and 5.5% convertible notes were exchanged, AirTran estimates that the holders would receive approximately $152.7 million in cash and approximately 13,100,000 shares of Southwest common stock. The actual value will be determined in part by the Southwest share price at the time of close of the Merger and the time of any conversions.

AsAirTran has advised the holders of ~~September~~the 7% 30convertible notes that a fundamental change, ~~2010~~as defined in the indenture for such notes, will occur in the ~~following~~event ~~assets~~that ~~served~~Southwest asacquires ~~collateral~~AirTran. Consequently, the holders of the 7% convertible notes would have the right to surrender their notes in exchange for ~~outstanding~~$377 ~~debt:~~in cash and approximately 29 shares of Southwest common stock for each $1,000 principle amount held. If all of the 7% convertible notes were surrendered, the holders would receive $1.8 million in cash and 158,000 shares of Southwest common stock.

· As ~~Assets (consisting primarily~~ of ~~flight~~March ~~equipment)~~31, ~~with~~2011, athe ~~net~~following ~~book~~assets ~~value of $1.1 billion~~ served as collateral for ~~the~~outstanding ~~B737 and B717 aircraft notes payable.~~debt:

· Assets (consisting primarily of ~~aircraft~~flight ~~pre-delivery deposits, accounts receivable, ground~~ equipment,) ~~aircraft~~with ~~parts,~~a ~~certain~~net ~~inventory,~~book ~~residual~~value ~~interests~~of in$1.0 ~~owned~~billion ~~B717~~served aircraft, certain real property assets, and certain other assets, including various contract rights which include but are not limited to rights under certain purchase and sale agreements for aircraft and hedging agreements, serve -- directly or indirectly -- as collateral for ~~Airways’~~the ~~obligations~~B737 ~~under~~and ~~the~~B717 ~~Credit~~aircraft ~~Facility~~notes payable.

Assets consisting primarily of aircraft pre-delivery deposits, accounts receivable, ground equipment, aircraft parts, certain inventory, residual interests in owned B717 aircraft, certain real property assets, and certain other assets, including various contract rights which include but are not limited to rights under certain purchase and sale agreements for aircraft and hedging agreements, serve -- directly or indirectly -- as collateral for Airways’ obligations under the Credit Facility.

Airways’ obligations under the Credit Facility are guaranteed by AirTran. Airways’ obligations and the related AirTran guarantee rank senior in right of payment to the subordinated indebtedness of the applicable company and rank equally with senior indebtedness of the applicable company.

B737 Aircraft Purchase Financing Facilities

During the first quarter of 2010, we refinanced the debt borrowed to acquire two B737 aircraft that were delivered to Airways in 2009. Under the refinancings, we repaid $49.0 million of existing aircraft indebtedness and borrowed $52.5 million of new aircraft debt. Each note issued is secured by a first mortgage on the B737 aircraft to which it relates. Each note has a stated maturity of 10 years and bears interest at a floating rate per annum above the three-month LIBOR in effect at the commencement of each three-month period. Principal and interest under each note is payable every three months.

7.0% Convertible Notes

Holders of 94% of our 7.0% convertible notes as of June 30, 2010, aggregating $90.4 million principal amount, exercised their right to require us to repurchase the notes in July 2010. We elected to pay the repurchase price in cash in July 2010. As of March 31, 2011, an aggregate of $5.5 million of our 7.0% convertible notes remain outstanding.

Credit Facility

We have a combined secured letter of credit facility and a revolving line of credit facility. We refer to the combined letter of credit facility and revolving line of credit facility as the Credit Facility, and we refer to its components as the letter of credit facility and the revolving line of credit facility, respectively. The terms of the Credit Facility were amended effective July 1, 2010. The following discussion summarizes the terms of the amended Credit Facility.

We and the lender have agreed to extend the term of the Credit Facility to December 31, 2012. Under the revolving line of credit facility, we are permitted to borrow, upon two business days notice, up to $50 million for general corporate purposes. Under the letter of credit facility, we are entitled to the issuance by a financial institution of letters of credit up to a maximum aggregate amount of $50 million for the benefit of one or more of our credit card processors. Amounts borrowed under the revolving line of credit facility bear interest at a rate of 12 percent per annum and must be repaid within three business days to the extent that our aggregate unrestricted cash and investment amount exceeds $450 million at any time. We may borrow once a month and are permitted to repay amounts borrowed at any time without penalty. As of December 31, 2009, we had $125 million in outstanding borrowings under the revolving line of credit facility. We had no borrowings outstanding as of either September 30, 2010 or October 20, 2010. As of September 30, 2010, the stated amount of the letter of credit issued for the benefit of our largest credit card processor was $50 million.

The aggregate of amounts borrowed and outstanding letters of credit under the Credit Facility is not permitted to exceed the estimated value of the collateral securing such facility. Drawings under any letter of credit may be made only to satisfy our obligation to a beneficiary credit card processor to cover chargebacks arising from tickets sold during the period of exposure to be covered by the letter of credit. Drawings may be made by the processor only if we do not satisfy our obligations to reimburse the credit card processor for chargebacks. A letter of credit issued under the letter of credit facility has never been drawn.

7Under the revolving line of credit facility, we are permitted to borrow, upon two business days notice, up to $50 million for general corporate purposes.0% ~~Convertible~~Under ~~Senior~~the ~~Notes~~letter of credit facility, we are entitled to the issuance by a financial institution of letters of credit up to a maximum aggregate amount of $50 million for the benefit of one or more of our credit card processors. Amounts borrowed under the revolving line of credit facility bear interest at a rate of 12 percent per annum and must be repaid within three business days to the extent that our aggregate unrestricted cash and investment amount exceeds $450 million at any time. We may borrow once a month and are permitted to repay amounts borrowed at any time without penalty. As of March 31, 2011 and December 31, 2010, we had $15 million and $50 million outstanding borrowings under the revolving line of credit facility or a predecessor version thereof, respectively. As of March 31, 2011 and December 31, 2010, the stated amount of the letter of credit issued for the benefit of our largest credit card processor was $50 million. The term of the Credit Facility currently expires on December 31, 2012. We have advised the counterparty to the Credit Facility that, if the Merger is consummated, we will terminate the $50 million revolving line of credit facility at or shortly after closing. The letter of credit facility would remain in effect.

~~Holders~~The aggregate of ~~94%~~amounts borrowed and outstanding letters of ~~our~~credit ~~7.0%~~under ~~convertible~~the ~~senior~~Credit ~~notes~~Facility asis not permitted to exceed the estimated value of ~~June~~the ~~30,~~collateral ~~2010,~~securing ~~aggregating~~such ~~$90~~facility.4 ~~million~~Drawings ~~principal~~under ~~amount,~~any ~~exercised~~letter ~~their~~of ~~right~~credit may be made only to ~~require~~satisfy usour obligation to ~~repurchase~~a beneficiary credit card processor to cover chargebacks arising from tickets sold during the ~~notes~~period inof ~~July~~exposure ~~2010~~to be covered by the letter of credit. WeDrawings ~~elected~~may tobe ~~pay~~made by the ~~repurchase~~processor ~~price~~only inif ~~cash~~we indo ~~July~~not ~~2010.~~satisfy Asour ofobligations ~~September~~to ~~30,~~reimburse ~~2010,~~the ancredit ~~aggregate~~card ofprocessor $5for chargebacks.5 ~~million~~None of ~~our~~the ~~7.0%~~letters ~~convertible~~of ~~senior~~credit ~~notes~~issued ~~remain~~in ~~outstanding~~favor of a processor have ever been drawn.

Note 5 - Fair Value Measurements

The Fair Value Measurements and Disclosures Topic defines fair value, establishes a consistent framework for measuring fair value, and expands disclosures for each major asset and liability category measured at fair value on either a recurring or a nonrecurring basis. The Fair Value Measurements and Disclosures Topic states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the Fair Value Measurements and Disclosures Topic establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1- observable inputs such as quoted prices in active markets;

Level 2- inputs, other than the quoted market prices in active markets, which are observable, either directly or indirectly; and

Level 3- unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities are to be measured at fair value and are based on one or more of the three valuation techniques. The valuation techniques are as follows:

(a)

Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets;

(b) Cost approach.; Amount that would be required to replace the service capacity of an asset (replacement cost); and

(c)

Income approach. Techniques to convert future amounts to a single present amount based on expectations (including present value techniques, option-pricing and excess earnings models).

Assets (liabilities) measured at fair value on a recurring basis ~~during the period~~ were as follows (in thousands):

	Fair Value at September 30, 2010			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)			Fair Value Measurements Using Unobservable Inputs (Level 3)		Valuation Technique
	Fair Value at March 31, 2011			Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)			Fair Value Measurements Using Unobservable Inputs (Level 3)		Valuation Technique
Cash and cash equivalents	$	~~424~~497,~~506~~705		$	~~424~~497,~~506~~705	$	—		$	—	Market
Interest rate derivatives, net		(43,926	)		—		(43,926	)		—	Market
Interest rate derivatives		(21,762	)		—		(21,762	)		—	Market
Fuel derivatives, net		30,865			—		—			30,865	Market
Fuel derivatives		86,185			—		—			86,185	Market

The financial statement carrying amounts and estimated fair values of our debt at September 30, 2010 were as follows (in thousands):

	Fair Value at December 31, 2010
Cash and cash equivalents	$	453,965		$	453,965	$	—		$	—	Market
Interest rate derivatives		(27,647	)		—		(27,647	)		—	Market
Fuel derivatives		48,182			—		—			48,182	Market

	Carrying Value		Estimated Fair Value
B737 Aircraft Purchase Financing Facilities:
Floating-rate aircraft notes payable through 2021, 2.04 percent weighted-average interest rate as of September 30, 2010	$	634,649	$	573,434
Fixed-rate aircraft notes payable through 2018, 7.02 percent weighted-average interest rate as of September 30, 2010		46,881		45,878
Fixed-rate B717 aircraft notes payable through 2017, 10.21 percent weighted-average interest rate as of September 30, 2010		75,908		85,768
7.0% convertible senior notes		5,472		5,487
5.5% convertible senior notes due 2015		69,500		142,475
5.25% convertible senior notes due 2016		115,000		161,504
	$	947,410	$	1,014,546

There were no transfers of assets or liabilities between any of the above levels during the three months ended March 31, 2011 and 2010.

The ~~fair~~financial ~~value~~statement ofcarrying ~~our~~amounts ~~debt~~and ~~was~~ estimated ~~using quoted market prices where available. For long-term debt not actively traded, the~~ fair ~~value was estimated using a discounted cash flow analysis based on our current borrowing rates for instruments with similar terms. The fair~~ values of our ~~other~~debt ~~financial~~were ~~instruments~~as ~~and~~follows ~~borrowings under our revolving line of credit facility approximate their respective carrying values. Given the current volatility~~ (in ~~the credit markets, there is an atypical element of uncertainty associated with valuing debt securities, including our debt securities.~~thousands):

As of March 31, 2011	Carrying Value		Estimated Fair Value
B737 Aircraft Purchase Financing Facilities:
Floating-rate aircraft notes payable through 2020, 1.96 percent weighted-average interest rate as of March 31, 2011	$	610,852	$	519,812
Fixed-rate aircraft notes payable through 2018, 7.02 percent weighted-average interest rate as of March 31, 2011		43,656		42,548
Fixed-rate B717 aircraft notes payable through 2017, 10.21 percent weighted-average interest rate as of March 31, 2011		69,265		78,067
7.0% convertible notes		5,472		5,108
5.5% convertible senior notes due 2015		69,500		143,741
5.25% convertible senior notes due 2016		115,000		163,229
Borrowing under revolving line of credit facility		15,000		15,000
	$	928,745	$	967,505

As of December 31, 2010
B737 Aircraft Purchase Financing Facilities:
Floating-rate aircraft notes payable through 2020, 1.97 percent weighted-average interest rate as of December 31, 2010	$	623,802	$	528,324
Fixed-rate aircraft notes payable through 2018, 7.02 percent weighted-average interest rate as of December 31, 2010		46,039		44,952
Fixed-rate B717 aircraft notes payable through 2017, 10.21 percent weighted-average interest rate as of December 31, 2010		69,265		79,049
7.0% convertible notes		5,472		4,711
5.5% convertible senior notes due 2015		69,500		144,667
5.25% convertible senior notes due 2016		115,000		163,501
Borrowing under revolving line of credit facility		50,000		50,000
	$	979,078	$	1,015,204

The ~~reconciliation~~fair value of our ~~fuel~~debt ~~derivatives~~was ~~that~~estimated ~~are~~using ~~measured~~quoted atmarket prices where available. For long-term debt not actively traded, the fair value onwas estimated using a ~~recurring~~discounted ~~basis~~cash ~~using~~flow ~~significant~~analysis ~~unobservable~~based ~~inputs~~on ~~(Level~~our 3)current borrowing rates for instruments with similar terms. The fair values of our other financial instruments and borrowings under our revolving line of credit facility approximate their respective carrying values. Given the ~~period~~current ~~January 1~~uncertainty in the credit markets, ~~2010~~there ~~through~~is ~~September~~an 30atypical element of uncertainty associated with valuing debt securities, including our debt securities. The estimated March 31, 2011 and December 31, 2010 isfair asvalues ~~follows~~of ~~(in~~certain ~~thousands):~~debt amounts were likely impacted by the expected acquisition of AirTran by Southwest.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Fuel-related derivative asset (liability):
Balance at January 1, 2010	$	49,326
Total realized and unrealized gains (losses):
Included in earnings		(11,856	)
Included in other comprehensive income		—
Purchases, issuances, and settlements		(6,605	)
Balance at September 30, 2010	$	30,865
The amount of total gains (losses) for the nine months ended September 30, 2010, included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at September 30, 2010	$	(10,427	)

Changes in our fuel derivatives that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are summarized as follows (in thousands):

Note 6 – Income Taxes

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Fuel-related derivative asset (liability):
Asset (liability) at January 1, 2011	$	48,182
Total realized and unrealized gains (losses):
Included in earnings		38,918
Included in other comprehensive income		—
Purchases, issuances, sales, and settlements
Purchases		6,460
Issuances		—
Sales		—
Settlements		(7,375	)
Asset (liability) at March 31, 2011	$	86,185

The amount of total gains (losses) for the three months ended March 31, 2011, included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at March 31, 2011	$	38,912

Our effective tax rate was 34.3 percent and 34.1 percent for the three and nine months ended September 30, 2010 compared to 2.2 percent and 0.8 percent for the three and nine months ended September 30, 2009. Our effective tax rate can differ from the 37.2 percent composite statutory tax rate (35 percent federal statutory rate plus the 2.2 percent state composite statutory rate net of federal benefit) due to changes in the valuation allowance for our deferred tax assets, certain expenses which are not deductible for income tax purposes and non-recurring discrete items related to restricted stock vesting. Non-deductible expense items and discrete items tend to increase the effective tax rate when pre-tax income is reported and tend to decrease the effective tax rate when a pre-tax loss is reported. During the three and nine months ended September 30, 2009, we reported income before taxes but did not recognize material tax expense due to the reduction in the valuation allowance which largely offset income tax expense for those periods. During the three and nine months ended September 30, 2010 we reduced the valuation allowance with a corresponding reduction to income tax expense for those periods of $2.2 million and $5.1 million, respectively.

Income tax benefits recorded on losses result in deferred tax assets for financial reporting purposes. We are required to provide a valuation allowance for deferred tax assets to the extent management determines that it is more likely than not that such deferred tax assets will ultimately not be realized. We expect to realize a portion of our deferred tax assets (including the deferred tax asset associated with loss carryforwards) through the reversal of existing temporary differences. However, we determined that it is more likely than not that any deferred tax assets in excess of our deferred tax liabilities may not ultimately be realized, in part due to our cumulative losses in recent years. Therefore, we were required to provide a valuation allowance to the extent that our deferred tax assets exceeded our deferred tax liabilities. Consequently, beginning with the third quarter of 2008, our losses were not reduced by any tax benefit. As of September 30, 2010, our deferred tax liabilities exceeded our deferred tax assets and the $1.0 million valuation allowance related solely to capital loss carryforwards. Regardless of the financial accounting for income taxes, our net operating loss carryforwards currently are available for use on our income tax returns to offset future taxable income.

