##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-Q



---

|
|

(Mark One)

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



For the quarterly period ended June 30, 2005



OR



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



For the transition period from  to



---



AirTran Holdings, Inc.

(Exact name of registrant as specified in its charter)

State of Incorporation: Nevada



LOGO



---



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



(407)251-5600

(Registrants telephone number, including area code)



|                                |  |                                              
|------------------------------- |  | ---------------------------------------------
|Commission file number: 1-15991 |  | I.R.S. Employer Identification No: 58-2189551



---



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 an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).    Yes  x    No ̈



As of July 29, 2005 there were
approximately 87,220,000 shares of the registrants common stock outstanding.



---



---

##### Table of Contents

AIRTRAN HOLDINGS, INC.



Form 10-Q



For
the Quarter Ended June 30, 2005



INDEX



|         |  |                                                                                                                   |  |     
|-------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                                   |  | Page
|PART I.  |  | FINANCIAL INFORMATION                                                                                             |  |     
|         |  |                                                                                                                  
|Item 1.  |  | Financial Statements                                                                                              |  | 3   
|         |  |                                                                                                                  
|         |  | Condensed Consolidated Statements of Income- Three months and six months ended June 30, 2005 and 2004 (unaudited) |  | 3   
|         |  |                                                                                                                  
|         |  | Condensed Consolidated Balance Sheets- June 30, 2005 (unaudited) and December 31, 2004                            |  | 4   
|         |  |                                                                                                                  
|         |  | Condensed Consolidated Statements of Cash Flows- Six months ended June 30, 2005 and 2004 (unaudited)              |  | 6   
|         |  |                                                                                                                  
|         |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                  |  | 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                                                        |  | 21  
|         |  |                                                                                                                  
|Item 4.  |  | Controls and Procedures                                                                                           |  | 21  
|         |  |                                                                                                                  
|PART II. |  | OTHER INFORMATION                                                                                                 |  |     
|         |  |                                                                                                                  
|Item 1.  |  | Legal Proceedings                                                                                                 |  | 21  
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                       |  | 21  
|Item 3.  |  | Defaults Upon Senior Securities                                                                                   |  | 22  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                               |  | 22  
|Item 5.  |  | Other Information                                                                                                 |  | 22  
|Item 6.  |  | Exhibits                                                                                                          |  | 23  
|         |  |                                                                                                                  
|         |  | Signatures                                                                                                        |  | 24  



2



---

##### Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



AirTran Holdings, Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)



|                                         |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|---------------------------------------- |  | -------------------------- | ------- | - | ------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                         |  | Three months endedJune 30, |         |   | Six months ended June 30, |  
|                                         |  | 2005                       |         |   | 2004                      |   |         | 2005 |  |   | 2004    |  
|Operating Revenues:                      |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Passenger                                |  | $                          | 353,705 |   |                           | $ | 265,944 |      |  | $ | 642,841 |   |  | $ | 499,447 |  
|Cargo                                    |  |                            | 1,100   |   |                           |   |        |      |  |   | 1,696   |   |  |   |        |  
|Other                                    |  |                            | 11,518  |   |                           |   | 9,060   |      |  |   | 21,493  |   |  |   | 16,963  |  
|                                         |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Total operating revenues                 |  |                            | 366,323 |   |                           |   | 275,004 |      |  |   | 666,030 |   |  |   | 516,410 |  
|                                         |  |                            |         |  
|Operating Expenses:                      |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Salaries, wages and benefits             |  |                            | 80,107  |   |                           |   | 66,312  |      |  |   | 158,440 |   |  |   | 129,154 |  
|Aircraft fuel                            |  |                            | 108,265 |   |                           |   | 54,914  |      |  |   | 193,703 |   |  |   | 106,454 |  
|Aircraft rent                            |  |                            | 47,789  |   |                           |   | 36,099  |      |  |   | 92,371  |   |  |   | 72,035  |  
|Maintenance, materials and repairs       |  |                            | 25,683  |   |                           |   | 18,215  |      |  |   | 48,973  |   |  |   | 37,225  |  
|Distribution                             |  |                            | 17,935  |   |                           |   | 13,401  |      |  |   | 33,186  |   |  |   | 25,349  |  
|Landing fees and other rents             |  |                            | 20,684  |   |                           |   | 16,201  |      |  |   | 38,726  |   |  |   | 30,074  |  
|Aircraft insurance and security services |  |                            | 5,958   |   |                           |   | 5,818   |      |  |   | 11,211  |   |  |   | 11,132  |  
|Marketing and advertising                |  |                            | 8,130   |   |                           |   | 6,633   |      |  |   | 17,646  |   |  |   | 14,235  |  
|Depreciation                             |  |                            | 4,502   |   |                           |   | 3,303   |      |  |   | 8,820   |   |  |   | 6,187   |  
|Other operating                          |  |                            | 27,734  |   |                           |   | 23,090  |      |  |   | 52,859  |   |  |   | 43,271  |  
|                                         |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Total operating expenses                 |  |                            | 346,787 |   |                           |   | 243,986 |      |  |   | 655,935 |   |  |   | 475,116 |  
|                                         |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Operating Income                         |  |                            | 19,536  |   |                           |   | 31,018  |      |  |   | 10,095  |   |  |   | 41,294  |  
|                                         |  |                            |         |  
|Other (Income) Expense:                  |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Interest income                          |  |                            | (2,572  | ) |                           |   | (1,134  | )    |  |   | (4,919  | ) |  |   | (2,138  | )
|Interest expense                         |  |                            | 4,860   |   |                           |   | 5,077   |      |  |   | 9,803   |   |  |   | 9,724   |  
|                                         |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Other (income) expense, net              |  |                            | 2,288   |   |                           |   | 3,943   |      |  |   | 4,884   |   |  |   | 7,586   |  
|                                         |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Income Before Income Taxes               |  |                            | 17,248  |   |                           |   | 27,075  |      |  |   | 5,211   |   |  |   | 33,708  |  
|Income tax expense                       |  |                            | 5,889   |   |                           |   | 10,289  |      |  |   | 1,881   |   |  |   | 12,809  |  
|                                         |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Net Income                               |  | $                          | 11,359  |   |                           | $ | 16,786  |      |  | $ | 3,330   |   |  | $ | 20,899  |  
|                                         |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Earnings per Common Share                |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Basic                                    |  | $                          | 0.13    |   |                           | $ | 0.20    |      |  | $ | 0.04    |   |  | $ | 0.25    |  
|Diluted                                  |  | $                          | 0.13    |   |                           | $ | 0.18    |      |  | $ | 0.04    |   |  | $ | 0.23    |  
|                                         |  |                            |         |  
|Weighted-average Shares Outstanding      |  |                            |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Basic                                    |  |                            | 86,980  |   |                           |   | 84,930  |      |  |   | 86,862  |   |  |   | 84,607  |  
|Diluted                                  |  |                            | 100,781 |   |                           |   | 101,137 |      |  |   | 89,347  |   |  |   | 89,214  |  



See accompanying Notes to
Condensed Consolidated Financial Statements.



