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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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

For the quarterly period ended March 31, 2006

OR



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

For the transition period from  to

Commission file No. 1-15991



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LOGO

AirTran Holdings, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|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) 251-5600



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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 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 ̈

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 April 24, 2006:

90,767,694



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##### Table of Contents

AIRTRAN HOLDINGS, INC.

Form 10-Q

For the Quarter Ended March 31, 2006

INDEX



|         |  |                                                                                             |  |     
|-------- |  | ------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                             |  | Page
|         |  |                                                                                            
|PART I.  |  | FINANCIAL INFORMATION                                                                       |  |     
|         |  |                                                                                            
|Item 1.  |  | Financial Statements (unaudited)                                                            |  |     
|         |  |                                                                                            
|         |  | Condensed Consolidated Statements of Operations- Three months ended March 31, 2006 and 2005 |  | 3   
|         |  |                                                                                            
|         |  | Condensed Consolidated Balance Sheets- March 31, 2006 and December 31, 2005                 |  | 4   
|         |  |                                                                                            
|         |  | Condensed Consolidated Statements of Cash Flows- Three months ended March 31, 2006 and 2005 |  | 6   
|         |  |                                                                                            
|         |  | Notes to Condensed Consolidated Financial Statements                                        |  | 7   
|         |  |                                                                                            
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations       |  | 13  
|         |  |                                                                                            
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                  |  | 17  
|         |  |                                                                                            
|Item 4.  |  | Controls and Procedures                                                                     |  | 18  
|         |  |                                                                                            
|PART II. |  | OTHER INFORMATION                                                                           |  |     
|         |  |                                                                                            
|Item 1.  |  | Legal Proceedings                                                                           |  | 19  
|         |  |                                                                                            
|Item 1A. |  | Risk Factors                                                                                |  | 19  
|         |  |                                                                                            
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                 |  | 19  
|         |  |                                                                                            
|Item 3.  |  | Defaults Upon Senior Securities                                                             |  | 19  
|         |  |                                                                                            
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                         |  | 19  
|         |  |                                                                                            
|Item 5.  |  | Other Information                                                                           |  | 19  
|         |  |                                                                                            
|Item 6.  |  | Exhibits                                                                                    |  | 19  



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AirTran Holdings, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)



|                                         |  |                             |         |   |      |   |         |  
|---------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                         |  | Three Months EndedMarch 31, |        
|                                         |  | 2006                        |         |   | 2005 |  
|Operating Revenues:                      |  |                             |         |   |      |   |         |  
|Passenger                                |  | $                           | 399,345 |   |      | $ | 289,136 |  
|Cargo                                    |  |                             | 1,214   |   |      |   | 596     |  
|Other                                    |  |                             | 15,483  |   |      |   | 9,975   |  
|                                         |  |                             |         |   |      |   |         |  
|Total operating revenues                 |  |                             | 416,042 |   |      |   | 299,707 |  
|                                         |  |                            
|Operating Expenses:                      |  |                             |         |   |      |   |         |  
|Aircraft fuel                            |  |                             | 139,275 |   |      |   | 85,438  |  
|Salaries, wages and benefits             |  |                             | 92,265  |   |      |   | 78,333  |  
|Aircraft rent                            |  |                             | 53,737  |   |      |   | 44,582  |  
|Maintenance, materials and repairs       |  |                             | 39,114  |   |      |   | 23,290  |  
|Distribution                             |  |                             | 15,948  |   |      |   | 15,251  |  
|Landing fees and other rents             |  |                             | 22,653  |   |      |   | 18,042  |  
|Aircraft insurance and security services |  |                             | 5,899   |   |      |   | 5,253   |  
|Marketing and advertising                |  |                             | 11,042  |   |      |   | 9,516   |  
|Depreciation                             |  |                             | 6,074   |   |      |   | 4,318   |  
|Other operating                          |  |                             | 34,532  |   |      |   | 25,125  |  
|                                         |  |                             |         |   |      |   |         |  
|Total operating expenses                 |  |                             | 420,539 |   |      |   | 309,148 |  
|                                         |  |                             |         |   |      |   |         |  
|Operating Loss                           |  |                             | (4,497  | ) |      |   | (9,441  | )
|                                         |  |                            
|Other (Income) Expense:                  |  |                             |         |   |      |   |         |  
|Interest income                          |  |                             | (4,504  | ) |      |   | (2,347  | )
|Interest expense                         |  |                             | 7,425   |   |      |   | 4,943   |  
|                                         |  |                             |         |   |      |   |         |  
|Other expense, net                       |  |                             | 2,921   |   |      |   | 2,596   |  
|                                         |  |                             |         |   |      |   |         |  
|Loss Before Income Taxes                 |  |                             | (7,418  | ) |      |   | (12,037 | )
|Income tax benefit                       |  |                             | (2,810  | ) |      |   | (4,008  | )
|                                         |  |                             |         |   |      |   |         |  
|Net Loss                                 |  | $                           | (4,608  | ) |      | $ | (8,029  | )
|                                         |  |                             |         |   |      |   |         |  
|Loss per Common Share                    |  |                             |         |   |      |   |         |  
|Basic                                    |  | $                           | (0.05   | ) |      | $ | (0.09   | )
|Diluted                                  |  | $                           | (0.05   | ) |      | $ | (0.09   | )
|                                         |  |                            
|Weighted-average Shares Outstanding      |  |                             |         |   |      |   |         |  
|Basic                                    |  |                             | 87,775  |   |      |   | 86,743  |  
|Diluted                                  |  |                             | 87,775  |   |      |   | 86,743  |  

See accompanying Notes to Condensed Consolidated Financial Statements.



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AirTran Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands)