Note 7 – Earnings Per Common Share

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Fuel-related derivative asset (liability):
Asset (liability) at January 1, 2010	$	49,327
Total realized and unrealized gains (losses):
Included in earnings		6,877
Included in other comprehensive income		—
Purchases, issuances, sales, and settlements
Purchases		3,432
Issuances		—
Sales		—
Settlements		(9,683	)
Asset (liability) at March 31, 2010	$	49,953

The amount of total gains (losses) for the three months ended March 31, 2010, included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at March 31, 2010	$	7,267

~~The~~Note ~~following~~6 ~~table~~– ~~sets~~Income ~~forth the computation of basic and diluted earnings per common share (in thousands, except per share amounts):~~ Taxes

	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
NUMERATOR:
Net income available to common stockholders	$	36,263	$	10,426	$	36,618	$	117,571
Plus income effect of assumed-conversion interest on 7.0% convertible debt		82		—		—		—
Plus income effect of assumed-conversion interest on 5.5% convertible notes		600		957		1,800		2,867
Plus income effect of assumed-conversion interest on 5.25% convertible notes		948		n/a		2,844		n/a
Income after assumed conversion, diluted	$	37,893	$	11,383	$	41,262	$	120,438
DENOMINATOR:
Weighted-average shares outstanding, basic		135,444		120,482		135,265		120,158
Effect of 7.0% convertible notes		492		—		—		—
Effect of 5.5% convertible notes		18,099		18,099		18,099		18,099
Effect of 5.25% convertible notes		18,865		n/a		18,865		n/a
Effect of dilutive stock options		42		220		74		132
Effect of dilutive restricted shares		501		416		375		329
Effect of warrants to purchase common stock		n/a		1,408		n/a		899
Adjusted weighted-average shares outstanding, diluted		173,443		140,625		172,678		139,617
Basic earnings per common share	$	0.27	$	0.09	$	0.27	$	0.98
Diluted earnings per common share	$	0.22	$	0.08	$	0.24	$	0.86

Our effective income tax rate was 32.6 percent for the three months ended March 31, 2011. Our effective tax rate differs from the 37.2 percent composite statutory tax rate (35 percent federal statutory rate plus the 2.2 percent effective state tax rate) due to changes in the valuation allowance on our deferred tax assets, certain expenses which are not deductible for income tax purposes, and non-recurring discrete items related to restricted stock vesting. Non-deductible expense items and discrete items tend to increase the effective tax rate when pre-tax income is reported and tend to decrease the effective tax rate when a pre-tax loss is reported. We reported a loss before income taxes during three months ended March 31, 2010; however, we did not recognize an income tax benefit in the statement of operations because the tax effect of the pre-tax loss was offset by a corresponding increase in the valuation allowance. A valuation allowance was required for deferred tax assets in excess of our deferred tax liabilities.

n/Income tax benefits recorded on losses result in deferred tax assets for financial reporting purposes. We are required to provide a –valuation ~~not~~allowance ~~applicable~~for ~~because~~deferred tax assets to the ~~security~~extent ~~was~~management determines that it is more likely than not ~~outstanding~~that ~~during~~such deferred tax assets will ultimately not be realized. We expect to realize our deferred tax assets (including the ~~period~~deferred tax asset associated with loss carryforwards) through the reversal of existing temporary differences. As of March 31, 2011, our deferred tax liabilities exceeded our deferred tax assets and the $1.0 million valuation allowance related solely to capital loss carryforwards. Regardless of the financial accounting for income taxes, our net operating loss carryforwards currently are available for use on our income tax returns to offset future taxable income. If AirTran is acquired by Southwest, the Merger is expected to result in an ownership change for purposes of Section 382 of the Internal Revenue Code. The utilization of NOL’s to offset future taxable income would be subject to an annual limitation under Section 382. Any unused NOL’s in excess of the annual limitation may be carried over to later years.

Excluded from the diluted earnings per share calculation for the three months ended September 30, 2010 are the impacts on the weighted average shares outstanding of the following which would have been anti-dilutive for the period in 2010 totaling 3.8 million shares: 1.8 million shares related to our outstanding stock options; and 2.0 million shares related to our unvested restricted stock and unvested performance share awards.

Excluded from the diluted earnings per share calculation for the nine months ended September 30, 2010 are the impacts on the weighted average shares outstanding of the following which would have been anti-dilutive for the period in 2010 totaling 9.9 million shares: 5.9 million shares related to our 7.0% convertible notes that would have been issuable upon conversion; 1.8 million shares related to our outstanding stock options; and 2.2 million shares related to our unvested restricted stock and unvested performance share awards.

Excluded from the diluted earnings per share calculations for the three months ended September 30, 2009 are the impacts on the weighted average shares outstanding of the following which would have been anti-dilutive for the period in 2009 totaling 11.9 million shares: 8.6 million shares related to our 7.0% convertible notes that would have been issuable upon conversion; 1.8 million shares related to our outstanding stock options; and 1.5 million shares related to our unvested restricted stock and unvested performance share awards. The 5.25% convertible notes were issued in the fourth quarter of 2009.

Excluded from the diluted earnings per share calculations for the nine months ended September 30, 2009 are the impacts on the weighted average shares outstanding of the following which would have been anti-dilutive for the period in 2009 totaling 12.1 million shares: 8.6 million shares related to our 7.0% convertible notes that would have been issuable upon conversion; 1.9 million shares related to our outstanding stock options; and 1.6 million shares related to our unvested restricted stock and unvested performance share awards. The 5.25% convertible notes were issued in the fourth quarter of 2009.

Note 7 – Earnings (Loss) Per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share amounts):

	Three months ended March 31,
	2011			2010
Numerator:
Net loss	$	(8,811	)	$	(12,025	)
Denominator:
Weighted-average shares outstanding, basic		135,984			135,026
Weighted-average shares outstanding, diluted		135,984			135,026
Basic (loss) per share	$	(0.06	)	$	(0.09	)
Diluted (loss) per share	$	(0.06	)	$	(0.09	)

Excluded from the diluted earnings per share calculation for the three months ended March 31, 2011 are the impacts on the weighted average shares outstanding of the following which would have been anti-dilutive for the period in 2011 totaling 41.1 million shares: 0.5 million shares related to our 7.0% convertible notes that are issuable upon conversion; 18.1 million shares related to our 5.5% convertible notes that are issuable upon conversion; 18.9 million shares related to our 5.25% convertible notes that are issuable upon conversion; 1.8 million shares related to our outstanding stock options; and 1.8 million shares related to our unvested restricted stock and unvested performance share awards.

Excluded from the diluted earnings per share calculation for the three months ended March 31, 2010 are the impacts on the weighted average shares outstanding of the following which would have been anti-dilutive for the period in 2010 totaling 50.1 million shares: 8.6 million shares related to our 7.0% convertible notes that are issuable upon conversion; 18.1 million shares related to our 5.5% convertible notes that are issuable upon conversion; 18.9 million shares related to our 5.25% convertible notes that are issuable upon conversion; 2.1 million shares related to our outstanding stock options; and 2.4 million shares related to our unvested restricted stock and unvested performance share awards.

Note 8 – Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss) is composed of changes in the fair value of certain of our derivative financial instruments and the funded status of our postemployment obligations. The components of Accumulated other comprehensive income (loss) are as follows (in thousands):

	Unrealized gain (loss) on derivative financial instruments			Post-employment obligations			Accumulated other comprehensive income (loss)
Balance at January 1, 2010	$	(4,499	)	$	2,969		$	(1,530	)
Balance at January 1, 2011	$	(14,530	)	$	4,565		$	(9,965	)
Changes in fair value, net of income taxes		~~(29~~3,~~410~~489	)		—			~~(29~~3,~~410~~489	)
Reclassification to earnings, net of income taxes		~~553~~153			(7378	)		~~480~~75
Balance at September 30, 2010	$	(33,356	)	$	2,896		$	(30,460	)
Balance at March 31, 2011	$	(10,888	)	$	4,487		$	(6,401	)

Balance at January 1, 2009	$	(25,569	)	$	(191	)	$	(25,760	)
Balance at January 1, 2010	$	(4,499	)	$	2,969		$	(1,530	)
Changes in fair value, net of income taxes		3(4,~~693~~982	)		—			3(4,~~693~~982	)
Reclassification to earnings, net of income taxes		~~7,089~~104			57(24	)		~~7,146~~80
Balance at September 30, 2009	$	(14,787	)	$	(134	)	$	(14,921	)
Balance at March 31, 2010	$	(9,377	)	$	2,945		$	(6,432	)

Total comprehensive ~~income~~loss was $29(5.32) million and $7(16.79) million for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010,~~2011 ~~respectively,~~ and ~~$6.5 million and $128.4 million for the three and nine months ended September 30~~2010, ~~2009,~~ respectively.

Note 9 – Stock Option Awards and Restricted Stock Awards

Restricted stock awards, market-based (performance ~~stock~~share) awards, and stock options have been granted to certain of our officers, directors and key employees. Restricted stock awards are grants of shares of our common stock, which typically vest over time (generally three years). Our market-based awards are grants of our common stock that vest, if at all, at the end of the specified performance period (currently three years) in amounts that are largely dependent on the achievement of specified goals which are expressed in terms of threshold, target, and maximum award achievement levels. During the first ~~nine~~three months of ~~2010~~2011 and ~~2009~~2010, we granted restricted stock awards for ~~approximately~~zero ~~670,000~~ and ~~664~~485,~~000~~853 shares, respectively, and ~~approximately 638~~637,~~000~~401 and ~~551~~539,~~000~~553 shares, respectively, of restricted stock vested. During the first ~~nine~~three months of ~~2010~~2011 and ~~2009~~2010, we granted market-based awards for up to ~~640,006~~zero and ~~360~~640,~~360~~006 shares, respectively, of our common stock. The estimated fair value of the market-based share awards at the date of grant will be recognized ratably as compensation expense over the three-year service period. No stock options were granted in either period.

Compensation expense for our restricted stock grants was $10.37 million and $31.95 million during the first three ~~and nine~~ months ~~ended~~of ~~September~~2011 ~~30,~~and 2010, respectively~~, and $1~~.4 ~~million and $4.3 million during the three and nine months ended September 30, 2009, respectively.~~ As of ~~September~~March 3031, ~~2010~~2011, we have $42.9 million in total unrecognized future compensation expense ~~that will be recognized over the next three years~~ relating to awards for approximately 10.58 million restricted shares which were outstanding at such date, but which had not yet vested. Unvested restricted shares are not included in reported common shares outstanding amounts. As shares vest, restricted shares are transferred to common shares.

Compensation expense for our performance stock awards was $0.3 million and $0.7 million during the three and nine months ended September 30, 2010, respectively, and $0.1 million and $0.3 million during the three and nine months ended September 30, 2009, respectively. As of September 30, 2010, we have $1.9 million in total unrecognized future compensation expense that will be recognized over the next two years relating to awards for up to approximately 1.0 million performance stock awards which were outstanding at such date, but which had not yet vested.

As of September 30, 2010, options to purchase 1.9 million shares of common stock, at exercise prices between $3.90 and $13.80 per share were outstanding. All outstanding options to purchase common shares were exercisable as of September 30, 2010.

~~ITEM~~ Compensation expense for our performance share awards was $0.3 million and $0.2 million during the first three months of 2011 and 2010, respectively.~~MANAGEMENT’S~~ ~~DISCUSSION~~As ~~AND~~of ~~ANALYSIS~~March OF31, ~~FINANCIAL~~2011, ~~CONDITION~~we ~~AND~~have ~~RESULTS~~$1.4 OFmillion ~~OPERATIONS~~in total unrecognized future compensation expense relating to awards for up to approximately 1.0 million performance share awards which were outstanding at such date, but which had not yet vested.

~~FORWARD-LOOKING~~ As ~~STATEMENTS~~of March 31, 2011, options to purchase 1.8 million shares of common stock, at exercise prices between $3.90 and $13.80 per share were outstanding. All outstanding options to purchase common shares were exercisable as of March 31, 2011.

The information contained in this section has been derived from our historical financial statements and should be read together with our historical financial statements and related notes included elsewhere in this document. The discussion below contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties including, but not limited to: consumer demand and acceptance of services offered by us, our ability to achieve and maintain acceptable cost levels, fare levels and actions by competitors, regulatory matters, general economic conditions, commodity prices, and changing business strategies. Forward-looking statements are subject to a number of factors that could cause actual results to differ materially from our expressed or implied expectations, including, but not limited to: our performance in future periods, our ability to generate working capital from operations, our ability to take delivery of and to finance aircraft, the adequacy of our insurance coverage, and the results of litigation or investigation. Our forward-looking statements often can be identified by the use of terminology such as “anticipates,” “expects,” “intends,” “believes,” “will” or the negative thereof, or variations thereon or comparable terminology. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

OVERVIEW

All of the flight operations of AirTran Holdings, Inc. (the Company, AirTran, or Holdings) are conducted by our wholly-owned subsidiary, AirTran Airways, Inc. (AirTran Airways or Airways) (collectively we, our, or us). AirTran 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 throughout the United States and to selected international locations. Approximately half of our flights originate or terminate at our largest hub in Atlanta, Georgia and we serve a number of markets with non-stop service from our focus cities of Baltimore, Maryland; Milwaukee, Wisconsin; and Orlando, Florida. As of October 20, 2010, we operated 86 Boeing B717-200 aircraft (B717) and 52 Boeing B737-700 aircraft (B737) offering approximately 700 scheduled flights per day to 69 locations in the United States and the Caribbean, including San Juan, Puerto Rico; Cancun, Mexico; Montego Bay, Jamaica; Nassau, The Bahamas; and Orangestad, Aruba. The traditional elements of our success include: competitive fares; superior service; an attractive network; product value; low unit costs; adaptability; flexibility; innovation; and the enthusiasm and skills of our employees.

Recent Development – Proposed Acquisition of AirTran by Southwest Airlines

Subject to the terms and conditions of the Merger Agreement, if the Merger is completed, each outstanding share of AirTran common stock (including previously unvested restricted shares of AirTran common stock) will be converted into the right to receive a fraction of a share of Southwest common stock equal to the Exchange Ratio (as defined below) (the Base Per Share Stock Consideration and, as the same may be adjusted as discussed below, the Per Share Stock Consideration) and $3.75 in cash, without interest (the Base Per Share Cash Consideration and, as the same may be adjusted as discussed below, the Per Share Cash Consideration). The Per Share Stock Consideration and the Per Share Cash Consideration are collectively referred to herein as the Merger Consideration.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~The Exchange Ratio will be determined as follows:~~OVERVIEW

~~(i)~~All Inof the ~~event~~flight ~~that~~operations ~~the~~of ~~average~~AirTran ofHoldings, Inc. (the ~~last~~Company, ~~reported~~AirTran, ~~sales~~or ~~prices~~Holdings) ~~for~~are aconducted ~~single~~by ~~share~~our ofwholly-owned ~~Southwest~~subsidiary, ~~common~~AirTran ~~stock~~Airways, onInc. ~~the~~(AirTran ~~New~~Airways ~~York~~or ~~Stock~~Airways) ~~Exchange~~ (~~the~~collectively ~~NYSE~~we, our, or us). ~~for~~AirTran Airways is one of the 20largest ~~consecutive~~low ~~full~~cost ~~trading~~scheduled ~~days~~airlines ~~ending~~in onthe (United States in terms of departures and ~~including)~~seats ~~the~~offered. ~~third~~We ~~trading~~operate ~~day~~scheduled ~~prior~~airline toservice throughout the ~~closing~~United ~~date~~States and to selected international locations. Approximately half of ~~the~~our ~~Merger~~flights ~~(the~~originate or ~~Southwest~~terminate ~~Average~~at ~~Share~~our ~~Price)~~largest ishub ~~less~~in ~~than~~Atlanta, ~~$10~~Georgia and we serve a number of markets with non-stop service from our hubs in Baltimore, Maryland; Milwaukee, Wisconsin; and Orlando, Florida.90 As of April 1, ~~the~~2011, ~~Exchange~~we ~~Ratio~~operated ~~will~~88 ~~equal~~Boeing B717-200 aircraft (AB717) ~~$3.50~~ ~~divided~~and by52 Boeing B737-700 aircraft (BB737) offering approximately 735 scheduled flights per day to 69 locations across the ~~Southwest~~United ~~Average~~States ~~Share~~and ~~Price~~the Caribbean, ~~rounded~~including toSan Juan, Puerto Rico; Cancun, Mexico; Montego Bay, Jamaica; Nassau, The Bahamas; Orangestad, Aruba; and Punta Cana, Dominican Republic. The traditional elements of our success include: competitive fares; superior service; an attractive network; product value; low unit costs; adaptability; flexibility; innovation; and the ~~nearest~~enthusiasm ~~thousandth~~and skills of our employees.