3



---

##### Table of Contents

AirTran Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands)



|                                                                                                                                             |  |               |           |   |                   |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ----------------- | - | ------- | -
|                                                                                                                                             |  | June 30, 2005 |           |   | December 31, 2004 |  
|                                                                                                                                             |  | (Unaudited)   |           |   |                   |  
|ASSETS                                                                                                                                       |  |               |           |   |                   |   |         |  
|Current Assets:                                                                                                                              |  |               |           |   |                   |   |         |  
|Cash and cash equivalents                                                                                                                    |  | $             | 181,834   |   |                   | $ | 307,493 |  
|Restricted cash                                                                                                                              |  |               | 9,015     |   |                   |   | 7,854   |  
|Short-term investments                                                                                                                       |  |               | 185,975   |   |                   |   | 26,975  |  
|Accounts receivable, less allowance of $597 and $627 at June 30, 2005 and December 31, 2004, respectively                                    |  |               | 30,152    |   |                   |   | 19,376  |  
|Spare parts, materials and supplies, less allowance for obsolescence of $1,128 and $987 at June 30, 2005 and December 31, 2004,
respectively |  |               | 25,463    |   |                   |   | 28,311  |  
|Deferred income taxes                                                                                                                        |  |               | 7,442     |   |                   |   | 7,442   |  
|Prepaid expenses and other current assets                                                                                                    |  |               | 17,392    |   |                   |   | 14,613  |  
|                                                                                                                                             |  |               |           |   |                   |   |         |  
|Total current assets                                                                                                                         |  |               | 457,273   |   |                   |   | 412,064 |  
|Property and Equipment:                                                                                                                      |  |               |           |   |                   |   |         |  
|Flight equipment                                                                                                                             |  |               | 340,246   |   |                   |   | 294,966 |  
|Less: Accumulated depreciation                                                                                                               |  |               | (37,688   | ) |                   |   | (34,036 | )
|                                                                                                                                             |  |               |           |   |                   |   |         |  
|                                                                                                                                             |  |               | 302,558   |   |                   |   | 260,930 |  
|                                                                                                                                             |  |              
|Purchase deposits for flight equipment                                                                                                       |  |               | 96,282    |   |                   |   | 69,833  |  
|                                                                                                                                             |  |              
|Other property and equipment                                                                                                                 |  |               | 83,709    |   |                   |   | 82,854  |  
|Less: Accumulated depreciation                                                                                                               |  |               | (33,871   | ) |                   |   | (29,682 | )
|                                                                                                                                             |  |               |           |   |                   |   |         |  
|                                                                                                                                             |  |               | 49,838    |   |                   |   | 53,172  |  
|                                                                                                                                             |  |               |           |   |                   |   |         |  
|Total property and equipment                                                                                                                 |  |               | 448,678   |   |                   |   | 383,935 |  
|Other Assets:                                                                                                                                |  |               |           |   |                   |   |         |  
|Intangibles resulting from business acquisition                                                                                              |  |               | 8,350     |   |                   |   | 8,350   |  
|Trade names                                                                                                                                  |  |               | 21,567    |   |                   |   | 21,567  |  
|Debt issuance costs                                                                                                                          |  |               | 7,615     |   |                   |   | 7,607   |  
|Deferred income taxes                                                                                                                        |  |               | 14,827    |   |                   |   | 16,708  |  
|Other assets                                                                                                                                 |  |               | 70,536    |   |                   |   | 55,500  |  
|                                                                                                                                             |  |               |           |   |                   |   |         |  
|Total other assets                                                                                                                           |  |               | 122,895   |   |                   |   | 109,732 |  
|                                                                                                                                             |  |               |           |   |                   |   |         |  
|Total assets                                                                                                                                 |  | $             | 1,028,846 |   |                   | $ | 905,731 |  
|                                                                                                                                             |  |               |           |   |                   |   |         |  



(Continued on next
page)



4



---

##### Table of Contents

AirTran Holdings, Inc.

Condensed Consolidated Balance Sheets (Continued)

(In thousands)



|                                                  |  |               |           |   |                  |   |         |  
|------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | ------- | -
|                                                  |  | June 30, 2005 |           |   | December 31,2004 |  
|                                                  |  | (Unaudited)   |           |   |                  |  
|LIABILITIES AND STOCKHOLDERS EQUITY              |  |               |           |   |                  |   |         |  
|Current Liabilities:                              |  |               |           |   |                  |   |         |  
|Accounts payable                                  |  | $             | 26,159    |   |                  | $ | 20,988  |  
|Accrued liabilities                               |  |               | 95,572    |   |                  |   | 85,047  |  
|Air traffic liability                             |  |               | 145,591   |   |                  |   | 87,571  |  
|Current portion of lease obligations              |  |               | 701       |   |                  |   | 886     |  
|Current portion of long-term debt                 |  |               | 31,435    |   |                  |   | 12,950  |  
|                                                  |  |               |           |   |                  |   |         |  
|Total current liabilities                         |  |               | 299,458   |   |                  |   | 207,442 |  
|                                                  |  |              
|Long-term lease obligations, less current portion |  |               | 14,297    |   |                  |   | 14,559  |  
|Long-term debt, less current portion              |  |               | 307,863   |   |                  |   | 285,575 |  
|                                                  |  |              
|Other liabilities                                 |  |               | 65,125    |   |                  |   | 64,119  |  
|                                                  |  |              
|Commitments and Contingencies                     |  |               |           |   |                  |   |         |  
|                                                  |  |              
|Stockholders Equity:                             |  |               |           |   |                  |   |         |  
|Preferred stock                                   |  |               |          |   |                  |   |        |  
|Common stock                                      |  |               | 87        |   |                  |   | 87      |  
|Additional paid-in-capital                        |  |               | 366,262   |   |                  |   | 361,063 |  
|Unearned compensation                             |  |               | (5,086    | ) |                  |   | (4,624  | )
|Accumulated deficit                               |  |               | (19,160   | ) |                  |   | (22,490 | )
|                                                  |  |               |           |   |                  |   |         |  
|Total stockholders equity                        |  |               | 342,103   |   |                  |   | 334,036 |  
|                                                  |  |               |           |   |                  |   |         |  
|Total liabilities and stockholders equity        |  | $             | 1,028,846 |   |                  | $ | 905,731 |  
|                                                  |  |               |           |   |                  |   |         |  



See accompanying Notes to Condensed
Consolidated Financial Statements.