|                                                                                                                                                |  |               |           |   |                  |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                |  | March 31,2006 |           |   | December 31,2005 |  
|                                                                                                                                                |  | (Unaudited)   |           |   |                  |  
|ASSETS                                                                                                                                          |  |               |           |   |                  |   |           |  
|Current Assets:                                                                                                                                 |  |               |           |   |                  |   |           |  
|Cash and cash equivalents                                                                                                                       |  | $             | 198,218   |   |                  | $ | 370,572   |  
|Restricted cash                                                                                                                                 |  |               | 21,863    |   |                  |   | 19,443    |  
|Short-term investments                                                                                                                          |  |               | 207,150   |   |                  |   | 75        |  
|Accounts receivable, less allowance of $486 and $494 at March 31, 2006 and December 31, 2005, respectively                                      |  |               | 41,000    |   |                  |   | 29,795    |  
|Spare parts, materials and supplies, less allowance for obsolescence of $1,401 and $1,292 at March 31, 2006 and December 31, 2005,
respectively |  |               | 25,244    |   |                  |   | 10,945    |  
|Deferred income taxes                                                                                                                           |  |               | 5,678     |   |                  |   | 5,678     |  
|Prepaid expenses and other current assets                                                                                                       |  |               | 20,973    |   |                  |   | 18,150    |  
|                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total current assets                                                                                                                            |  |               | 520,126   |   |                  |   | 454,658   |  
|                                                                                                                                                |  |              
|Property and Equipment:                                                                                                                         |  |               |           |   |                  |   |           |  
|Flight equipment                                                                                                                                |  |               | 531,785   |   |                  |   | 418,319   |  
|Less: Accumulated depreciation                                                                                                                  |  |               | (47,264   | ) |                  |   | (43,676   | )
|                                                                                                                                                |  |               |           |   |                  |   |           |  
|                                                                                                                                                |  |               | 484,521   |   |                  |   | 374,643   |  
|                                                                                                                                                |  |              
|Purchase deposits for flight equipment                                                                                                          |  |               | 142,129   |   |                  |   | 133,530   |  
|                                                                                                                                                |  |              
|Other property and equipment                                                                                                                    |  |               | 92,342    |   |                  |   | 92,269    |  
|Less: Accumulated depreciation                                                                                                                  |  |               | (41,479   | ) |                  |   | (39,158   | )
|                                                                                                                                                |  |               |           |   |                  |   |           |  
|                                                                                                                                                |  |               | 50,863    |   |                  |   | 53,111    |  
|                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total property and equipment                                                                                                                    |  |               | 677,513   |   |                  |   | 561,284   |  
|                                                                                                                                                |  |              
|Other Assets:                                                                                                                                   |  |               |           |   |                  |   |           |  
|Goodwill                                                                                                                                        |  |               | 8,350     |   |                  |   | 8,350     |  
|Tradename                                                                                                                                       |  |               | 21,567    |   |                  |   | 21,567    |  
|Debt issuance costs                                                                                                                             |  |               | 10,708    |   |                  |   | 10,285    |  
|Deferred income taxes  noncurrent                                                                                                              |  |               | 24,881    |   |                  |   | 18,825    |  
|Prepaid aircraft rent                                                                                                                           |  |               | 59,592    |   |                  |   | 57,850    |  
|Other assets                                                                                                                                    |  |               | 31,682    |   |                  |   | 26,090    |  
|                                                                                                                                                |  |               |           |   |                  |   |           |  
|Total assets                                                                                                                                    |  | $             | 1,354,419 |   |                  | $ | 1,158,909 |  
|                                                                                                                                                |  |               |           |   |                  |   |           |  

(Continued on next page)



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AirTran Holdings, Inc.

Condensed Consolidated Balance Sheets (Continued)

(In thousands)



|                                           |  |               |           |   |                  |   |           |  
|------------------------------------------ |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                           |  | March 31,2006 |           |   | December 31,2005 |  
|                                           |  | (Unaudited)   |           |   |                  |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |               |           |   |                  |   |           |  
|Current Liabilities:                       |  |               |           |   |                  |   |           |  
|Accounts payable                           |  | $             | 44,477    |   |                  | $ | 38,082    |  
|Accrued liabilities                        |  |               | 108,189   |   |                  |   | 98,001    |  
|Air traffic liability                      |  |               | 197,311   |   |                  |   | 115,157   |  
|Current portion of lease obligations       |  |               | 861       |   |                  |   | 717       |  
|Current portion of long-term debt          |  |               | 95,944    |   |                  |   | 70,515    |  
|                                           |  |               |           |   |                  |   |           |  
|Total current liabilities                  |  |               | 446,782   |   |                  |   | 322,472   |  
|                                           |  |              
|Long-term lease obligations                |  |               | 13,612    |   |                  |   | 13,971    |  
|Long-term debt, less current portion       |  |               | 453,693   |   |                  |   | 387,396   |  
|Other long-term liabilities                |  |               | 84,355    |   |                  |   | 83,150    |  
|                                           |  |              
|Commitments and Contingencies              |  |               |           |   |                  |   |           |  
|                                           |  |              
|Stockholders Equity:                      |  |               |           |   |                  |   |           |  
|Preferred stock                            |  |               |          |   |                  |   |          |  
|Common stock                               |  |               | 90        |   |                  |   | 89        |  
|Additional paid-in-capital                 |  |               | 381,263   |   |                  |   | 372,599   |  
|Accumulated deficit                        |  |               | (25,376   | ) |                  |   | (20,768   | )
|                                           |  |               |           |   |                  |   |           |  
|Total stockholders equity                 |  |               | 355,977   |   |                  |   | 351,920   |  
|                                           |  |               |           |   |                  |   |           |  
|Total liabilities and stockholders equity |  | $             | 1,354,419 |   |                  | $ | 1,158,909 |  
|                                           |  |               |           |   |                  |   |           |  

See accompanying Notes to Condensed Consolidated Financial Statements.



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AirTran Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                |  |                             |          |   |      |   |          |  
|------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                |  | Three Months EndedMarch 31, |         
|                                                                                |  | 2006                        |          |   | 2005 |  
|Operating activities:                                                           |  |                             |          |   |      |   |          |  
|Net Loss                                                                        |  | $                           | (4,608   | ) |      | $ | (8,029   | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                             |          |   |      |   |          |  
|Depreciation and amortization                                                   |  |                             | 6,821    |   |      |   | 4,546    |  
|Amortization of deferred gains from sale/leaseback of aircraft                  |  |                             | (1,096   | ) |      |   | (1,096   | )
|Provisions for uncollectible accounts                                           |  |                             | 155      |   |      |   | 69       |  
|Loss on asset disposal                                                          |  |                             | 1,068    |   |      |   | 773      |  
|Excess tax benefits from share-based compensation                               |  |                             | (2,395   | ) |      |   |         |  
|Deferred taxes                                                                  |  |                             | (6,056   | ) |      |   | (4,008   | )
|Share-based compensation                                                        |  |                             | 695      |   |      |   | 882      |  
|Changes in current operating assets and liabilities:                            |  |                             |          |   |      |   |          |  
|Restricted cash                                                                 |  |                             | (2,420   | ) |      |   | (999     | )
|Accounts receivable                                                             |  |                             | (11,360  | ) |      |   | (8,072   | )
|Spare parts, materials and supplies                                             |  |                             | (14,408  | ) |      |   | 4,303    |  
|Other assets                                                                    |  |                             | (7,187   | ) |      |   | (9,720   | )
|Accounts payable, accrued and other liabilities                                 |  |                             | 18,162   |   |      |   | 16,167   |  
|Air traffic liability                                                           |  |                             | 82,154   |   |      |   | 52,509   |  
|                                                                                |  |                             |          |   |      |   |          |  
|Net cash provided by operating activities                                       |  |                             | 59,525   |   |      |   | 47,325   |  
|                                                                                |  |                            
|Investing activities:                                                           |  |                             |          |   |      |   |          |  
|Purchases of property, plant and equipment                                      |  |                             | (19,933  | ) |      |   | (4,587   | )
|Payment of aircraft purchase deposits, net                                      |  |                             | (19,012  | ) |      |   | (12,663  | )
|Purchase of available-for-sale securities                                       |  |                             | (689,450 | ) |      |   | (295,450 | )
|Sales of available-for-sale securities                                          |  |                             | 482,375  |   |      |   | 218,100  |  
|                                                                                |  |                             |          |   |      |   |          |  
|Net cash used for investing activities                                          |  |                             | (246,020 | ) |      |   | (94,600  | )
|                                                                                |  |                            
|Financing activities:                                                           |  |                             |          |   |      |   |          |  
|Issuance of long-term debt                                                      |  |                             | 18,635   |   |      |   |         |  
|Payments of lease obligations and long-term debt                                |  |                             | (13,624  | ) |      |   | (2,208   | )
|Debt issuance costs                                                             |  |                             | (1,234   | ) |      |   |         |  
|Excess tax benefits from share-based compensation                               |  |                             | 2,395    |   |      |   |         |  
|Proceeds from sale of common stock                                              |  |                             | 7,969    |   |      |   | 681      |  
|                                                                                |  |                             |          |   |      |   |          |  
|Net cash provided by (used for) financing activities                            |  |                             | 14,141   |   |      |   | (1,527   | )
|                                                                                |  |                            
|Net decrease in cash and cash equivalents                                       |  |                             | (172,354 | ) |      |   | (48,802  | )
|Cash and cash equivalents at beginning of period                                |  |                             | 370,572  |   |      |   | 307,493  |  
|                                                                                |  |                             |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                      |  | $                           | 198,218  |   |      | $ | 258,691  |  
|                                                                                |  |                             |          |   |      |   |          |  
|Supplemental Disclosure of Cash Flow Activities:                                |  |                             |          |   |      |   |          |  
|Non-cash investing and financing activities                                     |  |                             |          |   |      |   |          |  
|Purchase of equipment under debt                                                |  | $                           | 86,500   |   |      | $ |         |  