~~(ii)~~Expected InAcquisition ~~the~~of ~~event~~AirTran ~~that~~by ~~the~~ Southwest ~~Average Share Price is equal to or greater than $10.90 but less than or equal to $12.46, the Exchange Ratio will be 0.321.~~Airlines

On September 26, 2010, AirTran, Southwest Airlines Co., a Texas corporation (~~iii~~Southwest), Inand ~~the~~a ~~event~~wholly-owned ~~that~~subsidiary of Southwest (the Southwest ~~Average~~merger ~~Share~~subsidiary) ~~Price~~entered isinto ~~greater~~an ~~than~~Agreement ~~$12~~and Plan of Merger (the Merger Agreement), providing for the acquisition of AirTran by Southwest.46 The Merger Agreement provides that, upon the ~~Exchange~~terms ~~Ratio~~and subject to the conditions set forth in the Merger Agreement, the Southwest merger subsidiary will ~~equal~~be ~~(A) $4.00~~merged ~~divided~~with byand into AirTran (Bthe Merger) , with AirTran continuing as the surviving corporation and as a wholly-owned subsidiary of Southwest. ~~Average~~Following ~~Share~~the ~~Price,~~effective ~~rounded~~time toof the ~~nearest~~Merger, ~~thousandth~~AirTran will merge with and into a wholly-owned limited liability company subsidiary of Southwest.

InOn ~~addition~~March 23, in2011, ~~the~~AirTran’s ~~event~~stockholders ~~that~~approved the ~~Southwest~~acquisition ~~Average~~of ~~Share~~AirTran ~~Price~~by isSouthwest. ~~less~~Additionally, ~~than~~the ~~$10.90,~~United ~~Southwest~~States ~~must~~Department ~~deliver,~~of atJustice ~~its~~(the ~~election,~~DOJ) ashas ~~Merger~~informed ~~Consideration,~~AirTran anand ~~additional~~Southwest ~~amount~~that ofit ~~cash,~~will annot ~~additional~~seek ~~number~~to ~~(or~~oppose ~~fraction)~~the acquisition of ~~shares~~AirTran ofby Southwest. ~~common~~The ~~stock,~~acquisition ~~or a combination~~ of ~~both~~ ~~such~~AirTran ~~that,~~by ~~after~~Southwest ~~giving~~is ~~effect~~expected to ~~such~~occur ~~election,~~on ~~the~~or ~~aggregate~~after ~~value~~May of2, ~~the Merger Consideration is equal to $7~~2011.~~25.~~

~~The~~Consistent ~~exchange~~with ~~ratio~~the ~~adjustment~~terms ~~mechanism~~of ~~provides~~the atMerger ~~least~~Agreement ~~$7.25~~and inbased ~~value~~on ~~and~~the upassumption that the acquisition occurs on May 2, 2011, each outstanding share of AirTran common stock (including previously unvested restricted shares of AirTran common stock) will be converted into the right to receive (i) $73.75 in ~~value~~cash (~~based~~the onPer ~~the~~Share ~~Southwest~~Cash ~~average~~Consideration), ~~share~~and ~~price~~(ii) ~~per~~0.321 share of ~~AirTran~~Southwest common stock (the Per Share Stock Consideration). The Per Share Cash Consideration and the Per Share Stock Consideration are collectively referred to herein as the Merger Consideration. Based on the closing price of Southwest common stock on the NYSE on ~~September 24,~~April ~~2010~~27, ~~the last trading day before public announcement of the merger~~2011, the Merger Consideration represented ~~approximately~~ $7.6953 in value for each share of AirTran common stock.

~~AirTran~~When ~~and Southwest have made customary representations~~consummated, ~~warranties and covenants in~~ the ~~Merger~~expected ~~Agreement.~~acquisition ~~Subject to certain exceptions, each~~ of AirTran ~~and~~by Southwest iswill ~~required,~~combine ~~among~~AirTran ~~other~~with ~~things,~~the tolargest ~~conduct~~low ~~its~~cost ~~business~~airline in the ~~ordinary~~United ~~course~~States. inWe ~~all~~believe ~~material~~Southwest ~~respects~~possesses ~~during~~one ~~the interim period between the execution~~ of the ~~Merger~~strongest ~~Agreement~~brands ~~and~~in the ~~consummation~~industry ~~of the Merger. In addition, AirTran may not solicit alternative business combination transactions~~ and, ~~subject~~ tobased ~~certain~~on ~~exceptions, may not engage in discussions or negotiations regarding any alternative business combination transactions~~U.S. ~~The~~Department ~~Merger~~of ~~Agreement~~Transportation ~~also~~data ~~contains~~as ~~covenants~~of ~~that~~September ~~require AirTran to call and hold a special stockholders meeting and~~30, ~~subject to certain exceptions~~2010, ~~require~~was the ~~AirTran~~largest ~~board~~domestic ofair ~~directors~~carrier toin ~~recommend~~the toUnited ~~its~~States ~~stockholders~~based on the ~~adoption~~number of ~~the~~passengers ~~Merger Agreement~~carried.

~~Completion~~The ~~of the Merger is subject to certain conditions~~acquisition, ~~including,~~when ~~among others: (i) adoption of the Merger Agreement by AirTran’s stockholders~~consummated, ~~(ii) the~~will ~~expiration~~have ~~or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) receipt of other~~ material ~~governmental~~impacts ~~consents~~on ~~and approvals required to consummate~~ the ~~Merger,~~business ~~(iv) the absence of any governmental order~~strategy, ~~law~~liquidity, oroperating ~~legal restraint prohibiting the consummation of the Merger~~results, ~~(v) the~~financial registration statement on Form S-4 used to register the Southwest common stock to be issued as consideration for the Merger having been declared effective by the Securities and Exchange Commission (the SEC)commitments, and ~~(vi) the~~financial ~~listing~~position of ~~the Southwest common stock to be issued to~~ AirTran ~~stockholders in the Merger on the NYSE having been authorized~~. The ~~obligation~~discussion ofin ~~each~~this ~~party~~report togenerally ~~consummate~~does ~~the~~not ~~Merger~~address isor ~~also~~quantify ~~conditioned~~the ~~upon~~impacts ~~the~~on ~~accuracy~~AirTran of the ~~other~~expected ~~party’s~~acquisition ~~representations~~by ~~and warranties and the other party having performed in all material respects its obligations under the Merger Agreement~~Southwest.

The Merger Agreement contains certain termination rights for both AirTran and Southwest, including if the Merger is not consummated on or before September 26, 2011 (subject to extension by mutual agreement of the parties) and if the approval of AirTran’s stockholders is not obtained. The Merger Agreement further provides that, upon termination of the Merger Agreement under specified circumstances, including termination of the Merger Agreement by AirTran as a result of an adverse change in the recommendation of AirTran’s board of directors, AirTran may be required to pay to Southwest a termination fee of $39 million.

The foregoing description of the Merger Agreement is not a complete description of all of the parties’ rights and obligations under the Merger Agreement and is qualified in its entirety by reference to the Merger Agreement, which was filed as Exhibit 2.1 to AirTran's Current Report on Form 8-K filed with the SEC on September 27, 2010.

~~Key~~First ~~Initiatives~~Quarter to2011 ~~Respond~~Operating ~~to High Fuel Costs and Weak Economic Conditions~~Results

~~Prior~~For tothe ~~2008~~first quarter of 2011, we ~~positioned~~reported ~~ourselves~~a asnet aloss ~~growth~~of ~~airline~~$8.8 Inmillion ~~2008,~~and todiluted ~~respond~~loss toper ~~the~~share ~~challenges~~ of a$0.06. ~~volatile~~For ~~fuel~~the ~~cost~~first ~~environment,~~quarter aof ~~weak macroeconomic environment~~2010, ~~and~~ ~~adverse~~we ~~capital~~reported ~~market~~a ~~conditions,~~net weloss ~~recast~~of ~~our~~$12.0 ~~plans~~million ~~which~~and ~~resulted~~diluted inloss aper ~~more~~share ~~conservative~~of ~~growth plan~~$0.09.

ByCompared ~~adjusting~~to ~~our~~the ~~business~~first ~~strategy,~~quarter ~~implementing~~of ~~and managing ancillary fees~~2010, ~~controlling~~our ~~employment~~net ~~levels,~~loss ~~and~~for ~~reducing~~the ~~other~~quarter ~~capital~~ended ~~expenditures~~March 31, we2011 ~~positioned~~decreased ~~AirTran~~by to$3.2 ~~more~~million ~~effectively~~even ~~deal~~ with athe ~~volatile~~adverse ~~fuel-cost~~impact ~~environment~~of ~~and~~a ~~reduced~~33.5 ~~demand~~percent ~~for~~increase ~~air~~in ~~travel~~the ~~due~~average tocost ~~weak macroeconomic conditions. As a result~~ of ~~our~~fuel ~~actions,~~per ~~our~~gallon ~~capacity~~and ~~growth~~expenses ~~slowed~~incurred toin ~~4.9~~connection ~~percent~~with inthe ~~2008,~~expected ~~and~~acquisition weof ~~reduced~~AirTran ~~capacity~~ by 2Southwest.2 ~~percent~~The decrease in ~~2009.~~net ~~During~~loss ~~2009,~~was welargely ~~continued~~due to ~~develop~~substantially ~~and~~increased ~~diversify~~revenues ~~our~~as ~~route~~well ~~network~~as ~~by:~~lower ~~substantially~~interest ~~increasing our presence in Orlando~~expense, ~~Baltimore,~~higher ~~and~~net ~~Milwaukee;~~gains ~~initiating~~on ~~service~~derivative tofinancial ~~seven~~instruments, ~~domestic locations;~~ and ~~initiating~~higher ~~service~~income totax ~~three international destinations~~benefit.

~~During~~Due ~~2009~~to an increase in average jet fuel prices and higher non-fuel unit operating costs, we ~~returned~~reported a first quarter 2011 operating loss of $36.7 million compared to ~~solid~~operating ~~profitability~~income ~~from~~of $3.0 million for the ~~substantial~~three ~~loss~~months weended ~~incurred~~March 31, 2010, despite an 8.5 percent increase in ~~2008~~average unit revenue. ~~The~~Our ~~pronounced~~total ~~reduction~~operating revenue increased $61.9 million (10.2 percent). The increase in ~~jet~~our ~~fuel~~total ~~price~~operating ~~levels~~revenue ~~during~~was ~~2009~~driven ~~compared~~by toa ~~2008~~1.5 percent increase in capacity (as measured by available seat miles), ~~coupled~~a ~~with~~3.2 ~~the~~percent ~~actions~~increase ~~that~~in wetraffic ~~undertook~~(as tomeasured ~~reduce~~by ~~and~~revenue ~~redeploy~~passenger ~~capacity~~miles), a 1.3 point increase ~~ancillary~~in ~~revenues~~passenger load factor (percentage of seats filled), and ~~control~~a ~~costs~~7.6 ~~produced~~percent ~~the~~increase ~~improved~~in ~~operating~~yield, ~~results~~resulting in an 8.5 ~~For~~percent ~~2009,~~increase wein ~~reported~~total ~~net~~revenue ~~income~~per ofavailable ~~$134~~seat mile to 11.756 ~~million~~cents. The ~~2009~~increase ~~results~~in ~~include~~our average cost of jet fuel per gallon resulted in a ~~non-operating~~$67.8 ~~gain~~million onincrease ~~derivative~~in ~~financial~~our ~~instruments~~aircraft offuel expense for the first quarter 2011 compared to what fuel expense would have been had jet fuel prices been at the average level we experienced for the three months ended March 31, 2010. Our first quarter 2011 operating results were adversely impacted by $307.63 million of legal fees and other costs incurred in connection with both the expected acquisition of AirTran by Southwest and certain litigation.

InIncluded ~~2010,~~in ~~we are continuing to develop and diversify~~ our ~~route~~first ~~network.~~quarter ~~During~~2011 ~~the~~results ~~nine~~is ~~months~~a ~~ended~~non-operating ~~September~~gain ~~30,~~on ~~2010,~~derivative wefinancial ~~commenced~~instruments ~~service~~of to$38.9 ~~six new destinations~~million. ~~Additionally,~~The innon-operating ~~the~~gain ~~first~~on ~~quarter~~derivative offinancial ~~2010,~~instruments ~~SkyWest~~was ~~Airlines~~largely ~~Inc.,~~attributable ~~with~~to ~~whom~~unrealized weincreases ~~have~~in athe ~~marketing~~fair ~~agreement~~value toof ~~support~~ our ~~Milwaukee~~fuel-related ~~hub,~~derivative ~~expanded~~assets. ~~its~~Included ~~presence~~ in ~~Milwaukee.~~our ~~Under~~first ~~this~~quarter ~~agreement,~~2010 ~~SkyWest~~results ~~Airlines~~is ~~now~~a ~~offers~~non-operating ~~regional~~gain ~~jet~~on ~~service~~derivative ~~between~~financial ~~Milwaukee~~instruments ~~and~~of ~~five destinations~~$6.9 ~~We, together with our marketing partner, currently serve 23 non-stop destinations to and from Milwaukee~~million.

~~Third~~Recent ~~Quarter 2010 Operating Results~~Accomplishments

~~Our~~In ~~third~~April ~~quarter~~2011, ~~2010~~AirTran ~~operating~~Airways ~~income~~was ~~increased~~selected ~~by $19.6 million compared to the third quarter of 2009,~~ as the ~~favorable~~top ~~impact~~ranked ofU.S. anairline ~~increase~~ in ~~our~~the ~~total~~prestigious ~~unit~~Airline ~~revenue~~Quality ~~exceeded~~Rating ~~the~~(AQR). ~~unfavorable~~This ~~impact~~is of the ~~9.1~~second ~~percent~~time ~~increase~~ in ~~our~~four ~~average~~years ~~cost~~that ofAirTran ~~jet~~achieved ~~fuel~~the ~~per~~top ~~gallon~~ranking. ~~Our~~This ~~total~~also ~~operating~~represents ~~revenue~~the ~~increased~~fourth ~~$70.5~~consecutive ~~million~~year ~~to $667.9 million. The increase~~ in ~~our total operating revenue was driven by~~ a ~~1.6~~row ~~percent~~that ~~increase~~we inranked ~~capacity (~~as ~~measured~~the bytop ~~available~~low-cost ~~seat miles) and a 10~~carrier.0 ~~percent increase in total revenue per available seat mile to 10.65 cents.~~ The ~~increase~~AQR inevaluates ~~our~~airlines ~~average cost of jet fuel per gallon resulted~~ in afifteen ~~$17.6~~elements ~~million increase~~ in ~~our~~four ~~aircraft~~major ~~fuel~~areas ~~expense~~that ~~during~~focus ~~the~~on ~~third~~airline ~~quarter~~performance ofaspects ~~2010~~important ~~compared~~ to ~~what~~air ~~fuel~~travel ~~expense~~consumers: ~~would~~on-time ~~have~~performance, ~~been~~denied ~~had~~boardings, ~~jet~~mishandled ~~fuel~~baggage, ~~prices~~and ~~been~~customer ~~at the average level we experienced during the third quarter of 2009~~complaints. This ~~The~~independent ~~increase~~rating inis ~~our~~conducted ~~third~~by ~~quarter~~professors ~~2010~~at ~~fuel~~Purdue ~~expense~~University’s isDepartment ~~net~~ of aAviation ~~$10.1~~Technology ~~million~~and ~~claim~~the ~~for~~W. aFrank ~~refund~~Barton School of ~~fuel~~Business ~~taxes~~at ~~previously~~Wichita ~~paid~~State University.