5



---

##### Table of Contents

AirTran Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                  |  |                           |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | Six months ended June 30, |         
|                                                                                  |  | 2005                      |          |   | 2004 |  
|Operating activities:                                                             |  |                           |          |   |      |   |          |  
|Net income                                                                        |  | $                         | 3,330    |   |      | $ | 20,899   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |          |   |      |   |          |  
|Depreciation and amortization                                                     |  |                           | 9,465    |   |      |   | 6,932    |  
|Amortization of deferred gains from sale/leaseback of aircraft                    |  |                           | (2,192   | ) |      |   | (2,192   | )
|Provisions for uncollectible accounts                                             |  |                           | 180      |   |      |   | (316     | )
|Deferred income taxes                                                             |  |                           | 1,881    |   |      |   |         |  
|Other                                                                             |  |                           | 2,954    |   |      |   | 593      |  
|Changes in current operating assets and liabilities:                              |  |                           |          |   |      |   |          |  
|Restricted cash                                                                   |  |                           | (1,161   | ) |      |   | 1,105    |  
|Accounts receivable                                                               |  |                           | (10,956  | ) |      |   | (7,164   | )
|Fuel                                                                              |  |                           | 3,827    |   |      |   | 1,053    |  
|Aircraft rent                                                                     |  |                           | (8,802   | ) |      |   | (2,878   | )
|Spare parts, materials and supplies                                               |  |                           | (1,120   | ) |      |   | (382     | )
|Other assets                                                                      |  |                           | (11,207  | ) |      |   | (8,679   | )
|Accounts payable, accrued and other liabilities                                   |  |                           | 18,662   |   |      |   | 29,870   |  
|Air traffic liability                                                             |  |                           | 58,020   |   |      |   | 30,755   |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                           | 62,881   |   |      |   | 69,596   |  
|Investing activities:                                                             |  |                           |          |   |      |   |          |  
|Purchases of property and equipment                                               |  |                           | (14,626  | ) |      |   | (14,491  | )
|Purchase of short-term investments                                                |  |                           | (512,025 | ) |      |   | (914,950 | )
|Sales of short-term investments                                                   |  |                           | 353,025  |   |      |   | 668,625  |  
|Payment of aircraft purchase deposits, net                                        |  |                           | (29,287  | ) |      |   | (17,485  | )
|                                                                                  |  |                           |          |   |      |   |          |  
|Net cash used for investing activities                                            |  |                           | (202,913 | ) |      |   | (278,301 | )
|                                                                                  |  |                          
|Financing activities:                                                             |  |                           |          |   |      |   |          |  
|Issuance of long-term debt                                                        |  |                           | 19,587   |   |      |   |         |  
|Debt issuance costs                                                               |  |                           | (651     | ) |      |   |         |  
|Payments of long-term debt                                                        |  |                           | (7,761   | ) |      |   | (3,495   | )
|Proceeds from sale of common stock                                                |  |                           | 3,198    |   |      |   | 5,788    |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Net cash provided by financing activities                                         |  |                           | 14,373   |   |      |   | 2,293    |  
|                                                                                  |  |                          
|Net decrease in cash and cash equivalents                                         |  |                           | (125,659 | ) |      |   | (206,412 | )
|Cash and cash equivalents at beginning of period                                  |  |                           | 307,493  |   |      |   | 338,707  |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                        |  | $                         | 181,834  |   |      | $ | 132,295  |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Supplemental Disclosure of Cash Flow Activities:                                  |  |                           |          |   |      |   |          |  
|Non-cash investing and financing activities                                       |  |                           |          |   |      |   |          |  
|Purchase of equipment under debt                                                  |  | $                         | 28,500   |   |      | $ |         |  
|Acquisition of equipment under capital lease                                      |  | $                         |         |   |      | $ | 15,513   |  



See accompanying Notes to Condensed
Consolidated Financial Statements.



6



---

##### Table of Contents

AirTran Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)



Note 1 - Summary of Significant Accounting Policies



Basis of Presentation:



Our accompanying 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, necessary to present fairly the financial position, results of
operations, and cash flows for the interim 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. It is suggested that these unaudited interim financial statements 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, 2004.



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:



Airways offers 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.



Reclassification:



Certain 2004 amounts have been
reclassified to conform with our current presentation. In the Condensed Consolidated Balance Sheet as of December 31, 2004, we began classifying holdings in auction rate notes as Short-term investments. Such holdings were previously
classified as Cash and cash equivalents. Accordingly, in the accompanying Condensed Consolidated Statement of Cash Flows for the period ended June 30, 2004, changes in the amounts of Short-term investments, which were
previously classified as Cash and cash equivalents, are classified as cash flows from investing activities.



Stock-Based Employee Compensation:



We have stock-based compensation plans covering officers, directors and key employees. We account for stock-based compensation in accordance with Accounting Principles
Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation expense is not recognized for employee stock option grants unless the exercise price is less than the fair value
of our common stock on the grant date. Approximately 502,000 shares of common stock were issued pursuant to stock option exercises during the first six months of 2005.



7



---

##### Table of Contents

The following table illustrates the effect on net income and earnings per common share if we had applied the fair value
based method to measure stock-based employee compensation, as required under the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148:



|                                                                                                                           |  |                    |        |   |                  |   |        |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ---------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                           |  | Three months ended |        |   | Six months ended |  
|                                                                                                                           |  | June 30,           |        |   | June 30,         |  
|(in thousands, except per share amounts)                                                                                   |  | 2005               |        |   | 2004             |   |        | 2005 |  |   | 2004   |  
|Net income, as reported                                                                                                    |  | $                  | 11,359 |   |                  | $ | 16,786 |      |  | $ | 3,330  |   |  | $ | 20,899 |  
|                                                                                                                           |  |                    |        |  
|Add: Stock-based employee compensation expense included in reported income, net of related tax effects                     |  |                    | 471    |   |                  |   | 152    |      |  |   | 984    |   |  |   | 254    |  
|                                                                                                                           |  |                    |        |  
|Deduct: Stock-based employee compensation expense determined under the fair value based method, net of related tax effects |  |                    | (862   | ) |                  |   | (1,014 | )    |  |   | (1,697 | ) |  |   | (1,917 | )
|                                                                                                                           |  |                    |        |   |                  |   |        |      |  |   |        |   |  |   |        |  
|Pro forma net income                                                                                                       |  | $                  | 10,968 |   |                  | $ | 15,924 |      |  | $ | 2,617  |   |  | $ | 19,236 |  
|                                                                                                                           |  |                    |        |   |                  |   |        |      |  |   |        |   |  |   |        |  
|EARNINGS PER SHARE:                                                                                                        |  |                    |        |   |                  |   |        |      |  |   |        |   |  |   |        |  
|                                                                                                                           |  |                    |        |  
|Basic, as reported                                                                                                         |  | $                  | 0.13   |   |                  | $ | 0.20   |      |  | $ | 0.04   |   |  | $ | 0.25   |  
|Basic, pro forma                                                                                                           |  | $                  | 0.13   |   |                  | $ | 0.19   |      |  | $ | 0.03   |   |  | $ | 0.23   |  
|                                                                                                                           |  |                    |        |  
|Diluted, as reported                                                                                                       |  | $                  | 0.13   |   |                  | $ | 0.18   |      |  | $ | 0.04   |   |  | $ | 0.23   |  
|Diluted, pro forma                                                                                                         |  | $                  | 0.11   |   |                  | $ | 0.16   |      |  | $ | 0.03   |   |  | $ | 0.22   |  



For purposes of pro forma disclosures,
the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period.



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. During the first six months of 2005, we granted approximately 250,000 stock awards and recorded deferred compensation related to such awards of approximately $2.0 million. Approximately $1.5 million of
deferred compensation was amortized as compensation expense during the first six months of 2005.



Comprehensive Income:



Comprehensive
income was $11.4 million and $16.9 million for the three months ended June 30, 2005 and 2004, respectively, and $3.3 million and $21.0 million for the six months ended June 30, 2005 and 2004, respectively.