See accompanying Notes to Condensed Consolidated Financial Statements.



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AIRTRAN HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 - Summary of Significant
Accounting Policies

Basis of Presentation

Our unaudited Condensed Consolidated Financial Statements include the accounts of AirTran Holdings, Inc. (Holdings) and our wholly-owned subsidiaries, including our principal subsidiary, AirTran Airways, Inc.
(Airways). 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 are of a normal recurring nature (other than non-recurring adjustments, which have been separately disclosed), necessary to present fairly the financial position, results of operations and cash flows for the periods presented.
Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States 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, 2005.

The preparation of the accompanying unaudited Condensed Consolidated Financial Statements
in conformity with accounting principles generally accepted in the United States 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.

Business

We offer scheduled airline services primarily in short-haul markets principally in the eastern United States.

Our financial and operating results for any interim period are not necessarily indicative of those for the entire year. Air travel in our markets tends to be seasonal,
with the highest level of travel occurring during the winter months to Florida and the summer months to the northeastern and western United States.

Fuel Adjustment

In March 2006, we corrected an error in our accounting for fuel expense recorded in prior periods. From 2003 to
2005, we had over-expensed, on a cumulative basis, fuel expense as a result of certain calculation errors related to fuel taxes. We concluded that the error was not material, either individually or in the aggregate, to our results of operations of
any prior period is not anticipated to be material to our results of operations for the year ending December 31, 2006, to trends for those periods affected, or to a fair presentation of our financial statements for those periods. Accordingly,
results for prior periods have not been restated. Instead, we reduced our aircraft fuel expense and increased prepaid fuel (spare parts, materials, and supplies) by $6.8 million to correct this error in the first quarter of 2006.

Reclassification

Certain 2005 amounts in the Condensed
Consolidated Statement of Cash Flows have been classified to conform to current presentation.

Stock-Based Employee Compensation

We have stock-based compensation plans covering officers, directors and key employees. Effective January 1, 2006, we adopted the provisions of Statement of
Financial Accounting Standards (SFAS) 123R, Share Based Payment, which requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards in
the financial statements. SFAS 123R supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and revises the guidance in SFAS 123, Accounting for Stock-Based Compensation.

Prior to January 1, 2006, we accounted for our stock-based compensation plans in accordance with APB No. 25 and related interpretations. Accordingly,
compensation expense for a stock option grant was recognized only if the exercise price was



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less that the market value of our common stock on the grant date. Prior to the adoption of SFAS 123R, as required under
the disclosure provisions of SFAS 123, we provided pro forma net income (loss) and earnings (loss) per share for each period presented as if we had applied the fair value method to measure stock-based compensation expense.

The following table illustrates the effect on net loss and loss per share for the three months ended March 31, 2005 as if we had applied the fair value method to
measure stock-based compensation, as required under the disclosure provision on SFAS 123 (in thousands, except for per share amounts):



|                                                                                                                           |  |                                   |        |  
|-------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------ | -
|                                                                                                                           |  | Three Months Ended March 31, 2005 |       
|Net loss, as reported                                                                                                      |  | $                                 | (8,029 | )
|                                                                                                                           | 
|Add: Stock-based employee compensation expense included in reported operations, net of related tax effects                 |  |                                   | 535    |  
|                                                                                                                           | 
|Deduct: Stock-based employee compensation expense determined under the fair value based method, net of related tax
effects |  |                                   | (872   | )
|                                                                                                                           |  |                                   |        |  
|Pro forma net loss                                                                                                         |  | $                                 | (8,366 | )
|                                                                                                                           |  |                                   |        |  
|EARNINGS (LOSS) PER SHARE:                                                                                                 |  |                                   |        |  
|                                                                                                                           | 
|Basic, as reported                                                                                                         |  | $                                 | (0.09  | )
|Basic, pro forma                                                                                                           |  | $                                 | (0.10  | )
|                                                                                                                           | 
|Diluted, as reported                                                                                                       |  | $                                 | (0.09  | )
|Diluted, pro forma                                                                                                         |  | $                                 | (0.10  | )

The adoption of SFAS 123R affected our accounting for stock options and our employee stock purchase plan. The
change in the accounting for the stock purchase plan does not have a material impact on our statement of operations.

Stock Options

SFAS 123R is effective for all stock options that we grant beginning January 1, 2006. For those stock options that were
granted prior to January 1, 2006, but for which the vesting period is not complete, we used the modified prospective method of accounting permitted under SFAS 123R. Under this method, stock option awards granted prior to
January 1, 2006, but for which the vesting period is not complete, must be accounted for on a prospective basis with the related cost being recognized in the financial statements beginning with the first quarter of 2006 using the grant date
fair values previously calculated for our pro forma disclosures. We will recognize the related compensation costs not previously recognized in the pro forma disclosures over the remaining vesting period.

During 2005, we accelerated the vesting for all unvested stock options awarded that had an exercise price greater than the market price on the date of the acceleration.
The purpose of accelerating the vesting of these options was to avoid compensation expense in 2006 associated with the unvested options upon adoption of SFAS 123R. We have recognized $0.1 million in compensation expense related to the adoption of
SFAS 123R during the three months ended March 31, 2006. As all outstanding options vested during the first quarter 2006, and we do not anticipate granting any options during 2006, we do not expect to incur additional expense related to the
adoption of SFAS 123R for the year ending December 31, 2006.

SFAS 123R also requires that the benefits associated with the tax deductions in excess
of recognized compensation cost be reported as a financing cash flow rather than as a operating cash flow. The accompanying unaudited Statements of Cash Flows for the three months ended March 31, 2006 includes excess tax benefit of $2.4
million.



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We utilize the Black-Scholes model to estimate the fair value of options at the date of grant. There were no options
granted during the three months ended March 31, 2006.