In March 2011, we reached a tentative agreement on terms of a new two-year flight attendant collective bargaining agreement with the Association of Flight Attendants (AFA). AirTran Airways has more than 2,200 flight attendants represented by AFA. The recently ratified collective bargaining agreement, which provides for increased compensation and benefits, will take effect on May 1, 2011.

During the ~~third~~first quarter of ~~2010~~2011, we reported operating income of $56.7 million, net income of $36.3 million, and diluted earnings per common share of $0.22. Included in our third quarter 2010 results is a non-operating gain on derivative financial instruments of $15.3 million. The non-operating gain on derivative financial instruments was largely attributable to unrealized increases in the fair value of our fuel-related derivative assets. During the three months ended September 30, 2009, we reported operating income of $37.0 million, net income of $10.4 million, and diluted earnings per common share of $0.08. Included in our third quarter 2009 results is a non-operating loss on derivative financial instruments of $10.3 million. Our third quarter 2010 income tax expense was $18.7 million higher than our third quarter 2009 income tax expense in large part because third quarter 2009 income tax expense was favorably impacted by a reduction in the valuation allowance.also:

~~2010~~· ~~Year~~Extended our Caribbean reach from our Atlanta hub by adding additional flights to ~~Date~~Aruba ~~Accomplishments~~and Cancun, Mexico;

~~During~~· ~~2010~~Initiated ~~we received accolades for our high quality~~ service ~~and~~to ~~value~~Punta ~~low fares. In January 2010~~Cana, ~~AirTran~~Dominican Airways was awarded the prestigious 2009 Market Leadership Award from a leading industry publication, Air Transport World, for AirTran’s innovative combination of low-cost, high-quality service and response to the global financial crisis.Republic;

In· ~~April~~Launched ~~2010,~~three ~~AirTran~~other ~~Airways~~new ~~was selected as the top low~~non-~~cost~~stop ~~carrier~~routes; ~~for the third consecutive year in the prestigious Airline Quality Rating (AQR). Our rating is the highest of all low-cost carriers~~ and significantly higher than our legacy airline competitors. This independent rating is conducted by professors at Purdue University’s Department of Aviation Technology and the W. Frank Barton School of Business at Wichita State University. The AQR evaluates airlines in four major areas: on-time performance, denied boardings, mishandled baggage, and customer complaints. We were chosen as the SmarterTravel Editors’ Choice for Best Value Airline in 2010.

We· ~~also~~Announced ~~received~~partnership ~~the~~with ~~FAA~~The Hertz Corporation’s ~~prestigious~~online ~~Aviation~~car ~~Maintenance~~sales ~~Technician~~program, ~~(AMT)~~Hertz ~~Diamond~~Rent2Buy, ~~Award~~for ofan ~~Excellence~~affinity ~~for~~program with the ~~14th~~A+ ~~consecutive~~Rewards ~~year~~frequent flier program.

~~During~~2011 ~~2010, we also:~~Outlook

·We ~~Reached~~expect ato ~~tentative~~face ~~agreement~~continuing ~~with~~challenges during the ~~Air~~remainder ~~Line~~of ~~Pilots~~2011. ~~Association~~Managing ~~(ALPA)~~costs ~~representing~~and 1increasing unit revenues in the face of volatile fuel costs and an uncertain economic recovery will continue to be a primary focus. Fuel prices remain volatile,~~700~~ increased during the first quarter, and may again increase during the remainder of 2011. The expected acquisition of AirTran ~~Airways~~by ~~pilots~~Southwest has caused an increase in legal and other consulting and advisory expenses. IfWhile ~~ratified~~we have been able to effectively manage costs and increase unit revenues, the ~~agreement~~pace ~~would~~and ~~take~~extent ~~effect~~of ~~December~~the 1,economic ~~2010;~~recovery and growth of airline industry revenue are uncertain in the context of gradually improving but still generally unfavorable macroeconomic conditions.

·Labor ~~Completed~~costs afor ~~four~~2011 ~~year~~likely will be higher than in 2010. Our current collective bargaining agreement with our ~~dispatchers~~pilots increased wages and benefits over the prior agreement and took effect as of December 1, 2010. The new collective bargaining agreement with our flight attendants, which provides for increased wages and benefits, will become effective May 1, 2011. In March 2011, our customer service, ramp, and reservation agents, who ~~are~~were not previously members of a collective bargaining unit, chose to be represented by the ~~Transport~~International ~~Workers~~Association ~~Union;~~of Machinists. The financial impact of any collective bargaining agreement is not known.

·The ~~Completed~~proposed aacquisition ~~seven-year~~of ~~master~~AirTran ~~lease~~by ~~agreement~~Southwest ~~for~~is ~~facilities~~expected atto ~~Hartsfield-Jackson~~occur ~~Atlanta~~on ~~International~~or ~~Airport;~~after May 2, 2011. The acquisition of AirTran by Southwest will have material impacts on the liquidity, operating results, financial commitments, and financial position of AirTran.

· Opened a pilot base in Orlando and pilot and flight attendant crew bases in Milwaukee, Wisconsin;

· Successfully transitioned to a new, state-of-the-art System Operations Control Center in Orlando. This new, 16,000-square foot facility serves as the 24-hour command center for our airline operations.

· Signed a new financing arrangement with Norddeutsche Landesbank Girozentrale (NORD/LB) to provide permanent financing to the airline for Boeing 737-700 deliveries in 2011;

· Amended our agreement with our largest credit card processor on terms favorable to us. The term of agreement was extended to December 31, 2012;

· Repurchased $90.4 million in convertible notes;

· Continued Caribbean expansion by announcing plans to serve Punta Cana, Dominican Republic, from Atlanta beginning in February 2011 and we extended our Caribbean reach from Baltimore/Washington by adding new flights to San Juan;

· Initiated service to Des Moines, Iowa; Grand Rapids, Michigan; Huntsville/Decatur, Alabama; Lexington, Kentucky; Tunica, Mississippi and Montego Bay, Jamaica;

· Launched 23 other new non-stop routes;

· Announced partnership with the world’s largest hotel group, InterContinental Hotels Group (NYSE:IHG), for an affinity program with the A+ Rewards frequent flier program;

· Partnered with American Express OPEN™ and the OPEN Savings™ program whereby American Express OPEN card holders are eligible for a discount on all of our more than 700 daily flights; and

· Unveiled two new special livery Boeing 717 aircraft highlighting our partnership with the Milwaukee Brewers and the Wizarding World of Harry Potter at Universal Studios Orlando.

2010 Outlook

We expect to face challenges during the remainder of 2010. Managing costs and increasing unit revenues in the face of volatile fuel costs and a slow economic recovery will continue to be a primary focus. Fuel prices remain volatile and may again increase during the remainder of 2010. The proposed merger with Southwest has caused an increase in legal and other consulting and advisory expenses. While we have been able to effectively manage costs and increase unit revenues, the pace and extent of the continuing recovery and growth of airline industry revenue are uncertain in the context of gradually improving but still generally unfavorable macroeconomic conditions.

Our pilots’ collective bargaining agreement became amendable in 2005 and is currently in mediation. On October 21, 2010, we reached a tentative agreement with our pilots that remains subject to ratification by the members of the pilots’ union. If ratified, a new agreement with increased wages and benefits would take effect as of December 1, 2010. Our flight attendants’ collective bargaining agreement became amendable in December 2008 and is currently the subject of negotiation. The impact on our operating results of any new collective bargaining agreements (other than the tentative agreement with the pilots which remains subject to ratification) is not known.

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. The second quarter tends to be our strongest revenue quarter.

2827

RESULTS OF OPERATIONS

SELECTED FINANCIAL INFORMATION

The table below sets forth selected financial and operating data for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010:

	Three Months Ended September 30,						Percentage Increase (Decrease)
	Three Months Ended March 31,						Percentage Increase (Decrease)
	2010			2009
	2011			2010
Revenue passengers		65,~~538~~604,~~710~~721			65,~~533~~526,~~184~~408			0.1.4
Revenue passenger miles (RPM) (000s) (1)		54,~~271~~530,~~272~~445			54,~~172~~390,~~347~~801			13.92
Available seat miles (ASM) (000s) (2)		65,~~271~~771,~~500~~776			65,~~170~~684,~~977~~460			1.65
Passenger load factor (3)		8478.15 percent			8377.82 percent			01.3	~~pts~~	pts
Departures		6459,~~963~~835			6559,~~559~~966			(0.92	)
Average aircraft stage length (miles) (4)		~~767~~771			~~749~~757			21.48
Average fare (excluding transportation taxes) (5)	$	92107.1837		$	8198.0402			139.75
Average yield per RPM (6)		1113.4328	¢		1012.2434	¢		117.6
Passenger revenue per ASM (PRASM) (7)		910.6143	¢		89.5853	¢		129.04
Total revenue per ASM (TRASM) (8)		1011.6556	¢		910.6865	¢		108.05
Operating cost per ASM (CASM) (9)		912.7519	¢		910.0859	¢		715.41
Non-fuel operating cost per ASM (10)		67.3851	¢		67.0007	¢		6.32
Average cost of aircraft fuel per gallon (11)	$	23.1603		$	12.9827			933.15
Gallons of fuel burned (000’s)		9789,~~517~~180			9688,~~098~~037			1.53
Operating aircraft in fleet at end of period		~~138~~140			~~136~~138			1.54
Completion factor (12)		9997.52 percent			9997.54 percent			—(0.2	~~pts~~)	pts
Average daily utilization (hours: minutes) (13)		1110:1254			1110:2454			~~(1.8~~—	)
Full-time equivalent employees at end of period		7,~~742~~971			7,~~717~~802			02.32

	Nine Months Ended September 30,						Percentage Increase (Decrease)
	2010			2009
Revenue passengers		18,600,092			18,086,257			2.8
Revenue passenger miles (RPM) (000s) (1)		14,863,412			14,076,956			5.6
Available seat miles (ASM) (000s) (2)		18,214,595			17,498,261			4.1
Passenger load factor (3)		81.6 percent			80.4 percent			1.2	pts
Departures		190,115			188,576			0.8
Average aircraft stage length (miles) (4)		763			740			3.1
Average fare (excluding transportation taxes) (5)	$	95.62		$	85.84			11.4
Average yield per RPM (6)		11.97	¢		11.03	¢		8.5
Passenger revenue per ASM (PRASM) (7)		9.76	¢		8.87	¢		10.0
Total revenue per ASM (TRASM) (8)		10.84	¢		9.96	¢		8.8
Operating cost per ASM (CASM) (9)		10.13	¢		9.10	¢		11.3
Non-fuel operating cost per ASM (10)		6.62	¢		6.34	¢		4.4
Average cost of aircraft fuel per gallon (11)	$	2.26		$	1.77			27.7
Gallons of fuel burned (000’s)		282,680			272,264			3.8
Operating aircraft in fleet at end of period		138			136			1.5
Completion factor (12)		98.8 percent			99.3 percent			(0.5	) pts
Average daily utilization (hours: minutes) (13)		11:12			11:00			1.8
Full-time equivalent employees at end of period		7,742			7,717			0.3

(1)	The number of scheduled revenue miles flown by passengers
(2)	The number of seats available for passengers multiplied by the number of miles the seats are flown
(3)	The percentage of aircraft seating capacity that is actually utilized (RPMs divided by ASMs)
(4)	Total aircraft miles flown divided by departures
(5)	Passenger revenue divided by total passengers
(6)	The average amount one passenger pays to fly one mile
(7)	Passenger revenue divided by ASMs
(8)	Total revenue divided by ASMs
(9)	Operating expenses divided by ASMs
(10)	Total operating expenses less aircraft fuel expense divided by ASMs. Non-fuel operating cost per ASM (non-fuel CASM) is a measure of unit operating costs which is not determined in accordance with generally accepted accounting principles. Both the cost and availability of fuel are subject to many factors which are out of our control; therefore, we believe that non-fuel CASM provides a useful measure of an airline’s unit operating expense which facilitates an understanding of operating costs over time.
(11)	Total fuel expense, including taxes and into-plane fees, divided by gallons of fuel burned
(12)	The percentage of flights that are completed (total number of flights completed divided by total number of flights scheduled)
(13)	The average amount of time per day that an aircraft flown is operated in revenue service

~~For the three months ended September 30, 2010 and 2009~~28

For the three months ended March 31, 2011 and 2010

Summary

~~Our~~Compared ~~third~~to ~~quarter~~the ~~2010~~first ~~operating~~quarter ~~income~~of ~~increased~~2010, byour ~~$19.6~~net ~~million~~loss ~~compared~~for to the ~~third~~ quarter ofended ~~2009~~March 31, as2011 ~~the~~decreased ~~favorable~~by ~~impact~~$3.2 ofmillion anto ~~increase~~$8.8 inmillion ~~our~~even ~~total~~with ~~unit revenue exceeded~~ the ~~unfavorable~~adverse impact of ~~the~~a 933.15 percent increase in ~~our~~the average cost of ~~jet~~ fuel per gallon. ~~Our~~The ~~fuel~~decrease ~~tax~~in ~~expense~~net ~~for~~loss ~~the third quarter 2010~~ was ~~reduced~~largely ~~by $10.1 million~~ due to asubstantially ~~claim~~increased ~~for~~revenues aas ~~refund~~well ofas ~~fuel~~lower ~~taxes~~interest ~~paid~~expense, ~~between~~higher ~~April~~net ~~2007~~gains ~~and~~on ~~February~~derivative ~~2009~~financial instruments, and ~~between~~higher ~~January~~income ~~2010~~tax ~~and June 2010~~benefit.

~~During~~Due ~~the~~to ~~third~~an ~~quarter~~increase ofin ~~2010,~~average wejet ~~reported~~fuel ~~operating~~prices ~~income~~and ofhigher ~~$56.7~~non-fuel ~~million,~~unit ~~net~~operating ~~income~~costs, ofwe ~~$36.3~~reported ~~million,~~a ~~and~~first ~~diluted~~quarter ~~earnings~~2011 ~~per~~operating ~~common~~loss ~~share~~ of $036.~~22.~~7 ~~Included~~million incompared ~~our~~to ~~third quarter 2010 results is a non-~~operating ~~gain~~income ~~on derivative financial instruments~~ of $~~15.~~3.0 million. ~~The~~for ~~non-operating~~the ~~gain~~three onmonths ~~derivative~~ended ~~financial~~March ~~instruments~~31, ~~was~~2010, ~~largely~~despite ~~attributable~~an to8.5 ~~unrealized~~percent ~~increases~~increase in ~~the~~average ~~fair~~unit ~~value of our fuel-related derivative assets~~revenue. ~~During~~Our ~~the~~first ~~three~~quarter ~~months~~2011 ~~ended~~operating ~~September~~results ~~30,~~were ~~2009,~~adversely weimpacted ~~reported~~by ~~operating income of~~ $377.03 million, ~~net income~~ of ~~$10.4~~legal ~~million,~~fees and ~~diluted~~other ~~earnings~~costs ~~per~~incurred ~~common share of $0.08. Included~~ in ~~our~~connection ~~third~~with ~~quarter~~both ~~2009~~the ~~results~~expected isacquisition aof ~~non-operating~~AirTran ~~loss~~by onSouthwest ~~derivative~~and ~~financial~~certain ~~instruments of $10~~litigation.~~3 million.~~

During the first quarter of 2011, we reported an operating loss of $36.7 million, net loss of $8.8 million, and diluted loss per share of $0.06. Included in our first quarter 2011 results is a non-operating gain on derivative financial instruments of $38.9 million. The non-operating gain on derivative financial instruments was largely attributable to unrealized increases in the fair value of our fuel-related derivative assets. During the three months ended March 31, 2010, we reported operating income of $3.0 million, net loss of $12.0 million, and diluted loss per share of $0.09. Included in our first quarter 2010 results is a non-operating gain on derivative financial instruments of $6.9 million.