Recently Issued Accounting Standards:



In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Standards (SFAS) No. 123R, Share-Based Payment. SFAS No. 123R is a revision of SFAS No. 123, Accounting for Stock Based Compensation, and supersedes APB 25. Among other items SFAS 123R eliminates the use of APB 25 and the
intrinsic value method of accounting for stock based compensation, and 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. The effective date of SFAS 123R is January 1, 2006 for public calendar year end companies.



SFAS 123R permits companies to adopt its requirements using either a modified prospective method, or a modified retrospective method. Under the
modified prospective method, compensation cost is recognized in payments granted after that date based on the requirements of SFAS 123 for all unvested awards granted prior to the effective date of SFAS 123R. Under the modified
retrospective method, the requirements are the same as under the modified prospective method, but also permits entities to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS
123.



8



---

##### Table of Contents

We currently utilize a standard option pricing model, Black-Scholes, to measure the fair value of the stock options
granted to employees. While SFAS 123R permits entities to continue to use such a model, the standard also permits the use of a lattice model. We have not yet determined which model we will use to measure the fair value of employee stock options upon
the adoption of SFAS 123R.



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 an operating cash flow as under the current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after the effective date. These amounts cannot be estimated because they depend on, among other things, when employees exercise stock options.



SFAS 123R will be effective for us beginning January 1, 2006 (as extended by the SEC on April 4, 2005), SFAS 123R offers alternative methods
of adoption. At the present time, we have not yet determined which alternative method we will use. Depending on the method we adopt to calculate stock-based compensation expense upon the adoption of SFAS 123R, the pro forma disclosure above may not
be indicative of the stock-based compensation expense to be recognized in periods beginning after December 31, 2005.



Note 2 - Earnings Per Common Share



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



|                                                                      |  |                            |         |                          |   |         |  |      |        |  |   |       
|--------------------------------------------------------------------- |  | -------------------------- | ------- | ------------------------ | - | ------- |  | ---- | ------ |  | - | ------
|                                                                      |  | Three months endedJune 30, |         | Six months endedJune 30,
|(in thousands, except per share amounts)                              |  | 2005                       |         | 2004                     |   | 2005    |  | 2004
|NUMERATOR:                                                            |  |                            |         |                          |   |         |  |      |        |  |   |       
|Net income available to common stockholders                           |  | $                          | 11,359  |                          | $ | 16,786  |  | $    | 3,330  |  | $ | 20,899
|Plus income effect of assumed conversion-interest on convertible debt |  |                            | 1,398   |                          |   | 1,356   |  |      |       |  |   |      
|                                                                      |  |                            |         |                          |   |         |  |      |        |  |   |       
|Income after assumed conversion, diluted                              |  | $                          | 12,757  |                          | $ | 18,142  |  | $    | 3,330  |  | $ | 20,899
|                                                                      |  |                            |         |                          |   |         |  |      |        |  |   |       
|DENOMINATOR:                                                          |  |                            |         |                          |   |         |  |      |        |  |   |       
|Weighted-average shares outstanding, basic                            |  |                            | 86,980  |                          |   | 84,930  |  |      | 86,862 |  |   | 84,607
|Effect of dilutive securities:                                        |  |                            |         |                          |   |         |  |      |        |  |   |       
|Stock options                                                         |  |                            | 2,050   |                          |   | 4,310   |  |      | 1,993  |  |   | 3,965 
|Convertible debt                                                      |  |                            | 11,241  |                          |   | 11,241  |  |      |       |  |   |      
|Stock warrants                                                        |  |                            | 510     |                          |   | 656     |  |      | 492    |  |   | 642   
|                                                                      |  |                            |         |                          |   |         |  |      |        |  |   |       
|Adjusted weighted-average shares outstanding, diluted                 |  |                            | 100,781 |                          |   | 101,137 |  |      | 89,347 |  |   | 89,214
|                                                                      |  |                            |         |                          |   |         |  |      |        |  |   |       
|EARNINGS PER COMMON SHARE:                                            |  |                            |         |                          |   |         |  |      |        |  |   |       
|Basic                                                                 |  | $                          | 0.13    |                          | $ | 0.20    |  | $    | 0.04   |  | $ | 0.25  
|                                                                      |  |                            |         |                          |   |         |  |      |        |  |   |       
|Diluted                                                               |  | $                          | 0.13    |                          | $ | 0.18    |  | $    | 0.04   |  | $ | 0.23  
|                                                                      |  |                            |         |                          |   |         |  |      |        |  |   |       



Excluded from the computation of
adjusted weighted-average shares outstanding, diluted for the six months ended June 30, 2005 and 2004 were 11.2 million shares related to our convertible debt because the effect of including these shares would have been anti-dilutive.



Note 3 - Fuel Risk Management



Aircraft fuel is a significant expenditure because our operations are inherently dependent
on the use of petroleum products. Aircraft fuel represented approximately 31.2 percent and 22.5 percent of total operating expenses for the



9



---

##### Table of Contents

three months ended June 30, 2005 and 2004, respectively, and 29.5 percent and 22.4 percent of total operating expenses
for the six months ended June 30, 2005 and 2004, respectively. Increases in fuel prices or a shortage of supply could have a material adverse effect on our operations, operating results, and cash flows.



Our efforts to reduce our exposure to increases in the price and availability of aviation
fuel include the utilization of advance fuel purchase agreements that include fixed-price fuel contracts and fuel cap contracts. Fixed-price fuel contracts are agreements to purchase defined quantities of aviation fuel from a third party at defined
prices. Fuel cap contracts are agreements to purchase defined quantities of aviation fuel from a third party at a price not to exceed a defined price, thereby limiting our exposure to increases in the price of aviation fuel. As of June 30, 2005,
utilizing fixed-price fuel contracts and fuel cap contracts we agreed to purchase approximately 49 percent, 18 percent, and 12 percent of our fuel needs through the remainder of 2005, and the years ending December 31, 2006, and 2007, respectively,
at a price no higher than $1.66, $1.62, and $1.58, respectively per gallon of aviation fuel including delivery to our operations hub in Atlanta and other locations for 2005, 2006, and 2007. During the third quarter 2005, we entered into additional
advance fuel purchase agreements. These new contracts increased our total future fuel commitments to approximately 55 percent, 23 percent and 16 percent of our fuel needs in the remainder of 2005, 2006 and 2007, respectively, at prices not higher
than $1.72, $1.62 and $1.58, respectively, per gallon of aviation fuel.



Note 4 - Commitments and Contingencies



Aircraft
Purchase Commitments:



In the first six months of 2005, Airways
leased, under operating leases, four B717 and five B737 aircraft. As of June 30, 2005, Airways had firm commitments with an aircraft manufacturer to purchase four B717 aircraft and 44 B737 aircraft with an estimated cost of approximately $1.3
billion. Additionally, Airways has options and purchase rights to acquire an additional 42 B737 aircraft. During 2005, we exercised options for the purchase of four B737 aircraft to be delivered in 2006 and 2007. Additionally during the second
quarter 2005, Airways took delivery of one B737 aircraft financed through debt.