A summary of stock option activity under the aforementioned plan is as follows:



|                              |  |           |   |  |                        |      
|----------------------------- |  | --------- | - |  | ---------------------- | -----
|                              |  | Options   |   |  | Weighted Average Price
|Balance at January 1, 2006    |  | 4,856,864 |   |  | $                      | 7.77 
|Issued                        |  |          |   |  |                        |     
|Exercised                     |  | (814,390  | ) |  | $                      | 6.07 
|Canceled                      |  | (609,783  | ) |  | $                      | 18.69
|                              |  |           |   |  |                        |      
|Balance at March 31, 2006     |  | 3,432,691 |   |  | $                      | 6.31 
|                              |  |           |   |  |                        |      
|Exercisable at March 31, 2006 |  | 3,348,460 |   |  | $                      | 6.47 
|                              |  |           |   |  |                        |      

The following table summarizes information concerning outstanding and exercisable options at March 31, 2006:



|                         |  |                     |  |                                                    |  |                                 |       |                    |           |                                 |   |      
|------------------------ |  | ------------------- |  | -------------------------------------------------- |  | ------------------------------- | ----- | ------------------ | --------- | ------------------------------- | - | -----
|                         |  | Options Outstanding |  | Options Exercisable                               
|Range of Exercise Prices |  | Number Outstanding  |  | Weighted Average RemainingContractual Life (Years) |  | Weighted Average Exercise Price |       | Number Exercisable |           | Weighted Average Exercise Price
|2.78 - 4.00              |  | 1,151,033           |  | 3.8                                                |  | $                               | 3.28  |                    | 1,151,033 |                                 | $ | 3.28 
|4.22 -5.97               |  | 747,362             |  | 5.6                                                |  | $                               | 4.91  |                    | 747,362   |                                 | $ | 4.91 
|6.08 - 9.12              |  | 1,109,810           |  | 5.6                                                |  | $                               | 8.05  |                    | 1,025,579 |                                 | $ | 8.05 
|10.00 -13.80             |  | 424,486             |  | 8.7                                                |  | $                               | 12.43 |                    | 424,486   |                                 | $ | 12.43
|2.78-13.80               |  | 3,432,691           |  | 5.4                                                |  | $                               | 6.31  |                    | 3,348,460 |                                 | $ | 6.47 

The intrinsic value of the options exercised in the first quarter 2006 and 2005, determined as of the date of
exercise of options, was $8.7 million and $0.2 million, respectively. The fair value of the shares exercised as of March 31, 2006 was $2.4 million.

Restricted Stock Awards

Stock awards have been granted to our officers and key employees pursuant to our 2002
Long-Term Incentive Plan. Stock awards are grants that entitle the holder to shares of our common stock as the award vests and are valued at the fair market value of the stock on the date of issuance. During the first three months of 2006, we
granted approximately 17,000 stock awards and recorded deferred compensation related to such awards of approximately $0.3 million. Approximately $0.7 million of deferred compensation was amortized as compensation expense during the first three
months of 2006. Approximately 110,000 shares of common stock were issued during the first three months of 2006 relating to these stock awards.

Prior to
our adoption of SFAS 123R, we presented unearned compensation related to restricted stock awards as a separate component of stockholders equity. In accordance with SFAS 123R, on January 1, 2006, we reclassified unearned compensation as
additional paid-in capital on our balance sheet.



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Note 2 - Earnings (Loss) Per Common Share

The following table sets forth the computation of basic and diluted earnings (loss) per common share:



|                                                       |  |                             |        |   |      |   |        |  
|------------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                       |  | Three months endedMarch 31, |       
|(in thousands, except per share amounts)               |  | 2006                        |        |   | 2005 |  
|NUMERATOR:                                             |  |                             |        |   |      |   |        |  
|Net income (loss) available to common stockholders     |  | $                           | (4,608 | ) |      | $ | (8,029 | )
|                                                       |  |                             |        |   |      |   |        |  
|DENOMINATOR:                                           |  |                             |        |   |      |   |        |  
|Weighted-average shares outstanding, basic and diluted |  |                             | 87,775 |   |      |   | 86,743 |  
|                                                       |  |                             |        |   |      |   |        |  
|EARNINGS (LOSS) PER SHARE:                             |  |                             |        |   |      |   |        |  
|Basic                                                  |  | $                           | (0.05  | ) |      | $ | (0.09  | )
|                                                       |  |                            
|Diluted                                                |  | $                           | (0.05  | ) |      | $ | (0.09  | )

Excluded from the diluted earnings per share calculation for the three month periods ended March 31, 2006 and
2005 are 11.2 million shares related to our 7% convertible notes, stock options, restricted stock and 1.0 million shares issuable for detachable stock purchase warrants because the effect of including these shares would have been
anti-dilutive.

Note 3 - Commitments and Contingencies

Aircraft Purchase Commitments

During the first quarter of 2006, we took delivery of five B737 aircraft. Of
the five aircraft, two were leased under operating leases while three were purchased through debt financing. Subsequent to the end of the quarter, we exercised options and purchase rights to acquire 24 additional B737 aircraft with
delivery dates through 2010 and also acquired new purchase rights for 12 additional B737 aircraft from the aircraft manufacturer with delivery dates through 2012. As of March 31, 2006, we had on order two B717 aircraft with delivery
dates in 2006 and 75 B737 aircraft with delivery dates between 2006 and 2010. The table below illustrates all aircraft scheduled for delivery through 2010, including the effect of the aforementioned transactions:



|        |  |                          |  |     
|------- |  | ------------------------ |  | ----
|        |  | Firm Aircraft Deliveries
|        |  | B737                     |  | B717
|2006    |  | 13                       |  | 2   
|2007    |  | 19                       |  |    
|2008    |  | 18                       |  |    
|2009    |  | 15                       |  |    
|2010    |  | 10                       |  |    
|        |  |                          |  |     
|Total * |  | 75                       |  | 2   
|        |  |                          |  |     

---

|* | We have purchase rights to acquire up to 12 B737 aircraft in addition to the totals shown above.
|- | ------------------------------------------------------------------------------------------------

Of the 75 B737 aircraft on order, we have secured lease financing on five of the aircraft to be delivered in 2006 through an arrangement with an aircraft leasing company and have secured debt financing for 12 of the
aircraft, including eight to be delivered in 2006, through arrangements with financial institutions. As a result, we have secured financing for all our B737



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##### Table of Contents

aircraft scheduled for delivery in 2006. Additionally, we have entered into sale/leaseback transactions with the aircraft
leasing company referred to above with respect to six related spare engines to be delivered through 2010 for the B737 aircraft.

During 2006, we are
scheduled to take delivery of two remaining B717 aircraft, which are to be leased through an affiliate of the aircraft manufacturer.

General
Indemnifications and Litigation

We are party to many routine contracts under which we indemnify third parties for various risks. We have not
accrued any liability for any of these indemnities, as the amount is not determinable or estimable. These indemnities consist of the following:

Certain of
Airways debt agreements related to certain aircraft-secured notes payable through 2017 contain language whereby we have agreed to indemnify certain holders of certificates evidencing the debt associated with such notes, as necessary, to
compensate them for any costs incurred by, or any reduction in receivables due to such certificate holders resulting from broadly defined regulatory changes that impose or modify any reserve, special deposit or similar requirements relating to any
extensions of credit or other assets of, or any deposits with or other liabilities of such certificate holders. Additionally, if it becomes unlawful for such certificate holders to make or maintain the investment or credit evidenced by the
certificates, we have agreed to pay such certificate holders an amount necessary to cause the interest rate with respect to the certificates to be a rate per annum equal to 4.88% over the rate specified by such certificate holders as the cost to
them of obtaining funds in dollars in the United States in an amount equal to the pool balance of the certificates. The maximum potential payment under these indemnities cannot be determined.