Operating Revenues

Our operating revenues for the three months ended ~~September~~March 3031, ~~2010~~2011, increased $7061.59 million (1110.82 percent) due to the ~~net~~effects ~~impact~~ of a $7360.31 million increase in passenger revenues and a $21.78 million ~~decrease~~increase in other revenues compared to the three months ended ~~September~~March 3031, ~~2009~~2010. We were able to increase our total unit revenue in the context of gradually improving but still generally unfavorable macroeconomic conditions. Our total revenue per available seat mile for the ~~third~~first quarter of ~~2010~~2011 was 1011.6556 cents, an increase of 108.05 percent compared to the ~~third~~first quarter of ~~2009~~2010.

30 The $60.1 million (11.1 percent) increase in passenger revenue was due to increased capacity, traffic, and yield. During the three months ended March 31, 2011, we increased our capacity by 1.5 percent compared to the three months ended March 31, 2010. The increase in capacity was largely attributable to two B717 aircraft placed into service in February 2011. The increased capacity coupled with a 3.2 percent increase in revenue passenger miles produced an average passenger load factor of 78.5 percent, which was a 1.3 percentage point increase compared to the three months ended March 31, 2010. Our average fare, excluding transportation taxes, was $107.37, which is 9.5 percent higher than the analogous period in 2010. The increase in average fare was attributable to changes in our network routes and improved air travel demand. During the three months ended March 31, 2011, our average length of passenger haul increased 1.7 percent; an increase in average length of passenger haul tends to increase average fare and reduce average yield. Nonetheless, our average yield per revenue passenger mile increased 7.6 percent versus the first quarter of 2010 to 13.28 cents.

~~The~~Other ~~$73.3~~revenues ~~million~~for ~~(13.8 percent) increase in passenger revenue was due to increased capacity, traffic, and yield. During~~ the three months ended ~~September~~March 3031, ~~2010~~2011, we increased ~~our capacity by~~ $1.~~6 percent~~8 ~~compared~~million ~~to the three months ended September 30, 2009~~(2. ~~The increase in capacity was attributable to two B737 aircraft placed into service in October 2009. The increased capacity coupled with a 1.~~9 percent) ~~increase in revenue passenger miles produced an average passenger load factor of 84.1 percent, which was a 0.3 percentage point increase~~ compared to the three months ended ~~September~~March 3031, ~~2009~~2010. ~~Our~~Other ~~average~~revenues ~~fare,~~include ~~excluding~~change ~~transportation~~and ~~taxes,~~cancellation ~~was $92.18~~fees, ~~13.7~~direct ~~percent~~booking ~~higher~~fees, ~~than~~revenues ~~the~~derived ~~analogous~~from ~~period in 2009. The increase in average fare was attributable to changes in our network routes and improved air travel demand. During~~ the ~~three~~sale ~~months~~of ~~ended~~frequent ~~September~~flyer 30credits, ~~2010~~baggage fees, ~~our~~preferred ~~average~~seat ~~length~~assignments, ~~of passenger haul increased 1.8 percent; an increase in average length of passenger haul tends to increase average fare~~ and ~~reduce~~other ~~average~~miscellaneous ~~yield~~revenues. ~~Nonetheless, our average yield per revenue passenger mile increased 11.6 percent versus 2009 to 11.43 cents.~~

Other revenues for the three months ended September 30, 2010, decreased $2.7 million (4.0 percent) compared to the three months ended September 30, 2009. Other revenues include change and cancellation fees, direct booking fees, revenues derived from the sale of frequent flyer credits, baggage fees, preferred seat assignments and other miscellaneous revenues.29

Our operating performance for the first quarters of 2011 and 2010 was adversely affected by unusually severe weather. We estimate that the severe weather adversely impacted our operating revenues by approximately $6 million and $10 million during the three months ended March 31, 2011 and 2010, respectively.

Operating Expenses

Our operating expenses for the three months ended ~~September~~March 3031, ~~2010~~2011, increased $50101.97 million (916.19 percent) and increased 715.41 percent on a unit cost basis, as measured by operating cost per ASM (CASM) compared to the three months ended ~~September~~March 3031, ~~2009~~2010. Our financial results were significantly affected by the price of fuel and volatility of the price of fuel during the three months ended ~~September~~March 3031, ~~2010~~2011. The increase in total operating costs per ASM was the composite result of a 933.40 percent increase in fuel cost per ASM and a 6.32 percent increase in non-fuel operating cost per ASM.

In general, our operating expenses are significantly affected by changes in our capacity, as measured by available seat miles (ASMs). The following table summarizes our unit costs, as ~~defined~~measured by CASM, for the indicated periods:

	Three Months Ended September 30,						Percent Increase
	Three Months Ended March 31,						Percent Increase
	2010			2009			(Decrease)
	2011			2010			(Decrease)
Aircraft fuel		34.3768	¢		3.0852	¢		933.40
Salaries, wages and benefits		2.0853			12.9929			410.5
Aircraft rent		01.9706			01.9807			(1.0.9	)
Maintenance, materials and repairs		01.9416			01.8104			1611.05
Distribution		0.4546			0.4145			92.82
Landing fees and other rents		0.5864			0.6164			~~(4.9~~—	)
Aircraft insurance and security services		0.1009			0.0910			11(10.10	)
Marketing and advertising		0.1316			0.1517			(135.39	)
Depreciation and amortization		0.24			0.2326			4(7.37	)
(Gain) on asset dispositions		—			(0.10	)		—
Other operating		1.17			1.05			11.4
Other operating		0.89			0.83			7.2
Total CASM		12.19	¢		10.59	¢		15.1
Total CASM		9.75	¢		9.08	¢		7.4

Aircraft fuel increased 33.0 percent on a cost per ASM basis because jet fuel cost per gallon increased. For the three months ended March 31, 2011, our average fuel cost per gallon, including fuel taxes and into-plane fees, increased 33.5 percent from $2.27 during the first quarter of 2010 to $3.03 during the first quarter of 2011. The increase in the average cost of jet fuel per gallon resulted in a $67.8 million increase in our aircraft fuel expense during the three months ended March 31, 2011 compared to what fuel expense would have been had jet fuel prices been at the average level experienced during the three months ended March 31, 2010.

~~Maintenance~~Salaries, ~~materials~~wages and ~~repairs~~benefits expense increased 1610.0 5 percent on a cost per ASM basis primarily due to scheduled increases in ~~the~~employee ~~number~~wage ~~and~~rates, ~~cost~~due ofin ~~airframe~~part ~~checks~~to seniority increases, and ~~rate~~higher ~~increases~~medical ininsurance ~~certain~~costs. ofAlso, ~~our~~a ~~power-by-the-hour~~new ~~maintenance~~collective ~~agreements.~~bargaining ~~Approximately~~agreement ~~76%~~with ofthe ~~our~~AirTran ~~maintenance,~~pilots ~~materials~~became ~~and~~effective ~~repairs~~December ~~expense~~1, is2010, ~~attributable~~which tosignificantly ~~power-by-the-hour~~increased ~~maintenance~~pilot ~~agreements~~compensation.

~~Aircraft~~Maintenance, ~~insurance~~materials and ~~security~~repairs ~~services~~ expense increased 11.15 percent on a cost per ASM basis primarily due to ~~increased~~increases in the number and cost of ~~security~~airframe ~~services~~checks and anrate ~~increase~~increases in ~~hull~~certain of our power-by-the-hour maintenance agreements. Approximately 71% of our maintenance, materials and ~~liability~~repairs ~~insurance~~expense ~~rates~~is attributable to power-by-the-hour maintenance agreements.

~~Marketing and advertising costs decreased 13.3 percent on a cost per ASM basis due to planned decreases in advertising and other marketing costs.~~30

~~(Gain)~~Depreciation onand ~~asset~~amortization ~~dispositions~~decreased ~~for the three months ended September 30, 2009 was ($6~~7.4)7 percent ~~million. (Gain)~~ on ~~asset dispositions pertains primarily to aircraft related transactions. During the three months ended September 30, 2009, we recognized~~ a ~~$6.6~~cost ~~million~~per ~~gain~~ASM ~~pertaining~~basis due primarily to ~~the~~first ~~deposits~~quarter we2011 ~~previously~~net ~~received~~gains ~~from the potential buyer who defaulted~~ on ~~its~~dispositions ~~obligation~~of tomiscellaneous ~~purchase~~assets ~~two~~aggregating ~~B737~~$0.8 ~~aircraft~~million.

Other operating expense increased 711.24 percent on a cost per ASM basis primarily due to increases in ground handling, contracted services costs, and ~~professional~~legal fees. Compared to the three months ended March 31, 2010, legal fees increased $6.7 million. Our first quarter 2011 other operating costs include $7.3 million of legal fees and other expenses incurred in connection with both the expected acquisition of AirTran by Southwest Airlines and certain litigation.

Other (Income) Expense

Other (income) expense, net ~~was~~changed by $138.47 million ~~expense~~to $23.6 million income, net for the three months ended ~~September~~March 3031, ~~2010~~2011 compared to $2615.41 million expense, net for the three months ended ~~September~~March 3031, ~~2009~~2010. Other (income) expense, net includes: interest income;, interest expense;, capitalized interest;, and net (gains) losses on derivative financial instruments.

Interest expense, including amortization of debt discount and debt issuance costs, decreased by $27.51 million from the three months ended ~~September~~March 3031, ~~2009~~2010 to $1715.69 million for the three months ended ~~September~~March 3031, ~~2010~~2011. The decrease was largely due ~~primarily~~ to the repurchase of $90.4 million principal amount of our 7.0% convertible notes in July 2010, ~~elimination~~reduced amortization of ~~our fully amortized~~ debt discount, and ~~offset~~lower byexpense the following: interest on our 5.25% convertible senior notes issued in October 2009; two new aircraft notes related to aircraft delivered in September 2009; three new interest-rate swap agreements; and interest associated with our Credit Facility.

We reported net (gains) on derivative financial instruments of ($1538.39) million for the three months ended ~~September~~March 3031, ~~2010~~2011, compared to net ~~losses~~gains of ($106.39) million for the three months ended ~~September~~March 3031, ~~2009~~2010. Net (gains) losses on derivative financial instruments consist primarily of realized and unrealized gains and losses on fuel-related derivatives which were not designated as hedges for financial accounting purposes. The fuel-related derivative financial instrument gains for the three months ended ~~September~~March 3031, ~~2010~~2011 were largely unrealized and resulted in ~~increases~~an toincrease of the financial statement carrying value of our fuel-related derivative assets.

32Income Tax Expense (Benefit)

~~Income~~Our ~~Tax~~effective ~~Expense~~income tax rate was 32.6 percent for the three months ended March 31, 2011. Our effective tax rate differs from the 37.2 percent composite statutory tax rate (35 percent federal statutory rate plus the 2.2 percent effective state tax rate) due to changes in the valuation allowance on our deferred tax assets, certain expenses which are not deductible for income tax purposes, and non-recurring discrete items related to restricted stock vesting. Non-deductible expense items and discrete items tend to increase the effective tax rate when pre-tax income is reported and tend to decrease the effective tax rate when a pre-tax loss is reported. We reported a loss before income taxes during three months ended March 31, 2010; however, we did not recognize an income tax benefit in the statement of operations because the tax effect of the pre-tax loss was offset by a corresponding increase in the valuation allowance.

Our effective tax rate was 34.3 percent for the three months ended September 30, 2010 compared to 2.2 percent for the three months ended September 30, 2009. Our effective tax rate can differ from the 37.2 percent composite statutory tax rate (35 percent federal statutory rate plus the 2.2 percent state composite statutory rate net of federal benefit) due to changes in the valuation allowance for our deferred tax assets, certain expenses which are not deductible for income tax purposes and non-recurring discrete items related to restricted stock vesting. Non-deductible expense items and discrete items tend to increase the effective tax rate when pre-tax income is reported and tend to decrease the effective tax rate when a pre-tax loss is reported. During the three months ended September 30, 2009, we reported income before taxes but did not recognize material tax expense due to the reduction in the valuation allowance which largely offset income tax expense for the period. During the three months ended September 30, 2010 we reduced the valuation allowance with a corresponding $2.2 million reduction to income tax expense for the period.31

Regardless of the financial accounting for income taxes, our net operating loss carryforwards are currently available for use on our income tax returns to offset future taxable income.

For the nine months ended September 30, 2010 and 2009

Summary

Due to an increase in average jet fuel prices, higher non-fuel unit operating costs, and cancelled flights due to adverse winter weather, our operating income for the first nine months of 2010 decreased by $23.0 million compared to the first nine months of 2009 despite an increase in average unit revenue. Our fuel tax expense for the nine months ended September 30, 2010 was reduced by $7.5 million due to a claim for a refund of fuel taxes paid between April 2007 and February 2009.

During the nine months ended September 30, 2010, we reported operating income of $127.9 million, net income of $36.6 million, and diluted earnings per common share of $0.24. Included in our results is a non-operating loss on derivative financial instruments of $11.9 million. During the nine months ended September 30, 2009, we reported operating income of $150.9 million, net income of $117.6 million, and diluted earnings per common share of $0.86. Included in our operating results for the nine months ended September 30, 2009 is a non-operating gain on derivative financial instruments of $17.9 million and a non-operating gain on extinguishment of debt of $4.3 million.

Operating Revenues

Our operating revenues for the nine months ended September 30, 2010 increased $230.6 million (13.2 percent) due to the effects of a $226.0 million increase in passenger revenues and a $4.7 million increase in other revenues compared to the nine months ended September 30, 2009. We were able to increase our total unit revenue in the context of gradually improving but still generally unfavorable macroeconomic conditions. Our total revenue per available seat mile for the first nine months of 2010 was 10.84 cents, an increase of 8.8 percent compared to the first nine months of 2009.

The $226.0 million (14.6 percent) increase in passenger revenue was due to increased capacity, traffic, and yield. During the nine months ended September 30, 2010, we increased our capacity by 4.1 percent compared to the nine months ended September 30, 2009. The increase in capacity was attributable to two B737 aircraft placed into service in October 2009. The increased capacity coupled with a 5.6 percent increase in revenue passenger miles produced an average passenger load factor of 81.6 percent, which was a 1.2 percentage point increase compared to the nine months ended September 30, 2009. Our average fare, excluding transportation taxes, was $95.62, which was 11.4 percent higher than the analogous period in 2009. The increase in average fare was attributable to changes in our network routes and improved air travel demand. During the nine months ended September 30, 2010, our average length of passenger haul increased 2.7 percent; an increase in average length of passenger haul tends to increase average fare and reduce average yield. Nonetheless, our average yield per revenue passenger mile increased 8.5 percent versus 2009 to 11.97 cents.

Other revenues for the nine months ended September 30, 2010, increased $4.7 million (2.4 percent) compared to the nine months ended September 30, 2009. Other revenues include change and cancellation fees, direct booking fees, revenues derived from the sale of frequent flyer credits, baggage fees, preferred seat assignments and other miscellaneous revenues.

Our operating performance for the nine-month period was adversely affected by unusually severe weather during January and February 2010. We estimate that the severe weather adversely impacted our operating revenues by more than $10 million.

Operating Expenses

Our operating expenses for the nine months ended September 30, 2010, increased $253.6 million (15.9 percent) and increased 11.3 percent on a unit cost basis, as measured by operating cost per ASM (CASM). Our financial results were significantly affected by the price of fuel and volatility of the price of fuel during the nine months ended September 30, 2010. The increase in total operating costs per ASM was the composite result of a 27.2 percent increase in fuel cost per ASM and a 4.4 percent increase in non-fuel operating cost per ASM.