The four remaining B717 aircraft are to be financed through an affiliate of the aircraft manufacturer. Pursuant to Airways arrangement with an aircraft leasing company, Airways entered into individual operating leases for 22 of the
B737 aircraft of which six were delivered in 2004 and five were delivered during the six months of 2005. Additionally we have entered into sale/leaseback transactions with that aircraft leasing company with respect to six related spare engines to be
delivered between 2005 and 2010. Airways has obtained debt financing commitments for four B737 aircraft to be delivered during 2005, one of which was delivered in June 2005. Airways has obtained financing commitments from an affiliate of the
aircraft manufacturer for up to 80% of the purchase price of 16 of the B737 aircraft should Airways be unable to secure financing from the financial markets on acceptable terms.



As of June 30, 2005, Airways was scheduled to take delivery of a total of nine aircraft during the remainder of 2005. Of the total aircraft
Airways was scheduled to take delivery of are two B717 aircraft each of which is to be leased through an affiliate of the aircraft manufacturer and seven B737 aircraft with four such aircraft to be leased through individual operating leases and
three B737 aircraft financed through debt. There can be no assurance that sufficient financing will be available for all B737 aircraft and other capital expenditures not covered by firm financing commitments.



The following table details our firm orders and options for aircraft acquisitions, as of June
30, 2005.



|       |  |                 |  |                 |  |      |  |        
|------ |  | --------------- |  | --------------- |  | ---- |  | -------
|       |  | B737 Deliveries |  | B717 Deliveries
|       |  | Firm            |  | Options         |  | Firm |  | Options
|2005   |  | 7               |  |                |  | 2    |  |       
|2006   |  | 19              |  |                |  | 2    |  |       
|2007   |  | 14              |  | 3               |  |     |  |       
|2008   |  | 4               |  | 14              |  |     |  |       
|       |  |                 |  |                 |  |      |  |        
|Total* |  | 44              |  | 17              |  | 4    |  |       
|       |  |                 |  |                 |  |      |  |        

---

|* | We have purchase rights to acquire up to 25 B737 aircraft in addition to the totals shown above.
|- | ------------------------------------------------------------------------------------------------



10



---

##### Table of Contents

General Indemnifications:



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 2022. 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.



11



---

##### Table of Contents

Note 5 - Debt



As of June 30, 2004 we had a $15 million credit agreement with a lender. The agreement allowed us to obtain letters of credit and enter into hedge agreements with the
bank. The agreement contained certain covenant requirements including liquidity tests. We were in compliance with these covenants. At June 30, 2004, we had $12.0 million in letters of credit drawn against the previous credit agreement.



During April 2005, we signed a new credit agreement with our lender. The new credit
agreement includes a revolving line of credit for up to $25 million and additionally allows us to obtain letters of credit for up to $15 million and enter into hedge agreements with the bank. Advances on the revolving line of credit will bear
interest at a base rate plus a margin spread of 1.5 percent per annum. The agreement contains certain covenant requirements including liquidity tests. We are in compliance with all applicable covenants. Available borrowings under the revolving line
were $25 million as of the effective date of such agreement. At June 30, 2005, we had $11.0 million in letters of credit drawn against the credit agreement.



During May 2005, we closed on a $19.6 million financing arrangement for pre-delivery aircraft deposits. This agreement will fund up to 65
percent of our pre-delivery deposits on six B737 aircraft through February 2006. Advances on the financing arrangement will bear interest at the London Interbank Offering rate (LIBOR) plus 2.35 percent.



In June 2005 and pursuant to an existing loan facility to acquire three B737 aircraft,
Airways financed the acquisition of the second B737 subject to such loan facility. In conjunction with the financing of that B737 aircraft, Airways issued equipment notes for an aggregate amount of $28.5 million, which mature on June 17, 2017. The
note bears interest (and the additional note to be entered into will bear interest) at a floating rate equal to the six-month US Dollar LIBOR rate in effect at the commencement of each semi-annual period plus 1.5% and is payable June 17 and December
17. The note is (and the additional note to be entered into will be) secured by a first mortgage on the purchased aircraft. Airways will pay a commitment fee equal to 0.65% per annum of the undrawn portion of the loan amount.



In July 2005 and pursuant to a separate existing loan facility to acquire three B737
aircraft, Airways financed the acquisition of the second B737 subject to such loan facility. In conjunction with the financing of that B737 aircraft, Airways issued equipment notes for an aggregate amount of $29.0 million, which mature on July 22,
2017. The note bears interest (and the additional note to be entered into will bear interest) at a floating rate equal to the six-month US Dollar LIBOR rate in effect at the commencement of each semi-annual period plus 1.5% and is payable June 17
and December 17. The note is (and the additional note to be entered into will be) secured by a first mortgage on the purchased aircraft. Airways will pay a commitment fee equal to 0.25% per annum of the undrawn portion of the loan amount.



Note 6 - Income Taxes



Our effective income tax rate decreased from 38.0 percent for the three and six
months ended June 30, 2004 to 34.1 percent for the three months ended June 30, 2005 and 36.1 percent for the six months ended June 30, 2005. The change in the effective tax rate reflects the effect of items that are expensed for book purposes but
that are not deductible for tax purposes (permanent differences) and the decline in pre-tax operating income year over year. Our permanent differences will cause the effective tax rate to be below the statutory rate in annual periods where we
experience pre-tax losses and above the statutory rate in annual periods where we experience pre-tax income.



12



---

##### Table of Contents

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



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, 2004 as filed with the U.S. Securities and 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 the aforementioned filing. 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, fuel and other 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 manage fuel costs, our ability to take delivery of and to finance aircraft, the adequacy of our insurance coverage and the results of litigation or investigations. 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.



GENERAL INFORMATION



The first six months of 2005 continued to present challenges for the airline industry. Our financial performance was challenged by record-high fuel prices, overcapacity on the east coast, and intense price
competition. While we experienced increases in passenger counts, there continued to be excess capacity in industry seats available which resulted in heavy fare discounting adversely impacting yields. To date there has been little consolidation of
the industry, either through liquidation of airlines in bankruptcy or through mergers and to the extent that any consolidation is occurring the impact of the consolidation has yet to be realized, contributing to the weak airline industry revenue
environment.



Notwithstanding the high fuel costs we succeeded in reducing our
cost per available seat mile (CASM) when fuel was excluded. Additionally during the second quarter 2005 we noted an all-time record passenger count of 4.3 million passengers and a quarterly all-time load factor record of 75.7 percent.



During the first six months of 2005, we took delivery of four Boeing 717 (B717) aircraft and
six Boeing 737 (B737) aircraft. We expect to continue to grow the airline by adding two additional B717 and seven additional B737 aircraft throughout the remainder of 2005. The B737 aircraft are part of our plans announced in July 2003 to add up to
100 new Boeing 737-700/800 (B737) aircraft. We anticipate that deliveries under our order will occur through 2008. 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 by lowering our cost of doing business.



During the second quarter of 2005 we commenced service to Indianapolis, Charlotte, and Richmond. In addition, we announced rights to operate new international service to
Cancun, Mexico from Atlanta and Tampa commencing in the later part of 2005. All of these markets reflect the continuation of our three pronged growth strategy to increase frequencies in existing markets, add additional segments between existing
markets (connect the dots), and open new cities.



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.