Airways aircraft lease transaction documents contain customary indemnities concerning withholding taxes under which we are responsible in some circumstances,
should withholding taxes be imposed, for paying such amounts of additional rent as is necessary to ensure that the lessor still receives, after taxes, the rent stipulated in the lease agreements. These provisions apply on leases expiring through
2023. The maximum potential payment under these indemnities cannot be determined.

In our aircraft financing agreements, we typically indemnify the
financing parties, the trustee acting on their behalf and other related parties against liabilities that arise from the manufacture, design, ownership, financing, use, operation, and maintenance of the aircraft for tort liability, whether or not
these liabilities arise out of or relate to the negligence of these indemnified parties, except for their gross negligence or willful misconduct. We believe that we are covered by insurance (subject to deductibles) for most tort liabilities and
related indemnities as described above with respect to the aircraft we operate. Additionally, if there is a change in the law which results in the imposition of any reserve, capital adequacy, special deposit, or similar requirement the result of
which is to increase the cost to the lender, we will pay the lender the additional amount necessary to compensate the lender for the actual cost increase.

We have various leases with respect to real property, and various agreements among airlines relating to fuel consortia or fuel farms at airports, under which we have agreed to standard language indemnifying the lessor against environmental
liabilities associated with the real property covered under the agreement, even if we are not the party responsible for the environmental damage. In the case of fuel consortia at the airports, these indemnities are generally joint and several among
the airlines. We cannot quantify the maximum potential exposure under these indemnities, and we do not currently have liability insurance that protects us against environmental damages.

Under certain contracts with third parties, we indemnify the third party against legal liability arising out of an action by a third party. The terms of these contracts vary and the potential exposure under these
indemnities cannot be determined. Generally, we have liability insurance protecting us from obligations undertaken under these indemnities.

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



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##### Table of Contents

Debt

The components of long-term debt, including capital lease obligations were (in thousands):



|                                                                                                |  |               |         |    |                  |   |         |  
|----------------------------------------------------------------------------------------------- |  | ------------- | ------- | -- | ---------------- | - | ------- | -
|                                                                                                |  | March 31,2006 |         |    | December 31,2005 |  
|Floating rate aircraft notes payable through 2018, 5.76% weighted average interest rate         |  | $             | 141,092 |    |                  | $ | 138,906 |  
|Fixed rate aircraft notes payable through 2018, 6.95% weighted average interest rate            |  |               | 80,771  |    |                  |   |        |  
|7.00% Convertible notes due 2023                                                                |  |               | 125,000 |    |                  |   | 125,000 |  
|Aircraft notes payable through 2017, 10.64% weighted-average interest rate                      |  |               | 107,036 |    |                  |   | 107,036 |  
|Floating rate aircraft pre-delivery deposit financing payable through 2007, 6.08% interest rate |  |               | 62,403  |    |                  |   | 57,153  |  
|Floating rate aircraft pre-delivery deposit financing payable through 2008, 5.74% interest rate |  |               | 27,947  |    |                  |   | 19,950  |  
|Floating rate aircraft pre-delivery deposit financing payable through 2008, 6.58% interest rate |  |               | 5,388   |    |                  |   | 9,866   |  
|Capital lease obligations payable through 2015, 14.03% weighted-average interest rate           |  |               | 14,473  |    |                  |   | 14,688  |  
|                                                                                                |  |               |         |    |                  |   |         |  
|Total long-term debt                                                                            |  |               | 564,110 |    |                  |   | 472,599 |  
|Current maturities                                                                              |  |               | (96,805 | )) |                  |   | (71,232 | )
|                                                                                                |  |               |         |    |                  |   |         |  
|Long-term debt maturities                                                                       |  | $             | 467,305 |    |                  | $ | 401,367 |  

Additional Permanent Aircraft Financing Facility

On February 14, 2006, we entered into a fourth floating rate aircraft facility, pursuant to which we financed the acquisition of two additional B737. We took
delivery of the first such aircraft in February 2006 and the second such aircraft in March 2006. In conjunction with the financing of these B737 aircraft, we issued equipment notes as aircraft were delivered for an aggregate amount of $58.0 million
with maturities between February and March 2018. The notes bear interest at a floating rate per annum above the six-month LIBOR, 6.39% and 6.47%, respectively at March 31, 2006, and are payable semi-annually.

During April 2006, we exercised the fixed rate option on three of our floating rate aircraft notes. The notes are payable through 2018 and paid interest at a floating
rate per annum above the six-month LIBOR and have been modified to bear interest at a fixed rate of 6.925%, 6.95% and 6.965%, respectively. Payments of principal and interest will continue to be paid semi-annually.

Credit Facility

As of March 31, 2006 $14.5 million of
restricted cash on the accompanying consolidated balance sheet relates to outstanding letters of credit, primarily for airport facilities.

Note
4 - Income Taxes

Our effective income tax rate was 37.9 percent for the three months ended March 31, 2006 compared to 33.3 percent for
the three months ended March 31, 2005. Included in our 2005 effective tax rate were non-recurring discrete items related to state income taxes that reduced our effective tax rate.

Note 5  Subsequent Event

On April 6, 2006, 55,468 warrants were exercised for the purchase of our common
stock. Each warrant entitled the purchaser to 18.0289 shares of common stock for a total of 1,000,024 warrant shares at $4.51 per warrant share. Total proceeds from aforementioned transaction amounted to approximately $4.5 million.



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##### Table of Contents

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

FORWARD-LOOKING
STATEMENTS

The information contained in this section: (i) 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, in addition to our Annual Report on Form 10-K for the year ended December 31, 2005 as filed with the U.S. Securities & Exchange Commission;
and (ii) is not a comprehensive discussion and analysis of our financial condition and results of operations, but rather updates disclosures made in such Annual Report. 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 cost and availability of aviation fuel. Our forward-looking statements 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. 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

The first quarter of 2006 was another challenging quarter for us as we saw the price of fuel, which has become our largest expense, reach record-high levels and remain at
historically high levels throughout the quarter. Additionally two of our significant competitors continue to operate under the protection of bankruptcy law as they reorganize their operations. Excess industry capacity continues to contribute to
intense price competition. However, during the quarter we began to see several competitors reduce capacity in key markets we serve.

For the first quarter
of 2006, we continued our expansion, increasing capacity or available seat miles (ASM), by 24.4 percent. Passengers carried or revenue passenger seat miles (RPM), increased by 24.9 percent, resulting in a load factor of 70.8 percent, up 0.3
percentage points from the prior year quarter. More importantly, unit revenue or revenue per available seat mile (RASM), increased by 11 percent resulting in overall revenue growth of nearly 39 percent.