	Nine Months Ended September 30,						Percent Increase
	2010			2009			(Decrease)
Aircraft fuel		3.51	¢		2.76	¢		27.2
Salaries, wages and benefits		2.15			2.08			3.4
Aircraft rent		1.00			1.04			(3.8	)
Maintenance, materials and repairs		0.97			0.83			16.9
Distribution		0.45			0.40			12.5
Landing fees and other rents		0.63			0.62			1.6
Aircraft insurance and security services		0.10			0.09			11.1
Marketing and advertising		0.15			0.18			(16.7	)
Depreciation and amortization		0.25			0.24			4.2
(Gain) on asset dispositions		—			(0.02	)		—
Other operating		0.92			0.88			4.5
Total CASM		10.13	¢		9.10	¢		11.3

Aircraft fuel increased 27.2 percent on a cost per ASM basis because jet fuel cost per gallon increased. For the nine months ended September 30, 2010, our average fuel cost per gallon, including taxes and into-plane fees, increased 27.7 percent from $1.77 during the nine months ended September 30, 2009 to $2.26 during the analogous period of 2010. Our fuel tax expense for the nine months ended September 30, 2010 was reduced by $7.5 million due to a claim for a refund of fuel taxes paid between April 2007 and February 2009. The increase in the average cost of jet fuel per gallon resulted in a $138.5 million increase in our aircraft fuel expense during the nine months ended September 30, 2010 compared to what fuel expense would have been had jet fuel prices been at the average level experienced during the nine months ended September 30, 2009.

Maintenance, materials and repairs expense increased 16.9 percent on a cost per ASM basis primarily due to increases in the number and cost of airframe checks and rate increases in certain of our power-by-the-hour maintenance agreements. Approximately 76% of our maintenance, materials and repairs expense is attributable to power-by-the-hour maintenance agreements.

Aircraft insurance and security services expense increased 11.1 percent on a cost per ASM basis due to increased cost of security services and an increase in hull and liability insurance rates.

Marketing and advertising costs decreased 16.7 percent on a cost per ASM basis due to planned decreases in advertising and other marketing costs.

(Gain) on asset dispositions for the nine months ended September 30, 2009 was ($3.1) million. (Gain) on asset dispositions pertains primarily to aircraft related transactions. During the nine months ended September 30, 2009, we recognized: $2.4 million loss for the write-off of capitalized interest related to the release in the second quarter 2009 of our obligation to purchase two B737 aircraft which Boeing sold to an unrelated foreign airline; and, a $6.6 million gain pertaining primarily to the deposits we previously received from the potential buyer who defaulted on its obligation to purchase two B737 aircraft in the third quarter.

Other (Income) Expense

Other (income) expense, net increased by $40.0 million to $72.4 million expense, net for the nine months ended September 30, 2010 compared to $32.4 million expense, net for the nine months ended September 30, 2009. Other (income) expense, net includes: interest income; interest expense; capitalized interest; net (gains) losses on derivative financial instruments; and (gain) on extinguishment of debt.

Interest expense, including amortization of debt discount and debt issuance costs, increased by $2.5 million from the nine months ended September 30, 2009 to $63.6 million for the nine months ended September 30, 2010. The increase was due to the following: interest on our 5.25% convertible senior notes issued in October 2009; two new aircraft notes related to aircraft delivered in September 2009; three new interest-rate swap agreements; and interest associated with our Credit Facility.

We reported net losses on derivative financial instruments of $11.9 million for the nine months ended September 30, 2010, compared to net (gains) of ($17.9) million for the nine months ended September 30, 2009. Net (gains) losses on derivative financial instruments consist primarily of realized and unrealized gains and losses on fuel-related derivatives which were not designated as hedges for financial accounting purposes. The fuel-related derivative financial instrument losses for the nine months ended September 30, 2010 were approximately one-half unrealized and resulted in a reduction of the financial statement carrying value of our fuel-related derivative assets.

During the nine months ended September 30, 2009, we repurchased $29.2 million of our 7.0% convertible notes resulting in a gain of $4.3 million.

Income Tax Expense

Our effective tax rate was 34.1 percent for nine months ended September 30, 2010 compared to 0.8 percent for the nine months ended September 30, 2009. Our effective tax rate can differ from the 37.2 percent composite statutory tax rate (35 percent federal statutory rate plus the 2.2 percent state composite statutory rate net of federal benefit) due to changes in the valuation allowance for our deferred tax assets, certain expenses which are not deductible for income tax purposes and non-recurring discrete items related to restricted stock vesting. Non-deductible expense items and discrete items tend to increase the effective tax rate when pre-tax income is reported and tend to decrease the effective tax rate when a pre-tax loss is reported. During the nine months ended September 30, 2009, we reported income before taxes but did not recognize material tax expense due to the reduction in the valuation allowance which largely offset income tax expense for the period. During the nine months ended September 30, 2010 we reduced the valuation allowance with a corresponding $5.1 million reduction to income tax expense for the period.

LIQUIDITY AND CAPITAL RESOURCES

At ~~September~~March 3031, ~~2010~~2011, we had unrestricted cash and cash equivalents of $~~424~~497.57 million, and we also had $5748.6 million of restricted cash. At ~~September~~March 3031, ~~2010~~2011, we had no$15 ~~borrowings~~million outstanding under our revolving line of credit facility. During the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, our primary sources of cash were cash provided by operating activities and borrowings tounder ~~refinance~~our ~~aircraft~~revolving ~~related~~line ~~debt~~of credit facility. Our primary uses of cash were repayment of debt, including repayment of borrowings under our revolving line of credit facility, and expenditures for the acquisition of property and equipment. As of ~~October~~April 2029, ~~2010~~2011, we had $25 ~~no borrowings~~ million outstanding under our revolving line of credit facility and a $50 million letter of credit had been issued under our letter of credit facility. The letter of credit beneficiary was not entitled to draw any amounts as of ~~September~~March 3031, 2011, or ~~October~~April 2029, ~~2010~~2011.

~~Year~~First toQuarter ~~Date~~2011 ~~2010~~ Operating, Investing, and Financing Activities

Operating activities during the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 provided $~~167~~99.14 million of cash flow compared to $~~122~~134.30 million provided during the analogous period in ~~2009~~2010. Cash flow from operating activities is related to both the level of our profitability and changes in working capital and other assets and liabilities. Operating cash inflows are largely attributable to revenues derived from the transportation of passengers. Operating cash outflows are largely attributable to recurring expenditures for fuel, labor, aircraft rent, aircraft maintenance, marketing, and other activities. For the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, we reported a net ~~income~~loss of $368.68 million compared to a net ~~income~~loss of $~~117~~12.60 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010.

Changes in the components of our working capital impact cash flow from operating activities. Changes in the air traffic liability balance and the related accounts receivable balance have had a significant impact on our net cash flow from operating activities. We have a liability to provide future air travel because travelers tend to purchase air transportation in advance of their intended travel date. Advance ticket sales, which are recorded as air traffic liability, fluctuate seasonally and also provide cash when we grow and consequently receive additional cash for future travel. This historical source of cash will decline or change to a use to the extent our growth slows or reverses or the amounts held back by our credit card processors increase. During the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, our air traffic liability balance increased $93151.25 million and $16113.40 million, respectively, contributing favorably to our net cash flow from operating activities. During the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, our accounts receivable increased $2618.10 million and $1219.62 million, respectively, negatively impacting net cash provided by operating activities. Changes in accounts payable, accrued, and other current and non-current liabilities also impact our cash flow from operating activities. During the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, our accounts payable and accrued and other liabilities ~~decreased~~increased $123.36 million and $2134.19 million, respectively, ~~negatively~~contributing ~~impacting~~favorably to our net cash ~~provided~~flow byfrom operating activities.

36Our Condensed Consolidated Statement of Cash Flow for the three months ended March 31, 2011 includes a $38.1 million decrease in cash flow provided by operating activities pertaining to derivative financial instruments.

~~Our~~We ~~Condensed~~used ~~Consolidated~~cash ~~Statement~~to ofincrease ~~Cash~~other ~~Flow~~assets ~~for~~by ~~the nine months ended September 30, 2010 includes a~~ $199.2 million ~~increase~~and in$13.8 ~~cash~~million ~~flow~~during ~~provided~~the bythree ~~operating~~months ~~activities~~ended ~~pertaining~~March to31, ~~derivative~~2011 ~~financial~~and ~~instruments~~2010, ~~comprised~~respectively. ofOther ~~unrealized~~assets ~~non-operating~~include ~~losses~~prepaid onaircraft ~~fuel-related~~maintenance ~~derivative~~and ~~financial~~other ~~instruments~~deposits, ~~primarily~~prepaid ~~due~~insurance, toand ~~decreases~~prepaid indistribution ~~the~~costs. ~~fair~~Additionally, ~~value~~cash ofwas ~~our~~used ~~fuel-related~~as ~~derivative~~we ~~financial~~increased ~~instrument~~prepaid ~~assets~~and ~~during~~stored ~~the~~fuel ~~period~~by ~~and~~$16.6 ~~net~~million ~~cash~~during ~~received~~the ~~from~~three ~~counterparties~~months ~~related~~ended toMarch ~~purchases~~31, ~~issuances~~2011. ~~and~~During ~~settlement~~the ofthree ~~fuel-related~~months ~~derivative~~ended ~~financial~~March ~~instruments.~~31, We2010, ~~also~~cash was provided ~~deposits~~as towe ~~interest~~decreased ~~rate~~prepaid ~~swap~~and ~~counterparties~~stored ~~aggregating~~fuel by $810.09 million ~~which required the use of cash~~.

Our Condensed Consolidated Statement of Cash Flow for the nine months ended September 30, 2009 includes an $83.6 million decrease in cash flow provided by operating activities related to derivative financial instruments. This item is comprised largely of $74.2 million net payments to counterparties for purchases, issuances and settlements of fuel-related derivative financial instruments. The payments to counterparties included amounts paid to unwind certain fuel-related derivative financial instruments which we believed were unlikely to provide benefit in 2009. The $83.6 million decrease in cash flow provided by operating activities also includes non-operating gains on fuel-related derivative financial instruments. Counterparties to our derivative financial instrument arrangements released deposits held by them as consequences of the unwinding of fuel-related derivatives and the reduction of the value of our fuel-related derivative financial instrument obligations. The amount of deposits received from counterparties, net of deposits paid to counterparties, aggregated $48.8 million during the nine months ended September 30, 2009.32

WeInvesting ~~used~~activities ~~cash~~during tothe ~~increase~~three ~~other~~months ~~assets~~ended byMarch 31, 2011 used $94.72 million ~~and~~in cash compared to the $75.38 million cash used during the ~~nine~~similar ~~months~~period ~~ended~~in ~~September~~2010. ~~30,~~Sales ~~2010~~of ~~and~~available-for-sale ~~2009,~~securities ~~respectively.~~are ~~Other~~classified ~~assets~~as ~~include~~investing ~~prepaid~~activities. ~~aircraft~~During ~~maintenance~~the ~~and~~three ~~other~~months ~~deposits,~~ended ~~prepaid~~March ~~insurance~~31, ~~and~~2010, ~~prepaid~~we ~~distribution~~sold ~~costs~~$1.7 ~~Additionally,~~million ~~cash~~of ~~was~~available-for-sale ~~used~~securities. asInvesting weactivities ~~increased~~also ~~prepaid~~include ~~and~~expenditures ~~stored~~for ~~fuel~~aircraft bydeposits ~~$10.6 million~~ and ~~$14.5 million during~~ the ~~nine~~purchase ~~months~~of ~~ended~~aircraft ~~September~~and ~~30,~~other ~~2010~~property and ~~2009, respectively~~equipment.

~~Investing~~Aircraft ~~activities~~purchase ~~during~~contracts typically require that the ~~nine~~purchaser make pre-delivery deposits to the manufacturer. These deposits are refunded at the time of aircraft delivery. We may invest a portion or all of the refunded deposits in the aircraft. During the three months ended ~~September~~March 3031, ~~2010~~2011, ~~used~~we paid $283.83 million in ~~cash~~deposits ~~compared~~and toreceived ~~the~~ $364.14 million ~~cash~~in ~~used~~previously ~~during~~paid ~~the~~deposits. ~~similar~~During ~~period~~the inthree ~~2009.~~months ~~Sales~~ended ofMarch ~~available-for-sale~~31, ~~securities~~2010, ~~are~~we ~~classified~~paid as$2.5 ~~investing~~million ~~activities~~in deposits. During the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, we ~~sold~~expended $15.73 million and $265.60 million in cash for the acquisition of ~~available~~rotable parts, buyer-~~for-sale~~furnished ~~securities~~equipment, ~~respectively~~and other property and equipment. ~~Investing~~Acquisitions ~~activities~~of ~~also~~other ~~include~~property ~~expenditures~~and ~~for~~equipment ~~aircraft~~included ~~deposits~~additions to leasehold improvements and the purchase of ~~aircraft~~ground and ~~other~~computer ~~property and~~ equipment.

~~Aircraft~~Financing ~~purchase~~activities ~~contracts~~used ~~typically require that the purchaser make pre-delivery deposits to the manufacturer~~$51.5 ~~These~~million ~~deposits are refunded at the time~~ of ~~aircraft~~cash ~~delivery.~~during ~~We may invest a portion or all of~~ the ~~refunded~~three ~~deposits in the aircraft. During the nine~~ months ended ~~September~~March 3031, ~~2010 and 2009~~2011, wecompared ~~paid~~to ~~$12.2~~using ~~million~~cash ~~and~~of $19136.93 million induring ~~deposits, respectively. In 2009, we also received $41.0 million in previously paid deposits. During~~ the ~~nine~~three months ended ~~September~~March 3031, 2010~~, we expended $18~~.3 million in cash for the acquisition of rotable parts, buyer-furnished equipment, and other property and equipment. Acquisitions of other property and equipment included additions to leasehold improvements and the purchase of ground and computer equipment. During the nine months ended September 30, 2009, we expended $86.1 million in cash, primarily for the acquisition of two B737 aircraft as well as for the acquisition of rotable parts, buyer-furnished equipment, and other property and equipment.

37During the three months ended March 31, 2011, we repaid $100.0 million and borrowed $65.0 million under our revolving line of credit facility. During the three months ended March 31, 2010, we repaid $125.0 million under our revolving line of credit facility.

~~Financing~~During ~~activities~~the ~~used~~three months ended March 31, 2011, we repaid $~~256~~15.53 million of ~~cash~~aircraft ~~during~~debt financing. During the ~~nine~~three months ended ~~September~~March 3031, 2010, ~~compared~~we repaid $62.6 million of aircraft debt financing, including debt repaid in the refinancing of two B737 aircraft. During the first quarter of 2010, we refinanced debt borrowed to ~~providing~~acquire ~~cash~~two B737 aircraft that were delivered to Airways in 2009. Under the refinancings, we repaid $49.0 million of existing aircraft indebtedness and borrowed $452.85 million ~~during~~of new aircraft debt. Each note issued is secured by a first mortgage on the ~~nine~~B737 ~~months~~aircraft ~~ended~~to ~~September~~which ~~30,~~it ~~2009~~relates. Each note has a stated maturity in 2020 and bears interest at a floating rate per annum equal to a margin plus the three-month LIBOR in effect at the commencement of each three-month period.

During the nine months ended September 30, 2010, we repaid $125.0 million under our revolving line of credit facility. We have made no new borrowings under the revolving line of credit facility so far this year. During the nine months ended September 30, 2010, we repaid $90.4 million of aircraft debt financing, including debt repaid in the refinancing of two B737 aircraft.

Holders of 94% of our 7.0% convertible notes, as of June 30, 2010, aggregating $90.4 million principal amount, exercised their right to require us to repurchase the notes in July 2010. We elected to pay the repurchase price in cash in July 2010.

In 2010, we refinanced debt borrowed to acquire two B737 aircraft that were delivered to Airways in 2009. Under the refinancings, we repaid $49.0 million of existing aircraft indebtedness and borrowed $52.5 million of new aircraft debt. Each note issued is secured by a first mortgage on the B737 aircraft to which it relates. Each note has a stated maturity of 10 years and bears interest at a floating rate per annum above the three-month LIBOR in effect at the commencement of each three-month period.