13



---

##### Table of Contents

RESULTS OF OPERATIONS



The tables below set forth selected financial and operating data for the three and six months ended June 30, 2005 and 2004 and has been derived from our condensed
consolidated financial statements. This information should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this 10-Q:



|                                                       |  |                             |           |   |                |   |           |   |  |      |     
|------------------------------------------------------ |  | --------------------------- | --------- | - | -------------- | - | --------- | - |  | ---- | ----
|                                                       |  | Three months ended June 30, |           |   | Percent change |  
|                                                       |  | 2005                        |           |   | 2004           |   |          
|Revenue passengers                                     |  |                             | 4,295,783 |   |                |   | 3,427,809 |   |  | 25.3 |     
|Revenue passenger miles (RPM) (000s)                   |  |                             | 2,909,512 |   |                |   | 2,175,046 |   |  | 33.8 |     
|Available seat miles (ASM) (000s)                      |  |                             | 3,844,783 |   |                |   | 2,884,874 |   |  | 33.3 |     
|Passenger load factor                                  |  |                             | 75.7      | % |                |   | 75.4      | % |  | 0.3  | pts.
|Break-even load factor                                 |  |                             | 72.0      | % |                |   | 67.7      | % |  | 4.3  | pts.
|Average fare                                           |  | $                           | 82.34     |   |                | $ | 77.58     |   |  | 6.1  |     
|Average yield per RPM                                  |  |                             | 12.16     | ¢ |                |   | 12.23     | ¢ |  | (0.6 | )   
|Passenger revenue per ASM                              |  |                             | 9.20      | ¢ |                |   | 9.22      | ¢ |  | (0.2 | )   
|Operating cost per ASM                                 |  |                             | 9.02      | ¢ |                |   | 8.46      | ¢ |  | 6.6  |     
|Average stage length (miles)                           |  |                             | 644       |   |                |   | 626       |   |  | 2.9  |     
|Average cost of aircraft fuel per gallon,              |  |                             |           |   |                |   |           |   |  |      |     
|including fuel taxes                                   |  |                             | 169.98    | ¢ |                |   | 110.00    | ¢ |  | 54.5 |     
|Average daily utilization (hours:minutes)              |  |                             | 11:06     |   |                |   | 11:00     |   |  | 0.9  |     
|Number of operating aircraft in fleet at end of period |  |                             | 97        |   |                |   | 78        |   |  | 24.4 |     
|                                                       |  |                            
|                                                       |  | Six months ended June 30,   |           |   | Percent change |  
|                                                       |  | 2005                        |           |   | 2004           |   |          
|Revenue passengers                                     |  |                             | 7,853,492 |   |                |   | 6,404,894 |   |  | 22.6 |     
|Revenue passenger miles (RPM) (000s)                   |  |                             | 5,359,293 |   |                |   | 4,093,583 |   |  | 30.9 |     
|Available seat miles (ASM) (000s)                      |  |                             | 7,318,781 |   |                |   | 5,683,654 |   |  | 28.8 |     
|Passenger load factor                                  |  |                             | 73.2      | % |                |   | 72.0      | % |  | 1.2  | pts.
|Break-even load factor                                 |  |                             | 72.7      | % |                |   | 67.2      | % |  | 5.5  | pts.
|Average fare                                           |  | $                           | 81.85     |   |                | $ | 77.98     |   |  | 5.0  |     
|Average yield per RPM                                  |  |                             | 11.99     | ¢ |                |   | 12.20     | ¢ |  | (1.7 | )   
|Passenger revenue per ASM                              |  |                             | 8.78      | ¢ |                |   | 8.79      | ¢ |  | (0.1 | )   
|Operating cost per ASM                                 |  |                             | 8.96      | ¢ |                |   | 8.36      | ¢ |  | 7.2  |     
|Average stage length (miles)                           |  |                             | 651       |   |                |   | 627       |   |  | 3.8  |     
|Average cost of aircraft fuel per gallon,              |  |                             |           |   |                |   |           |   |  |      |     
|including fuel taxes                                   |  |                             | 159.46    | ¢ |                |   | 108.79    | ¢ |  | 46.6 |     
|Average daily utilization (hours:minutes)              |  |                             | 11:00     |   |                |   | 11:06     |   |  | (0.9 | )   
|Number of operating aircraft in fleet at end of period |  |                             | 97        |   |                |   | 78        |   |  | 24.4 |     



For the three months ended June
30, 2005 and 2004



Summary



We recorded operating income of $19.5 million, net income of $11.4 million and diluted
earnings per common share of $0.13 for the three months ended June 30, 2005. For the comparative period in 2004, we recorded operating income of $31.0 million, net income of $16.8 million and diluted earnings per common share of $0.18.



14



---

##### Table of Contents

Operating Revenues



Our operating revenues for the quarter increased $91.3 million (33.2 percent) primarily due to a 33.0 percent increase in passenger revenues. The increase in passenger
revenues was primarily due to a 33.8 percent increase in traffic, as measured by revenue passenger miles (RPMs).



During the twelve months ended June 30, 2005, we took delivery of seven B717 aircraft and 12 B737 aircraft. As a result our capacity, as measured by available seat miles
(ASMs) increased 33.3 percent. Our traffic as measured by RPMs increased 33.8 percent resulting in a 0.3 percentage point increase in passenger load factor to 75.7 percent.



Our average yield per RPM decreased by 0.6 percent to 12.16 cents per RPM. The reduction in yield resulted from a 6.7 percent increase in
our average passenger trip length to 677 miles, offset by a 6.1 percent increase in our average fare to $82.34. This decline in yield, when combined with our 0.3 percentage point increase in passenger load factor, resulted in a 0.2 percent decrease
in passenger unit revenues, or passenger revenue available seat miles (RASM), to 9.20 cents per ASM.



Operating Expenses



Our operating
expenses for the quarter increased $102.8 million (42.1 percent) on ASM growth of 33.3 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, defined as operating expenses per ASM, for the indicated period:



|                                         |  |                            |   |  |                |   |  |       |  
|---------------------------------------- |  | -------------------------- | - |  | -------------- | - |  | ----- | -
|                                         |  | Three months endedJune 30, |   |  | Percent change |  
|                                         |  | 2005                       |   |  | 2004           |   | 
|Salaries, wages and benefits             |  | 2.08                       | ¢ |  | 2.30           | ¢ |  | (9.6  | )
|Aircraft fuel                            |  | 2.82                       |   |  | 1.90           |   |  | 48.4  |  
|Aircraft rent                            |  | 1.24                       |   |  | 1.25           |   |  | (0.8  | )
|Maintenance, materials and repairs       |  | 0.67                       |   |  | 0.63           |   |  | 6.3   |  
|Distribution                             |  | 0.47                       |   |  | 0.46           |   |  | 2.2   |  
|Landing fees and other rents             |  | 0.54                       |   |  | 0.56           |   |  | (3.6  | )
|Aircraft insurance and security services |  | 0.15                       |   |  | 0.20           |   |  | (25.0 | )
|Marketing and advertising                |  | 0.21                       |   |  | 0.23           |   |  | (8.7  | )
|Depreciation                             |  | 0.12                       |   |  | 0.11           |   |  | 9.1   |  
|Other operating                          |  | 0.72                       |   |  | 0.82           |   |  | (12.2 | )
|                                         |  |                            |   |  |                |   |  |       |  
|Total CASM                               |  | 9.02                       | ¢ |  | 8.46           | ¢ |  | 6.6   |  
|                                         |  |                            |   |  |                |   |  |       |  



Salaries, wages and benefits
increased $13.8 million (20.8 percent) primarily due to the addition of flight crews and ground support personnel hired to operate and support the growth of our B717 aircraft fleet, our new B737 aircraft fleet, and new destinations added to our
route system, as well as our contractual wage increases and higher costs associated with our employee benefit programs offset by increases in productivity. On a cost per ASM basis these costs decreased 9.6 percent to 2.08 cents. We employed
approximately 6,200 employees (full-time equivalents) as of June 30, 2005, representing an 11.1 percent increase over the comparative period in 2004.