Our fleet expanded to 110 aircraft during the first quarter of 2006 with the delivery of five new Boeing 737-700 (B737) aircraft. Subsequent to the end of the quarter,
we exercised options and purchase rights for 24 additional B737 with delivery dates into 2010. We plan to continue our growth by adding two additional B717 and 13 B737 aircraft throughout the remainder of 2006. Our expectation is that these new
aircraft will play an important role in our effort to continue providing our customers with a mix of low fares and excellent customer service while also improving our financial results, increasing revenue opportunities and lowering our cost of doing
business.

As we continue into 2006, our capacity is anticipated to increase at about the same level as the first quarter  we estimate our capacity
at the end of the year to be about 23 percent higher than 2005. We initiated service to White Plains, NY in April and will be adding seasonal service to Seattle, WA in May. We anticipate that both of these markets will increase our revenue
opportunities.

We will continue to face several challenges through the year. Managing costs in the face of record fuel levels will continue to be a
primary focus. We estimate that in the second quarter 2006, based on projected crude oil prices ranging from $70 to $75 a barrel and refinery prices ranging from $15 to $20 a barrel, our all-in fuel cost per gallon will be $2.35 to $2.40 per gallon.

Two of our competitors are operating in bankruptcy which creates uncertainty in a number of competitive markets in both the near and long term.
Additionally as our fuel costs continue to rise, we cannot guarantee that we will be able to raise revenues to match the increasing fuel costs.

Our
financial and operating results for any interim period are not necessarily indicative of those for the entire year. Air travel in our markets tends to be seasonal, with the highest level of travel occurring during the winter months to Florida and
the summer months to the northeastern and western United States.



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RESULTS OF OPERATIONS

For the three months ended March 31, 2006 and 2005

The table below sets forth selected financial and
operating data for the three months ended March 31, 2006 and 2005:



|                                                               |  |                             |           |   |                |   |           |   |  |      |       
|-------------------------------------------------------------- |  | --------------------------- | --------- | - | -------------- | - | --------- | - |  | ---- | ------
|                                                               |  | Three Months EndedMarch 31, |           |   | Percent Change |  
|                                                               |  | 2006                        |           |   | 2005           |   |          
|Revenue passengers                                             |  |                             | 4,487,485 |   |                |   | 3,557,709 |   |  | 26.1 |       
|Revenue passenger miles (RPM) (000s)                           |  |                             | 3,060,268 |   |                |   | 2,449,780 |   |  | 24.9 |       
|Available seat miles (ASM) (000s)                              |  |                             | 4,321,744 |   |                |   | 3,473,998 |   |  | 24.4 |       
|Passenger load factor                                          |  |                             | 70.8      | % |                |   | 70.5      | % |  | 0.3  | pts.  
|Break-even load factor                                         |  |                             | 72.1      | % |                |   | 73.5      | % |  | (1.4 | ) pts.
|Average fare                                                   |  | $                           | 88.99     |   |                | $ | 81.27     |   |  | 9.5  |       
|Average yield per RPM                                          |  |                             | 13.05     | ¢ |                |   | 11.80     | ¢ |  | 10.6 |       
|Passenger revenue per ASM                                      |  |                             | 9.24      | ¢ |                |   | 8.32      | ¢ |  | 11.1 |       
|Operating cost per ASM                                         |  |                             | 9.73      | ¢ |                |   | 8.90      | ¢ |  | 9.3  |       
|Average stage length (miles)                                   |  |                             | 646       |   |                |   | 659       |   |  | (2.0 | )     
|Average cost of aircraft fuel per gallon, including fuel taxes |  |                             | 196.63    | ¢ |                |   | 147.86    | ¢ |  | 33.0 |       
|Average daily utilization (hours:minutes)                      |  |                             | 11:12     |   |                |   | 10:57     |   |  | (2.3 | )     
|Number of operating aircraft in fleet at end of period         |  |                             | 110       |   |                |   | 92        |   |  | 19.6 |       

Summary

We
recorded an operating loss of $4.5 million, a net loss of $4.6 million and loss per basic and diluted common share of $0.05 for the first quarter of 2006. Included in the results of the first quarter was a credit of $4.2 million, net of tax, related
to the correction of an error in our accounting for fuel expense in prior periods. See Note 1 of the Notes to Condensed Consolidated Financial Statements. Excluding the credit related to the prior period fuel expense correction, we would have
recorded net loss of $8.8 million and loss per basic and diluted common share of $0.10 for the first quarter 2006. For the comparative period in 2005, we recorded operating loss of $9.4 million, net loss of $8.0 million and earnings per basic and
diluted common share of $0.09.

Operating Revenues

Our
operating revenues for the three months ended March 31, 2006 increased $116.3 million (38.8 percent), primarily due to a 38.1 percent increase in passenger revenues. The increase in passenger revenues was largely due to a 24.9 percent increase
in passengers, as measured by RPMs, and an increase in our average yield per RPM of 10.6 percent to 13.05 cents per RPM. The increase in yield resulted primarily from a 9.5 percent increase in our average fare to $88.99. This increase in yield, when
combined with our 0.3 percentage point increase in passenger load factor, resulted in an 11.1 percent increase in passenger unit revenues or RASM to 9.24 cents per ASM.

Since March 31, 2005, we have taken delivery of four B717 and 14 B737 aircraft. As a result, our capacity, as measured by ASMs, increased 24.4 percent. Our traffic, as measured by RPMs, increased 24.9 percent,
resulting in a 0.3 percentage point increase in passenger load factor to 70.8 percent.

Operating Expenses

Our operating expenses increased by $111.4 million (36.0 percent) on an ASM increase of 24.4 percent. In general, our operating expenses are significantly affected by
changes in our capacity, as measured by ASMs. The following table presents our unit costs, or our operating expenses per ASM, for the three months ended March 31, 2006 and 2005, respectively:



|                                         |  |                             |   |  |                |   |  |       |  
|---------------------------------------- |  | --------------------------- | - |  | -------------- | - |  | ----- | -
|                                         |  | Three Months EndedMarch 31, |   |  | Percent Change |  
|                                         |  | 2006                        |   |  | 2005           |   | 
|Aircraft fuel                            |  | 3.22                        | ¢ |  | 2.46           | ¢ |  | 30.9  |  
|Salaries, wages and benefits             |  | 2.13                        |   |  | 2.26           |   |  | (5.8  | )
|Aircraft rent                            |  | 1.24                        |   |  | 1.28           |   |  | (3.1  | )
|Maintenance, materials and repairs       |  | 0.91                        |   |  | 0.67           |   |  | 35.8  |  
|Distribution                             |  | 0.37                        |   |  | 0.44           |   |  | (15.9 | )
|Landing fees and other rents             |  | 0.52                        |   |  | 0.52           |   |  |      |  
|Aircraft insurance and security services |  | 0.14                        |   |  | 0.15           |   |  | (6.7  | )
|Marketing and advertising                |  | 0.26                        |   |  | 0.28           |   |  | (7.1  | )
|Depreciation                             |  | 0.14                        |   |  | 0.12           |   |  | 16.7  |  
|Other operating                          |  | 0.80                        |   |  | 0.72           |   |  | 11.1  |  
|                                         |  |                             |   |  |                |   |  |       |  
|Total CASM                               |  | 9.73                        | ¢ |  | 8.90           | ¢ |  | 9.3   |  
|                                         |  |                             |   |  |                |   |  |       |  



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##### Table of Contents

Aircraft fuel increased 30.9 percent on an ASM basis. Aircraft fuel increased primarily due to escalating fuel
prices. Our fuel price per gallon increased 33.0 percent from 147.86 cents during the first quarter of 2005 to 196.63 cents, including taxes, during the first quarter of 2006. The level of our flight operations, as measured by block hours flown,
increased 21.4 percent while our fuel consumption per block hour increased slightly 1.1 percent to 662 gallons. In a continued effort to reduce our fuel costs, we have been adding winglets to our B737 aircraft as they are delivered. These
enhancements extend the aircraft range, improve performance, and reduce fuel costs.