In 2009, our Board of Directors authorized, at management’s discretion, the repurchase, from time-to-time, of up to $50 million of our 7.0% convertible notes in open market transactions at prevailing market prices or in privately negotiated purchases. During the nine months ended September 30, 2009, we repurchased $29.2 million of our 7.0% convertible notes resulting in a gain of $4.3 million.

During the nine months ended September 30, 2009, we borrowed $925 million and repaid $890 million under our revolving line of credit facility. Also, during the nine months ended September 30, 2009, we repaid $56.2 million of aircraft debt financing, including $18.1 million for repayments of pre-delivery deposit financing.

See ITEM 1. “FINANCIAL STATEMENTS (Unaudited) – Notes to Condensed Consolidated Financial Statements, Note 4 – Debt” for additional information regarding our outstanding debt.

Year ~~2010~~2011 Cash Requirements and Potential Sources of Liquidity

Our cash flows, for the remainder of ~~2010~~2011, will be impacted by a variety of factors including our operating results, payments of our debt and capital lease obligations, and capital expenditure requirements. When consummated, the expected acquisition of AirTran by Southwest will have material impacts on the liquidity, sources and uses of liquidity, operating results, financial commitments, debt payments, and financial position of AirTran. The following discussion generally does not address the potential impacts of the expected acquisition of AirTran by Southwest.

Expenditures for acquisition of property and equipment, other than aircraft and aircraft parts, are anticipated to be approximately $212 million during the remainder of ~~2010~~2011. Additionally, during the remainder of ~~2010~~2011, we currently have scheduled payments of $10 million related to aircraft purchase commitments. Payments of current maturities of existing debt and capital lease obligations, ~~are~~before ~~expected~~the toimpacts of the acquisition of AirTran by Southwest, would aggregate $1969.09 million during the remainder of ~~2010~~2011.

We may need cash resources to fund increases in collateral provided to counterparties to our derivative financial arrangements and our cash flows may be adversely impacted in the event that one or more credit card processors withholds amounts that would otherwise be remitted to us. We provide counterparties to our derivative financial instrument arrangements with collateral when the fair value of our obligation exceeds specified amounts. Our obligation to provide collateral pursuant to fuel-related derivative financial instrument arrangements tends to be inversely related to fuel prices; consequently, to the extent fuel prices decrease, we will experience lower fuel expense and higher collateral requirements. Because we hedge significantly less than 100 percent of our fuel requirements, over time, a sustained decrease in fuel prices tends to produce a net cash benefit even though a significant decrease in fuel prices may cause a net use of cash in the period when prices decrease. As of September 30, 2010, we provided interest rate swap counterparties with collateral aggregating $34.4 million.33

38Each agreement with our two largest credit card processors allows, under specified conditions, the processor to retain cash related to future travel that such processor otherwise would remit to us (a holdback). As of March 31, 2011, we were in compliance with our processing agreements and our two largest credit card processors were holding back no cash remittances from us. Our potential cash exposure to holdbacks by our largest two credit card processors, based on advance ticket sales as of March 31, 2011, was $296.1 million (after considering the $50 million letter of credit issued in favor of our largest credit card processor). Even had there been no letter of credit issued for the benefit of our largest credit card processor, as of March 31, 2011, neither of our two largest credit card processors would have been entitled to holdback any cash remittances from us. While we may be subject to holdbacks in the future in accordance with the terms of our credit card processing agreements, based on our current liquidity and current forecast, we do not expect that our two largest credit card processors would be entitled to holdback cash amounts during the remainder of 2011.

~~Each~~We ~~agreement~~believe ~~with~~we ~~our~~have ~~two~~options ~~largest~~available ~~credit~~to ~~card~~meet ~~processors~~our ~~allows~~debt repayment, ~~under~~capital ~~specified~~expenditure ~~conditions~~needs, ~~the~~and ~~processor~~operating tocommitments; ~~retain~~such ~~cash~~options ~~related~~may toinclude ~~future~~internally ~~travel~~generated ~~that~~funds ~~such~~as ~~processor~~well ~~otherwise~~as ~~would~~various ~~remit~~financing toor usleasing (aoptions, ~~holdback).~~including Asthe sale, lease, or sublease of ~~September~~our ~~30,~~aircraft ~~2010~~or other assets. Additionally, we ~~were~~have ina ~~compliance~~$50 ~~with~~million ~~our~~revolving ~~processing~~line ~~agreements~~of ~~and~~credit ~~our~~facility, ~~two~~under ~~largest~~which ~~credit~~$15 ~~card~~million ~~processors~~and $25 million were ~~holding~~outstanding ~~back~~as noof ~~cash~~March ~~remittances~~31, ~~from~~2011, usand April 29, 2011, respectively. ~~Our~~However, ~~potential~~our ~~cash~~future ~~exposure~~financing tooptions ~~holdbacks~~may bybe limited because our ~~largest~~owned ~~two~~aircraft ~~credit~~are ~~card~~pledged ~~processors,~~to ~~based~~the onlenders ~~advance~~that ~~ticket~~provided ~~sales~~financing asto ofacquire ~~September~~such 30aircraft, ~~2010~~and we have pledged, ~~was~~directly upor toindirectly, a ~~maximum~~significant portion of ~~$262.6~~our ~~million~~owned ~~(after~~assets, ~~considering~~other ~~the~~than ~~$50~~aircraft ~~million~~and ~~letter~~engines, ofto ~~credit~~collateralize ~~issued~~our inobligations ~~favor~~under our Credit Facility. A combination of ~~our~~one ~~largest~~or ~~credit~~more ~~card~~material ~~processor).~~and ~~Even~~significant ~~had~~adverse ~~there~~events, ~~been~~most noof ~~letter~~which are outside of ~~credit~~our ~~issued~~direct ~~for~~control, could, depending on the ~~benefit~~severity ofand duration thereof, have significant unfavorable impacts on our ~~largest~~future ~~credit~~cash ~~card~~flows. ~~processor,~~Such asadverse ofevents ~~September~~could ~~30,~~include: ~~2010,~~significant ~~neither~~increases in fuel prices for an extended period of ~~our~~time; ~~two~~significant ~~largest~~sustained ~~credit~~declines ~~card~~in ~~processors~~unit ~~would~~revenues ~~have~~as ~~been~~a ~~entitled~~consequence toof ~~holdback~~unfavorable ~~any~~macroeconomic ~~cash~~or ~~remittances~~other ~~from~~conditions; ~~us.~~a ~~While~~requirement weto ~~may~~provide bematerial ~~subject~~collateral to ~~holdbacks~~counterparties into ~~the~~our ~~future~~derivative infinancial ~~accordance~~instruments; ~~with~~or an increase in the ~~terms~~percentage of advance ticket sales held back by our credit card ~~processing~~processors. ~~agreements~~Additionally, ~~based~~the onexpected ~~our~~acquisition ~~current~~of ~~liquidity~~AirTran ~~and~~by ~~current~~Southwest ~~forecast,~~will welikely dohave ~~not~~substantial ~~expect~~impacts ~~that~~on ~~our~~AirTran’s ~~two~~sources ~~largest~~and ~~credit~~uses ~~card~~of ~~processors~~liquidity, ~~would~~financial beposition ~~entitled~~and tofinancial ~~holdback~~commitments ~~cash~~which ~~amounts~~are ~~during~~generally ~~the~~not ~~remainder~~addressed ofin ~~2010~~this report.

We believe we have options available to meet our debt repayment, capital expenditure needs, and operating commitments; such options may include internally generated funds as well as various financing or leasing options, including the sale, lease, or sublease of our aircraft or other assets. Additionally, we have a $50 million revolving line of credit facility, under which no borrowings were outstanding as of either September 30, 2010 or October 20, 2010. However, our future financing options may be limited because our owned aircraft are pledged to the lenders that provided financing to acquire such aircraft, and we have pledged, directly or indirectly, a significant portion of our owned assets, other than aircraft and engines, to collateralize our obligations under our Credit Facility. The counterparty to the Credit Facility has agreed to release its lien on certain specified assets securing that facility in the event we seek to re-pledge those assets in order to secure a new financing so long as the aggregate collateral value of the assets pledged under the Credit Facility is at least equal to the amount then available under the Credit Facility.

We believe that our existing liquidity and forecasted 2010 cash flows will be sufficient to fund our operations and other financial obligations during the remainder of 2010. While we believe our 2010 forecast is reasonable, a combination of one or more material and significant adverse events, most of which are outside of our direct control, could, depending on the severity and duration thereof, have significant unfavorable impacts on our future cash flows. Such adverse events could include: significant increases in fuel prices for an extended period of time, significant sustained declines in unit revenues as a consequence of unfavorable macroeconomic or other conditions, or an increase in the percentage of advance ticket sales held back by our credit card processors.

Credit Facility

~~We and the lender have agreed to extend the term of the Credit Facility to December 31, 2012.~~ Under the revolving line of credit facility, we are permitted to borrow, upon two business days notice, up to $50 million for general corporate purposes. Under the letter of credit facility, we are entitled to the issuance by a financial institution of letters of credit up to a maximum aggregate amount of $50 million for the benefit of one or more of our credit card processors. Amounts borrowed under the revolving line of credit facility bear interest at a rate of 12 percent per annum and must be repaid within three business days to the extent that our aggregate unrestricted cash and investment amount exceeds $450 million at any time. We may borrow once a month and are permitted to repay amounts borrowed at any time without penalty. As of March 31, 2011 and December 31, ~~2009~~2010, we had $~~125~~15 million and $50 million, respectively, in outstanding borrowings under the revolving line of credit facility or a predecessor version thereof. We had no$25 ~~borrowings~~million in outstanding asborrowings ofunder ~~either~~the ~~September~~revolving ~~30,~~line ~~2010~~of orcredit ~~October~~facility 20as of April 29, ~~2010~~2011. As of ~~September~~March 3031, ~~2010~~2011, the stated amount of the letter of credit issued for the benefit of our largest credit card processor was $50 million. ANone ~~letter~~of the letters of credit issued ~~under~~in favor of a processor have ever been drawn. The term of the Credit Facility currently expires December 31, 2012. We have advised the counterparty to the Credit Facility that, if the Merger is consummated, we will terminate the $50 million revolving line of credit facility at or shortly after closing. The letter of credit facility ~~has~~would ~~never~~remain ~~been~~in ~~drawn~~effect.

3934

Aircraft Related Commitments, Financing Arrangements and Transactions

We have contractual obligations to purchase 51 additional B737 aircraft from The Boeing Company (Boeing) between ~~2011~~2012 and 2017. In June 2010, December 2010, and February 2011, we entered into amendments to our aircraft purchase agreements with Boeing to defer delivery dates for ~~nine~~13 B737 aircraft originally scheduled for delivery between 2011 and 2014 to delivery dates between 2015 and 2017. Simultaneously, Boeing Capital Corporation (BCC), a wholly-owned subsidiary of Boeing, exercised a previously negotiated contractual right requiring us to lease two used B717 aircraft for a term of 10 years commencing in 2011. We took delivery of such used B717 aircraft in February 2011. In April 2011, we also deferred one B737 scheduled for delivery in February 2012 until June 2012.

The table below summarizes, as of ~~September~~March 3031, ~~2010~~2011, all scheduled aircraft fleet additions:

	B737 Aircraft Purchases		~~B717 Aircraft Leases~~		~~Total Aircraft Additions~~
Remainder of 2010		—		—		—
Remainder of 2011		—
2011		4		2		6
2012		6
2012		6		—		6
2013		6
2013		6		—		6
2014		8
2014		8		—		8
2015		12
2015		12		—		12
2016		14
2016		10		—		10
2017		5
2017		5		—		5
Total		51
Total		51		2		53

40As of March 31, 2011, our aircraft purchase commitments for the remainder of 2011 and for the next five years and thereafter, in aggregate, are (in millions): 2011—$10; 2012—$270; 2013—$280; 2014—$370; 2015—$530; 2016—$540; and thereafter—$200. These amounts include payment commitments, including payment of pre-delivery deposits and buyer-furnished equipment, for aircraft on firm order. Aircraft purchase commitments include the forecasted impact of contractual price escalations. Our intention is to finance the aircraft on order through either debt financing, lease financing, or a mix thereof. We have debt financing commitments from a lender to finance a significant portion of the purchase price of two B737 aircraft scheduled for delivery to us in 2012. AirTran has no existing arrangements for the financing of B737s other than as described in the immediately preceding sentence. In addition, BCC has the right to require us to lease up to three additional used B717s for lease terms of up to 10 years per aircraft. If BCC requires us to lease any such used B717 aircraft, we have the right to cancel a like number of B737 aircraft from our B737 order book with Boeing.

4136

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~ITEM 3.~~There ~~QUANTITATIVE~~have ~~AND~~been ~~QUALITATIVE~~no ~~DISCLOSURES~~material ~~ABOUT~~changes ~~MARKET~~in ~~RISK~~market risk from the information provided in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, other than those discussed below.

There have been no material changes in market risk from the information provided in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, other than those discussed below.

Market Risk-Sensitive Instruments and Positions

We are subject to certain market risks, including changes in interest rates and commodity prices (i.e., aircraft fuel). The adverse effects of changes in these markets pose a potential loss as discussed below. The sensitivity analyses do not consider the effects that such adverse changes may have on overall economic activity, nor do they consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ. See the Notes to the Condensed Consolidated Financial Statements for additional information.

Interest Rates

We had approximately $~~634~~610.69 million and $~~665~~623.78 million of variable-rate debt as of ~~September~~March 3031, ~~2010~~2011 and December 31, ~~2009~~2010, respectively. We have mitigated our exposure on certain variable-rate debt by entering into interest-rate swap agreements. ~~During the nine months ended September 30, 2010, we entered into three interest-rate swap arrangements pertaining to $65.0 million notional amount of outstanding debt.~~ The notional amount of the outstanding debt related to interest-rate swaps at ~~September~~March 3031, ~~2010~~2011 and December 31, ~~2009~~2010 was $~~487~~469.56 million and $~~447~~479.01 million, respectively. These swaps expire between 2016 and 2020. The interest-rate swaps effectively result in us paying a fixed rate of interest on a portion of our floating-rate debt securities through the expiration of the swaps. As of ~~September~~March 3031, ~~2010~~2011, the fair market value of our interest-rate swaps was a liability of $4321.98 million. If average interest rates increased by 100 basis points during ~~2010~~2011, as compared to ~~2009~~2010, our projected ~~2010~~2011 interest expense would increase by approximately $01.40 million.

Aviation Fuel

Our results of operations can be significantly impacted by changes in the price and availability of aircraft fuel. Aircraft fuel expense for the three months ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010 represented 3438.54 percent and 33.92 percent of our operating expenses, respectively. ~~Aircraft fuel expense for the nine months ended September 30, 2010 and 2009 represented 34.7 percent and 30.3 percent of our operating expenses, respectively.~~

We enter into fuel-related derivative financial instruments with financial institutions to reduce the ultimate variability of cash flows associated with fluctuations in jet fuel prices. We do not hold or issue derivative financial instruments for trading purposes. The financial accounting for fuel-related derivatives is discussed in ITEM 1. “FINANCIAL STATEMENTS (Unaudited) – Notes to Condensed Consolidated Financial Statements, Note 3 – Financial Instruments.” From time to time, we enter into fuel-related swap and option derivative financial arrangements. Under jet fuel swap arrangements, we pay a fixed rate per gallon and receive the monthly average price of Gulf Coast jet fuel. The fuel-related option arrangements may include collars, purchased call options, and sold call options. Depending on market conditions at the time a derivative contract is entered into, we generally use jet fuel, heating oil, or crude oil as the underlying commodity. Additionally, from time to time, we enter into refinery-margin swap agreements pursuant to which we pay a fixed rate per gallon and receive the monthly average price of jet fuel refinery costs.