Aircraft fuel increased $53.4 million (97.2 percent) primarily due to escalating fuel prices and the expanded level of our flight operations generated by the
growth of our aircraft fleet that in turn, increased our consumption of aircraft fuel. Our fuel price per gallon including all fees and taxes increased 54.5 percent from $1.10 during the second quarter 2004 to $1.70, including taxes, during the
second quarter 2005. The level of our flight operations, as measured by block hours flown, increased 26.3 percent while our fuel consumption per block hour increased 1.1 percent to 671 gallons per block hour due to additional aircraft added during
the year and additional cities served. We currently operate an aircraft fleet consisting entirely of fuel-efficient B737 and B717 aircraft. Aircraft fuel represented 31.2 percent and 22.5 percent of our operating expenses for the second quarter of
2005 and 2004, respectively. Based on our 2005 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 $9.4 million, including the
effects of our fixed-price fuel contracts and fuel cap contracts. Increases in fuel prices or a shortage of supply could have a material adverse effect on our operations, operating results, and cash flows.



15



---

##### Table of Contents

Maintenance, materials and repairs increased $7.5 million (41.0 percent). On a block hour basis, maintenance costs
increased 11.6 percent to $270 per block hour due to an increase in rotable repair expense resulting from the expiration of warranties on the B717 aircraft. Rotable components are components which, when they fail or reach the end of their
recommended service cycle, may be removed and a replacement component installed. The removed component may be repaired and, subject to service life criteria, may be re-used. As the original manufacturer warranties expire on our B717 and B737
aircraft the maintenance, repair and overhaul of major aircraft engine, parts and components become covered by previously negotiated agreements with FAA-approved maintenance contractors. Under our maintenance agreements, we pay monthly fees based on
either the number of flight hours flown or the number of landings. On a cost per available seat mile basis, maintenance, materials and repairs increased 6.3 percent.



Aircraft insurance and security services increased $0.1 million (2.4 percent). The addition of nineteen new Boeing aircraft to
our fleet during the period increased our total insured hull value and related insurance premiums. On a cost per available seat mile basis, aircraft insurance and security services decreased 25.0 percent due to a reduction in hull and liability
insurance rates for our 2005 fleet coverage.



Marketing and
advertising increased $1.5 million (22.6 percent) primarily reflecting our promotional efforts associated with the development of our new destinations opened during 2005 and efforts to stimulate demand in all the markets that we serve.



Depreciation increased $1.2 million (36.3 percent) primarily due to the
purchase of two B737 aircraft during 2004 and one B737 aircraft purchase in 2005 and purchases of spare aircraft parts for the new B737 fleet.



Other operatingincreased $4.6 million (20.1 percent) primarily from added passenger-related costs associated with the higher level of operations, increase in
training costs for the new B737 aircraft and contractual costs related to the opening of new destinations and routes. On a cost per available seat mile basis, other operating expenses decreased 12.2 percent due to an increase in capacity as measured
by ASMs of 33.3 percent over the increased expenses of 20.1 percent.



Nonoperating (Income) Expense



Other(income)
expense, net decreased by $1.7 million (42.0 percent). Higher invested cash balances along with higher interest rates increased interest income by $1.4 million. Interest expense decreased by $0.2 million primarily due to an increase in
capitalized interest related to aircraft purchase deposits.



Income Tax
Expense



Our effective income tax rate decreased from 38.0 percent for
the three months ended June 30, 2004 to 34.1 percent for the three months ended June 30, 2005. The change in the effective tax rate reflects the effect of items that are expensed for book purposes but that are not deductible for tax purposes
(permanent differences) and the decline in pre-tax operating income year over year. Our permanent differences will cause the effective tax rate to be below the statutory rate in annual periods where we experience pre-tax losses and above the
statutory rate in annual periods where we experience pre-tax income.



We
recorded income tax expense of $5.9 million for the three months ended June 30, 2005 compared to $10.3 million for the three months ended June 30, 2004.



For the six months ended June 30, 2005 and 2004



16



---

##### Table of Contents

Summary



We recorded operating income of $10.1 million, net income of $3.3 million and diluted earnings per common share of $0.04 for the six months
ended June 30, 2005. For the comparative period in 2004, we recorded operating income of $41.3 million, net income of $20.9 million and diluted earnings per common share of $0.23.



Operating Revenues



Our operating revenues for the quarter increased $149.6 million (29.0 percent) primarily due to a 28.7 percent increase in passenger revenues. The increase in passenger
revenues was primarily due to a 30.9 percent increase in traffic, as measured by RPMs and a 5 percent increase in the average fares to $81.85.



During the twelve months ended June 30, 2005, we took delivery of seven B717 aircraft and 12 B737 aircraft. As a result our capacity, as measured by ASMs, increased 28.8
percent. Our traffic as measured by RPMs, increased 30.9 percent resulting in a 1.2 percentage point increase in passenger load factor to 73.2.



Our average yield per RPM decreased by 1.7 percent to 11.99 cents per RPM. The reduction in yield resulted from a 6.8 percent increase in our average passenger trip
length to 682 miles, offset by a 5.0 percent increase in our average fare to $81.85. This decline in yield, when combined with a 1.2 percentage point increase in passenger load factor, resulted in a 0.1 percent decrease in passenger unit revenues,
or passenger RASM, to 8.78 cents per ASM.



Operating Expenses



Our operating expenses for the six months ended June 30, 2005 increased
$180.8 million (38.1 percent) on ASM growth of 28.8 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, defined as operating expenses
per ASM, for the indicated period:



|                                         |  |                          |   |  |                |   |  |       |  
|---------------------------------------- |  | ------------------------ | - |  | -------------- | - |  | ----- | -
|                                         |  | Six months endedJune 30, |   |  | Percent change |  
|                                         |  | 2005                     |   |  | 2004           |   | 
|Salaries, wages and benefits             |  | 2.17                     | ¢ |  | 2.27           | ¢ |  | (4.4  | )
|Aircraft fuel                            |  | 2.65                     |   |  | 1.87           |   |  | 41.7  |  
|Aircraft rent                            |  | 1.26                     |   |  | 1.27           |   |  | (0.8  | )
|Maintenance, materials and repairs       |  | 0.67                     |   |  | 0.65           |   |  | 3.1   |  
|Distribution                             |  | 0.45                     |   |  | 0.45           |   |  |      |  
|Landing fees and other rents             |  | 0.53                     |   |  | 0.53           |   |  |      |  
|Aircraft insurance and security services |  | 0.15                     |   |  | 0.20           |   |  | (25.0 | )
|Marketing and advertising                |  | 0.24                     |   |  | 0.25           |   |  | (4.0  | )
|Depreciation                             |  | 0.12                     |   |  | 0.11           |   |  | 9.1   |  
|Other operating                          |  | 0.72                     |   |  | 0.76           |   |  | (5.3  | )
|                                         |  |                          |   |  |                |   |  |       |  
|Total CASM                               |  | 8.96                     | ¢ |  | 8.36           | ¢ |  | 7.2   |  
|                                         |  |                          |   |  |                |   |  |       |  