In March 2006, we corrected an error our accounting for fuel expense
recorded in prior periods. From 2003 to 2005, we had over-expensed, on a cumulative basis, fuel expense as a result of certain calculation errors related to fuel taxes. We concluded that the error was not material, either individually or in the
aggregate, to our results of operations of any prior period is not anticipated to be material to our results of operations for the year ending December 31, 2006, to trends for those periods affected, or to a fair presentation of our financial
statements for those periods. Accordingly, results for prior periods have not been restated. Instead, we reduced our aircraft fuel expense and increased prepaid fuel (spare parts, materials, and supplies) by $6.8 million to correct this error in the
first quarter of 2006.

Salaries, wages and benefits decreased 5.8 percent on an ASM basis, primarily due to gains in productivity driven by the
increased number of aircraft and higher daily utilization. We employed approximately 6,900 full-time equivalent employees, as of March 31, 2006, representing a 13.1 percent increase over the comparative period in 2005.

Maintenance, materials and repairs increased 35.8 percent on an ASM basis. On a block hour basis, maintenance costs increased 38.3 percent to $365 per block hour
primarily due to an increase in our power by the hour contractual rates for our B717 engines. As the original manufacturer warranties expire on our B717 and B737 aircraft the maintenance, repair and overhaul of major aircraft components become
covered by previously negotiated agreements with FAA-approved maintenance contractors. Contractually we pay monthly fees based on either the number of flight hours flown or the number of landings.

Distribution costs decreased 15.9 percent on an ASM basis reflecting the new rates in our GDS agreements that were renegotiated during the fourth quarter 2005.
Additionally for the three months ended March 31, 2006, approximately 59% of our revenue sales were made via our internal website, Airtran.com. We recognize significant cost savings when our sales are booked directly through our website as
opposed to more traditional methods, such as travel agent systems (GDS).

Aircraft insurance and security services decreased 6.7 percent on an ASM
basis. While the addition of 18 new Boeing aircraft to our fleet since March 31, 2005 increased our total insured hull value and related insurance premiums, the decrease on an ASM basis is primarily due to a reduction in hull and liability
insurance rates and security costs for our fleet coverage.

Marketing and advertising decreased 7.1 percent on an ASM basis due to less costly
online advertising and reduced spending for marketing and advertising on new destinations.



15



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##### Table of Contents

Depreciation increased 16.7 percent on an ASM basis, primarily due to the purchase of six B737 aircraft since
March 31, 2005 and purchases of spare aircraft parts for the new B737 fleet. With the exception of the six B737s, all aircraft additions since March 31, 2005 were lease financed rather than purchased.

Other operating expenses increased 11.1 percent on an ASM basis primarily from added passenger-related costs associated with the higher level of operations and
contractual costs related to the opening of new destinations and routes.

Non-operating Expenses

Other expense, net increased by $0.3 million. Higher invested cash balances along with higher interest rates increased interest income by $2.2 million. Interest
expense increased by $2.5 million primarily due aircraft debt financings and pre-delivery purchase deposit financings entered into during 2005 and 2006.

Income Tax Expense

Our effective income tax rate was 37.9 percent for the three months ended March 31, 2006 compared to 33.3 percent
for the three months ended March 31, 2005. Included in our 2005 effective tax rate were non-recurring discrete items related to state income taxes that reduced our effective tax rate.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of funds are
cash provided by operating and financing activities. Our primary uses of cash are for working capital (including labor and fuel costs), capital expenditures and general corporate purposes, which may include the acquisition of other airlines and
their assets, whether in connection with bankruptcy proceedings relating to such carriers of their assets or otherwise in other investments in strategic alliances, code-sharing agreements or other business arrangements.

Our total cash, including cash and cash equivalents, restricted cash and short-term investments totaled $427.2 million and $390.1 million at March 31, 2006, and
December 31, 2005, respectively. Short-term investments represent auction rate securities with reset periods less than 12 months.

Operating
activities for the three months ended March 31, 2006 generated $59.5 million of cash compared to $47.3 million for the comparable period in 2005. The increase was, primarily, due to an increase in passenger bookings for future travel and a
decrease in net loss. This was offset by an increase in accounts receivables and spare parts, material and supplies.

Investing activities for the
three months ended March 31, 2006 used $246.0 million in cash compared to $94.6 million for the comparable period in 2005. Our investing activities primarily consist of capital expenditures related to aircraft, aircraft purchase deposits
required for scheduled deliveries in future periods and purchases and sales of auction rate securities. Additionally, cash is used for the purchase of spare parts and equipment related to the B717 and B737 aircraft fleets.

Financing activities for the three months ended March 31, 2006 generated $14.1 million of cash compared to usage of $1.5 million for the comparable period in
2005. During 2006, we generated cash from the issuance of debt financing for aircraft pre-delivery deposits of $18.6 million, offset by debt repayments of $13.6 million. Additionally during 2006 we generated $8.0 million from the sale of common
stock and $2.4 million related to excess tax benefits from share-based compensation.

Aircraft Purchase Commitments

During the first quarter of 2006, we took delivery of five B737 aircraft. Of the five aircraft, two were leased under operating leases while three were purchased through
debt financing. Subsequent to the end of the quarter, we exercised options and purchase rights to acquire 24 additional B737 aircraft with delivery dates through 2010 and also acquired new purchase rights for 12 additional B737
aircraft from the aircraft manufacturer with delivery dates through 2012. As of March 31, 2006, we had on order two B717 aircraft with delivery dates in 2006 and 75 B737 aircraft with delivery dates between 2006 and 2010. The table below
illustrates all aircraft scheduled for delivery through 2010, including the effect of the aforementioned transactions:



|        |  |                          |  |     
|------- |  | ------------------------ |  | ----
|        |  | Firm Aircraft Deliveries
|        |  | B737                     |  | B717
|2006    |  | 13                       |  | 2   
|2007    |  | 19                       |  |    
|2008    |  | 18                       |  |    
|2009    |  | 15                       |  |    
|2010    |  | 10                       |  |    
|        |  |                          |  |     
|Total * |  | 75                       |  | 2   
|        |  |                          |  |     

---

|* | We have purchase rights to acquire up to 12 B737 aircraft in addition to the totals shown above.
|- | ------------------------------------------------------------------------------------------------



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Of the 75 B737 aircraft on order, we have secured lease financing on five of the aircraft to be delivered in 2006 through
an arrangement with an aircraft leasing company and have secured debt financing for 12 of the aircraft, including eight to be delivered in 2006, through arrangements with financial institutions. As a result, we have secured financing for all our
B737 aircraft scheduled for delivery in 2006. Additionally, we have entered into sale/leaseback transactions with the aircraft leasing company referred to above with respect to six related spare engines to be delivered through 2010 for the B737
aircraft.