We enter into various derivative financial instruments with financial institutions to seek to reduce the variability of the ultimate cash flows associated with fluctuations in jet fuel prices. From time to time, we enter into fuel-related swap and option derivative financial arrangements. We do not hold or issue derivative financial instruments for trading purposes. Under jet fuel swap arrangements, we pay a fixed rate per gallon and receive the monthly average price of Gulf Coast jet fuel. The fuel-related option arrangements may include collars, purchased call options, and sold call options. Depending on market conditions at the time a derivative contract is entered into, we generally use jet fuel, heating oil, or crude oil as the underlying commodity. Additionally, from time to time, we enter into refinery-margin swap agreements pursuant to which we pay a fixed rate per gallon and receive the monthly average price of jet fuel refinery costs.37

42We provide counterparties to our derivative financial instrument arrangements with collateral when the fair value of our obligation exceeds specified amounts. As of March 31, 2011, we were not required to provide counterparties to fuel-related derivative financial instruments with any collateral. Any collateral is classified as restricted cash, if the funds are held in our name. The collateral is classified as deposits held by counterparties to derivative financial instruments if the funds are held by the counterparty. Any future increases in the fair value of our obligations under derivative financial instruments may obligate us to provide collateral to counterparties, which would reduce our unrestricted cash and investments. Any future decreases in the fair value of our obligations would result in the release of collateral to us and consequently would increase our unrestricted cash and investments. Any outstanding collateral is released to us upon settlement of the related derivative financial instrument liability. Our obligation to provide collateral pursuant to fuel-related derivative financial instrument arrangements tends to be inversely related to fuel prices; consequently, to the extent fuel prices decrease, we will experience lower fuel expense and higher collateral requirements. Because we hedge significantly less than 100 percent of our fuel requirements, over time, a sustained decrease in fuel prices tends to produce a net cash benefit even though a significant decrease in fuel prices may cause a net use of cash in the period when prices decrease.

WeIn ~~provide~~summary, ~~counterparties to~~ our derivative financial instrument arrangements with collateral when the fair value of our obligation exceeds specified amounts. As of September 30, 2010, we were not required to provide counterparties to fuel-related derivative financial instruments ~~with~~impacted ~~any collateral. Any collateral is classified as restricted cash, if the funds are held in~~ our ~~name. The collateral is classified as deposits held by counterparties to derivative~~ financial ~~instruments~~statements iffor the ~~funds~~three ~~are~~months ~~held~~ended byMarch ~~the counterparty. Any future increases in the fair value of our obligations under derivative financial instruments may obligate us to provide collateral to counterparties~~31, ~~which~~2011 ~~would~~as reduce our unrestricted cash and investments. Any future decreases in the fair value of our obligations would result in the release of collateral to us and consequently would increase our unrestricted cash and investments. Any outstanding collateral is released to us upon settlement of the related derivative financial instrument liability. Our obligation to provide collateral pursuant to fuel-related derivative financial instrument arrangements tends to be inversely related to fuel prices; consequently, to the extent fuel prices decrease, we will experience lower fuel expense and higher collateral requirements. Because we hedge significantly less than 100 percent of our fuel requirements, over time, a sustained decrease in fuel prices tends to produce a net cash benefit even though a significant decrease in fuel prices may cause a net use of cash in the period when prices decrease.follows:

In• ~~summary,~~We ~~our~~recorded non-operating realized and unrealized net gains on fuel-related derivative financial instruments ~~impacted~~of ~~our~~$38.9 ~~financial~~million ~~statements~~during ~~for~~ the three ~~and~~months ~~nine~~ended March 31, 2011. During the three months ended ~~September~~March 3031, ~~2010~~2011, aswe ~~follows:~~realized gains related to derivative financial instruments of $4.0 million.

• WeAs ~~recorded~~of aMarch ~~non-operating~~31, ~~net~~2011, ~~gain~~the onestimated fair value of our fuel-related derivative financial instruments was a net asset of $1586.32 million. ~~during~~The ~~the~~fair ~~three~~value ~~months~~of ~~ended~~our ~~September~~fuel-related ~~30,~~derivatives ~~2010,~~is ~~and~~in large part a ~~non-operating~~function ~~net~~of ~~loss~~the oncurrent ~~fuel-related~~market ~~derivative~~and ~~financial~~futures ~~instruments~~prices of ~~$11.9 million during~~ the ~~nine~~underlying ~~months~~commodities. ~~ended September 30~~Consequently, ~~2010,~~changes ~~respectively.~~in ~~During~~ the ~~three~~current market and ~~nine~~futures ~~months~~prices ~~ended~~tend ~~September~~to ~~30,~~have ~~2010,~~a wesubstantial ~~realized~~impact ~~losses~~on ~~related~~the tofair ~~derivative~~value ~~financial instruments~~ of ~~$6.6~~the ~~million~~fuel-related ~~and $5~~derivatives.~~7 million, respectively.~~

• As of ~~September~~March 3031, ~~2010~~2011, ~~the~~we ~~estimated~~had ~~fair~~entered ~~value~~into ~~of our~~ fuel-related ~~derivative~~option ~~financial~~agreements ~~instruments~~which ~~was~~pertain ato ~~net asset of $30.9~~ 186 million. ~~The~~gallons ~~fair~~or ~~value~~63 percent of our ~~fuel-related~~projected ~~derivatives~~April isthrough inDecember ~~large~~2011 ~~part~~fuel arequirements, ~~function~~and of20 million ~~the~~gallons ~~current~~or ~~market~~5 ~~and~~percent ~~futures~~of ~~prices~~our ofprojected ~~the~~2012 ~~underlying~~fuel ~~commodities~~requirements. ~~Consequently,~~We ~~changes~~have inalso ~~the~~acquired ~~current~~call ~~market~~options ~~and~~on ~~futures~~jet ~~prices~~fuel ~~tend~~refinery tomargins ~~have~~which apertain ~~substantial~~to ~~impact~~19 onmillion ~~the~~gallons ~~fair value~~ of ~~the~~ fuel~~-related derivatives~~.

AsFor ofevery ~~September~~dollar ~~30,~~increase ~~2010,~~per webarrel ~~had~~in ~~entered~~crude ~~into~~oil ~~fuel-related option agreements which pertain to 53 million gallons~~ or 58refining ~~percent~~costs, of our ~~projected~~fuel ~~October~~expense ~~through~~(including ~~December~~taxes ~~2010~~and ~~fuel~~into-plane ~~requirements,~~fees) ~~185 million~~for ~~gallons~~the orremainder ~~48 percent~~ of ~~our projected~~ 2011 ~~fuel requirements~~, ~~and~~before ~~20 million~~the ~~gallons~~impact ~~or 5 percent~~ of our ~~projected~~derivative ~~2012~~financial ~~fuel requirements. As of September 30~~instruments, ~~2010,~~would weincrease ~~had~~approximately no$7.3 million based ~~swap~~on ~~agreements~~projected ~~or outstanding refinery-margin swap agreements~~operations.

~~For~~The ~~every~~(1) estimated ~~dollar~~total ~~increase~~ultimate ~~per~~cash ~~barrel~~benefit in(use) ~~crude~~of ~~oil~~our orfuel-related ~~refining~~derivatives ~~costs,~~scheduled ~~our~~to ~~fuel~~settle ~~expense~~during ~~(including~~the ~~taxes~~remainder of 2011 and ~~into-plane~~2012 ~~fees~~and (2) the ~~for~~expected ~~the~~difference ~~remainder~~in ofaggregate ~~2010,~~fuel ~~before~~cost compared to jet fuel cost based on crude oil at $100 per barrel are estimated as follows at the ~~impact~~specified ofcrude ~~our~~per ~~derivative~~barrel ~~financial~~prices ~~instruments~~(in millions of dollars, ~~would~~except ~~increase~~per ~~approximately~~barrel ~~$2.3 million based~~amounts onwhich ~~projected~~are ~~operations.~~in dollars):

4338

The (1) estimated total ultimate cash benefit (use) of our fuel-related derivatives scheduled to settle during the remainder of 2010 and 2011 and (2) the expected difference in aggregate fuel cost compared to jet fuel cost based on crude oil at $80 per barrel are estimated as follows at the specified crude per barrel prices (in millions, except per barrel amounts which are in dollars):

	Estimated Total Ultimate Cash Benefit (Use) of Our Fuel-Related Derivative Financial Instruments Held as of March 31, 2011			Estimated Lower (Higher) Aggregate Jet Fuel Cost (Prior to Impact of Derivative Financial Instruments) Compared to Jet Fuel Cost Based on Crude Oil of $100 per Barrel
Nine Months Ending December 31, 2011
Assumed average market crude price:
$ 80 per barrel	$	(14.5	)	$	167.7
$ 100 per barrel		17.2			—
$ 120 per barrel		99.3			(167.7	)

	Estimated Total Ultimate Cash Benefit (Use) of Our Fuel-Related Derivative Financial Instruments Held as of September 30, 2010				Estimated Lower (Higher) Aggregate Jet Fuel Cost (Prior to Impact of Derivative Financial Instruments) Compared to Jet Fuel Cost Based on Crude Oil of $80 per Barrel
Twelve Months Ending December 31, 2012
Three Months Ending December 31, 2010
Assumed average market crude price:
$ 60 per barrel	$	(10.3	)		$	53.2
$ 80 per barrel		$	(0.5	)	$	231.5
$ 80 per barrel		(3.9	)			—
$ 100 per barrel			(0.5	)		—
$ 100 per barrel		16.4				(53.2	)
$ 120 per barrel			9.1			(231.5	)

Twelve Months Ending December 31, 2011
Assumed average market crude price:
$ 60 per barrel	$	(31.1	)	$	222.6
$ 80 per barrel		(11.8	)		—
$ 100 per barrel		31.3			(222.6	)

Notes:

1. The total ultimate derivative financial instrument related cash amounts include all estimated payments and receipts during the period that the derivatives are outstanding. The ultimate cash benefit (use) includes any premiums paid to counterparties at the inception of the arrangements, any obligation for us to provide counterparties with collateral prior to final settlement, and the cash benefit or use at the time of final settlement. Any collateral held by counterparties at the time a derivative financial instrument settles reduces any cash required from us at time of settlement. 2. As of ~~September~~March 3031, ~~2010~~2011 and ~~October~~April 2021, ~~2010~~2011, we had provided no collateral for fuel-related derivatives to counterparties. 3. Changes in the refining margin may also impact the cost of jet fuel. The refining margin assumption included in the table above is 15% of the assumed average market crude price.

4439

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. We maintain controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September~~March 3031, ~~2010~~2011, our controls and procedures were effective to ensure that we are able to collect, process, and disclose the information we are required to disclose in the reports we file with the SEC within the required time periods.

Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting during the fiscal quarter ended ~~September~~March 3031, ~~2010~~2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

45The expected acquisition of AirTran by Southwest will likely materially affect AirTran’s internal control over financial reporting. The post-acquisition changes to AirTran’s financial accounting systems, procedures, and staffing are not known as of the date of this report.

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

46While Southwest, AirTran, and the individual AirTran defendants believe that each of the above described lawsuits is without merit, the parties to the Leonelli consolidated complaint and the Church federal complaint entered into a Memorandum of Understanding (MOU) on January 26, 2011 to settle those lawsuits. The settlement provides for the inclusion of additional disclosures with respect to various aspects of the merger in the proxy statement/prospectus with respect to the proposed merger with Southwest. In addition, it provides for the payment of plaintiffs’ attorneys’ fees and expenses, subject to court approval. The MOU further provides that the parties will enter into a stipulation of settlement which will provide, among other things, for the conditional certification of a settlement class. The MOU and stipulation of settlement are subject to various conditions, including court approval following notice to AirTran stockholders, completion of certain discovery (which is ongoing now) and consummation of the merger. If the settlement is finally approved, it will resolve and release on behalf of the entire class of AirTran stockholders, all claims that were or could have been brought challenging any aspect of the merger, the merger agreement and any disclosure made in connection therewith, among other claims.

In addition to the above litigation, AirTran is a party to other claims, and litigation incidental to its business, for which it is not currently possible to determine the ultimate liability, if any. While the outcome of such claims and litigation is subject to uncertainty, based on an evaluation of information currently available and consultation with legal counsel, management believes that resolution of such claims and litigation is not likely to have a material effect on the financial position, cash flows, or results of operations of the Company. The Company expenses legal costs as they are incurred.

Item 1A.

Risk Factors

Information regarding risk factors appears in “Risk Factors” in Part I — Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2009~~2010. We ~~have~~believe ~~included~~there ~~below~~have ~~the~~been ~~risk~~no ~~factors~~material ~~that~~changes ~~we believe have significantly changed~~ from the risk factors previously disclosed in such Annual Report. You should carefully consider, in addition to the other information set forth in this report, the risk factors discussed in our Annual Report, which could materially affect our business, financial condition, or future results. Such risk factors are expressly incorporated herein by reference. The risks described in our Annual Report are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

The Merger is subject to a number of conditions beyond our control. Failure to complete the Merger within the expected time frame or at all could adversely affect our stock price and our future business and financial results.

The Merger is subject to a number of conditions beyond our control that may prevent, delay or otherwise materially adversely affect its completion, including approval of our stockholders and the expiration or termination of applicable waiting periods under U.S. antitrust laws and various approvals or consents that must be obtained from regulatory authorities. We cannot predict whether and when these conditions will be satisfied. Any delay in completing the Merger could cause the combined company not to realize some or all of the synergies expected to be achieved. We will also incur certain transaction costs whether or not the Merger is completed. Any failure to complete the Merger could have a material adverse effect on our stock price and our future business and financial results.

Uncertainty about the Merger and diversion of management could harm us or the combined company, whether or not the Merger is completed.

The announcement of the Merger could result in current and prospective employees experiencing uncertainty about their future with us or the combined company. These uncertainties may impair our ability to retain, recruit or motivate key personnel. Completion of the Merger will also require a significant amount of time and attention from our management. The diversion of management’s attention away from ongoing operations could adversely affect our business relationships. If the Merger is not consummated during the first half of 2011, as currently anticipated, the adverse effects of these uncertainties and the diversion of management’s attention could be exacerbated by the delay. Even if the Merger is consummated, integration of operations will require substantial time after consummation of the Merger, and the combined company may lose management personnel and other key employees and be unable to attract and retain such personnel and employees.

The anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected.

The Merger involves the integration of two companies that have previously operated independently. Prior to announcement, we did not conduct any integration planning for the two companies, and our ability to do so prior to consummation of the Merger is substantially limited by applicable law. After the Merger, the two companies will devote significant management attention and resources to integrating the two companies. Delays in this process could adversely affect the combined company’s business, financial results, financial condition and stock price. Even if we are able to integrate our business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that we currently expect from this integration or that these benefits will be achieved within the anticipated time frame.

Additionally, as a condition to their approval of the Merger, regulatory authorities may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of the combined company’s business. If the combined company agrees to these requirements, limitations, costs, divestitures or restrictions, its ability to realize the anticipated benefits of the Merger may be impaired.

The combined company may also be unable to use our current net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes. Changes in services, changes in sources of revenue, and branding or rebranding initiatives may involve substantial costs and may not be favorably received by customers, resulting in an adverse impact on the combined company’s financial results, financial condition and stock price.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.

Defaults Upon Senior Securities

None

Item 5.

Other Information

None

Item 6.

Exhibits

The following exhibits are filed with this report:

(a)	Exhibit No.	Description
	31.1 -	Rule 13(a)-14 Certification of Chief Executive Officer
	31.2 -	Rule 13(a)-14 Certification of Chief Financial Officer
	32.1 -	Chief Executive Officer and Chief Financial Officer certifications pursuant to 18 U.S.C. Section 1350

4843

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		AirTran Holdings, Inc.
		(Registrant)
Date: October 26, 2010		/s/ Arne G. Haak
Date: April 29, 2011		/s/ Arne G. Haak
		Arne G. Haak Senior Vice President of Finance, Treasurer, and Chief Financial Officer

EXHIBIT INDEX

Exhibit No.		Description
31.1	—	Rule 13(a)-14 Certification of Chief Executive Officer
31.2	—	Rule 13(a)-14 Certification of Chief Financial Officer
32.1	—	Chief Executive Officer and Chief Financial Officer certifications pursuant to 18 U.S.C. Section 1350

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