During 2006, we are scheduled to take delivery of two remaining B717 aircraft, which are to be leased through an affiliate of the aircraft
manufacturer.

Debt Agreements

On
February 14, 2006, we entered into a fourth floating rate aircraft facility, pursuant to which we financed the acquisition of two additional B737. We took delivery of the first such aircraft in February 2006 and the second such aircraft in
March 2006. In conjunction with the financing of these B737 aircraft, we issued equipment notes as aircraft were delivered for an aggregate amount of $58.0 million with maturities between February and March 2018. The notes bear interest at a
floating rate per annum above the six-month LIBOR, 6.39% and 6.47%, respectively at March 31, 2006, and are payable semi-annually.

During April 2006,
we exercised the fixed rate option on three of our floating rate aircraft notes. The notes are payable through 2018 and paid interest at a floating rate per annum above the six-month LIBOR and have been modified to bear interest at a fixed rate of
6.925%, 6.95% and 6.965%, respectively. Payments of principal and interest will continue to be paid semi-annually.

Credit Facility

As of March 31, 2006 $14.5 million of restricted cash on the accompanying consolidated balance sheet relates to outstanding letters of credit,
primarily for airport facilities.

Other Sources of Liquidity

We have various options available to meet our capital and operating commitments including internally generated funds and various borrowing or leasing options. Additionally we have an outstanding shelf registration
which we may utilize to raise funds for aircraft financings or other purposes in the future. There can be no assurance that financing will be available for all B737 aircraft deliveries or for other capital expenditures not covered by firm financing
commitments. Should fuel prices remain high and if we are unable to raise prices to cover our costs, we may slow our growth, including through the subleasing of certain of our aircraft.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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, 2005, other than those discussed below.



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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 March 31, 2006 and 2005 represented approximately 33.1 percent and 27.6
percent of our operating expenses, respectively. Excluding the effect of the credit related to the correction of the error in our fuel accounting, aircraft fuel expense for the three months ended March 31, 2006 would have represented
approximately 34.7 percent of our operating expenses. Efforts to reduce our exposure to increases in the price and availability of aviation fuel include the utilization of fuel purchase contracts involving both fixed-price arrangements and cap
arrangements. Fixed-price arrangements consist of an agreement to purchase defined quantities of aviation fuel from a third party at defined prices. Cap arrangements consist of an agreement to purchase defined quantities of aviation fuel from a
third party at a price not to exceed a defined price, limiting our exposure to upside market risk. As of March 31, 2006, utilizing fixed-price and cap arrangements, we entered into agreements for approximately 28.5 percent and 15.4 percent of
our anticipated fuel needs at a weighted average price of $1.64 and $1.54, respectively per gallon of aviation fuel for the remainder of 2006 and 2007, including delivery of such fuel to our operation hub in Atlanta and other locations. Subsequent
to the end of the quarter, we entered into additional fuel purchase contracts. These new contracts changed our total future fuel commitments such that as of April 24, 2006, we have entered into agreements for approximately 30.9 percent of our
fuel needs in the remainder of 2006 at prices no higher than $1.70 per gallon of aviation fuel.

Based on our 2006 projected fuel consumption, a 10 percent
increase in the average price per gallon of aircraft fuel would increase fuel expense for the remainder of the year by approximately $32.2 million including the effect of our fuel purchase contracts. Increases in fuel prices or a shortage of supply
could have a material adverse effect on our operations, operating results, and cash flows.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that we are able to
collect the information that we are required to disclose in the reports we file with the Securities and Exchange Commission (SEC), and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. As
of March 31, 2006, we carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange
Act Rule 13a-15e. As a result of the material weakness described below, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2006.

As discussed in the Form 10-K filing for the fiscal year ended December 31, 2005, we determined that a material weakness exists relating to inadequate staffing and
a lack of financial accounting expertise. Our management, with the oversight of the Companys Audit Committee, has devoted considerable effort to remediating the material weakness identified. However, as of March 31, 2006, the Company had
not fully remediated the material weakness in the Companys internal control over financial reporting. The Companys remediation plan is as follows:



| |  |  | During the first quarter the Company has filled one of its open supporting staff positions and is diligently seeking to fill the remaining two open staff positions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the first quarter the Company filled one additional accounting management position.
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | The Company will provide education regarding effective review procedures to the appropriate accounting and financial personnel.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

The remediation efforts described above have materially affected our internal controls over financial reporting. Other than those remediation efforts, there has been no
change in our internal control over financial reporting during the three months ended March 31, 2006, that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.



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##### Table of Contents

PART II.

OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Information regarding risk factors appears in MD&A  Forward-Looking
Statements, in Part I  Item 2 of this Form 10-Q and in Risk Factors in Part I  Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005. While we believe there have been no material changes
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. In addition to risks and uncertainties inherent in
forward looking statements contained in this Report on Form 10-Q, 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. Whenever we refer to AirTran, we, our, or us in this Item 1A, we mean AirTran Holdings, Inc. and its subsidiaries, unless the context suggests otherwise.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits

The following exhibits are filed with this report:



| | (a) | Exhibit No. Description
| | --- | -----------------------



|      |  |   |  |                                                                                                                                                                                                                   
|----- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.41 |  | - |  | Loan Agreement, dated as of February 10, 2006, by and among AirTran, as Borrower, Each Lender Identified in Schedule 1 thereto, as Lender, and Wells Fargo Bank Northwest, National
Association, as Security Agent
|      |  |  
|31.1  |  | - |  | Rule 13(a)-14 Certification of Chief Executive Officer                                                                                                                                                            
|      |  |  
|31.2  |  | - |  | Rule 13(a)-14 Certification of Chief Financial Officer                                                                                                                                                            
|      |  |  
|32.1  |  | - |  | CEO certification pursuant to 18 U.S.C. Section 1350                                                                                                                                                              
|      |  |  
|32.2  |  | - |  | CFO certification pursuant to 18 U.S.C. Section 1350                                                                                                                                                              



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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: May 8, 2006 |  | /s/ Stanley J. Gadek                        
|                  |  | Stanley J. Gadek                            
|                  |  | Senior Vice President Finance,              
|                  |  | and Chief Financial Officer                 
|                  |  | (Principal Accounting and Financial Officer)



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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                   
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                       
|10.41 -     |  | Loan Agreement, dated as of February 10, 2006, by and among AirTran, as Borrower, Each Lender Identified in Schedule 1 thereto, as Lender, and Wells Fargo Bank Northwest, National
Association, as Security Agent
|            | 
|31.1 -      |  | CEO certification pursuant to Rule 13(a)-14                                                                                                                                                                       
|            | 
|31.2 -      |  | CFO certification pursuant to Rule 13(a)-14                                                                                                                                                                       
|            | 
|32.1 -      |  | CEO certification pursuant to 18 U.S.C. Section 1350                                                                                                                                                              
|            | 
|32.2 -      |  | CFO certification pursuant to 18 U.S.C. Section 1350                                                                                                                                                              



21