Aircraft fuel increased $87.2
million (82.0 percent) primarily due to escalating fuel prices and the expanded level of our flight operations generated by the growth of our aircraft fleet that in turn, increased our consumption of aircraft fuel. Our fuel price per gallon
increased 46.6 percent from $1.09 during the six months ended June 30, 2004 to $1.59, including taxes, during the six months ended June 30, 2005. The level of our flight operations, as measured by block hours flown, increased 22.1 percent while our
fuel consumption decreased 1.7 percent to 663 gallons per block hour. We currently operate an aircraft fleet consisting entirely of fuel-efficient B737 and B717 aircraft. Aircraft fuel represented 29.5 percent and 22.4 percent of our operating
expenses for the six months ended June 30, 2005 and 2004, respectively. Based on our 2005 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 $9.4 million, including the effects of our fixed-price fuel contracts and fuel cap contracts. Increases in fuel prices or a shortage of supply could have a material adverse effect on our operations, operating results, and cash flows.



17



---

##### Table of Contents

Aircraft insurance and security services increased $0.1 million (0.7 percent). The addition of nineteen new Boeing
aircraft to our fleet during the period increased our total insured hull value and related insurance premiums. On a cost per available seat mile basis, aircraft insurance and security services decreased 25.0 percent due to a reduction in hull and
liability insurance rates for our 2005 fleet coverage.



Depreciation
increased $2.6 million (42.6 percent) primarily due to the purchase of two B737 aircraft during 2004 and one B737 aircraft purchase in 2005 and purchases of spare aircraft parts for the new B737 fleet.



Other operatingincreased $9.6 million (22.2 percent) primarily from added
passenger-related costs associated with the higher level of operations, increase in training costs for the new B737 aircraft and contractual costs related to the opening of new destinations and routes. On a cost per available seat mile, other
operating expenses decreased 5.3 percent due to an increase in capacity as measured by ASMs of 28.8 percent over increased expenses of 22.2 percent.



Nonoperating (Income) Expense



Other (income) expense, net decreased by $2.7 million (35.6 percent). Higher invested cash balances along with higher interest rates increased interest income by
$2.8 million.



Income Tax Expense



Our effective income tax rate decreased from 38.0 percent for the six months ended June 30,
2004 to 36.1 percent for the six months ended June 30, 2005. The change in the effective tax rate reflects the effect of items that are expensed for book purposes but that are not deductible for tax purposes (permanent differences) and the decline
in pre-tax operating income year over year. Our permanent differences will cause the effective tax rate to be below the statutory rate in annual periods where we experience pre-tax losses and above the statutory rate in annual periods where we
experience pre-tax income.



We recorded an income tax expense of $1.9 million
for the six month periods ended June 30, 2005, compared to $12.8 million for the six month periods ended June 30, 2004.



LIQUIDITY AND CAPITAL RESOURCES



Our primary source of funds is cash provided by operations. Our primary uses of cash are for working capital (including labor and fuel costs), capital expenditures and
general corporate purposes, which may include the acquisitions of other airlines and their assets, whether in connection with bankruptcy proceeding or otherwise in other investments in strategic alliances, code-share agreements or other business
arrangements.



As of June 30, 2005, our total cash, including cash and cash
equivalents, restricted cash and short-term investments totaled $376.8 million compared to $387.3 million at June 30, 2004. Short-term investments represent auction rate securities with reset periods less than 12 months.



Operating activities for the second quarter of 2005 generated $62.9 million of cash
compared to $69.6 million for 2004. The decrease was primarily due to higher net income in 2004 offset by an increase in passenger bookings for future travel. Passengers pay in advance for travel and we record these remittances as air traffic
liability. The expenses of operating our airline to provide the transportation purchased by our customers represent the majority of our operating cash outflows.



18



---

##### Table of Contents

Investing activities used $202.9 million in cash during the second quarter of 2005 compared to $278.3 million in
2004. Investing activities for both periods include purchases and sales of auction rate securities that provide higher interest rate returns. Additionally cash is used for purchase deposits paid for new aircraft and the purchase of spare parts and
equipment provisioning for the B717 and B737 aircraft fleets.



Financing
activities generated $14.4 million of cash in the second quarter of 2005 compared to a generation of $2.3 million of cash in the second quarter of 2004. During 2005 we generated cash from obtaining debt financing on purchase deposits of $19.6
million.



As of June 30, 2005, Airways had firm commitments with an
aircraft manufacturer to purchase four B717 aircraft and 44 B737 aircraft with an estimated cost of approximately $1.3 billion. Additionally, Airways has options and purchase rights to acquire an additional 42 B737 aircraft. During 2005, we
exercised options for the purchase of four B737 aircraft to be delivered in 2006 and 2007. Additionally during the second quarter of 2005, Airways took delivery of one B737 aircraft financed through debt.



The four remaining B717 aircraft are to be financed through an affiliate of the aircraft
manufacturer. Pursuant to Airways arrangement with an aircraft leasing company, Airways entered into individual operating leases for 22 of the B737 aircraft of which six were delivered in 2004 and five were delivered during the six months of
2005. Additionally we have entered into sale/leaseback transactions with that aircraft leasing company with respect to six related spare engines to be delivered between 2005 and 2010. Airways has obtained debt financing commitments for four
B737 aircraft to be delivered during 2005. Airways has obtained financing commitments from an affiliate of the aircraft manufacturer for up to 80% of the purchase price of 16 of the B737 aircraft should Airways be unable to secure financing from the
financial markets on acceptable terms.



As of June 30, 2005, Airways was
scheduled to take delivery of a total of 9 aircraft during the remainder of 2005. Of the total aircraft Airways was scheduled to take delivery of two B717 aircraft each of which are to be leased through an affiliate of the aircraft manufacturer and
seven B737 aircraft with four such aircraft to be leased through individual operating leases and three B737 aircraft financed through debt. There can be no assurance that sufficient financing will be available for all B737 aircraft and other capital
expenditures not covered by firm financing commitments. Should fuel prices remain high and if industry consolidation does not occur, we may make efforts to slow our growth through various market methods, including the subleasing of our aircraft.



The following table details our firm orders and options for aircraft
acquisitions, as of June 30, 2005.



|       |  |                 |  |                 |  |      |  |        
|------ |  | --------------- |  | --------------- |  | ---- |  | -------
|       |  | B737 Deliveries |  | B717 Deliveries
|       |  | Firm            |  | Options         |  | Firm |  | Options
|2005   |  | 7               |  |                |  | 2    |  |       
|2006   |  | 19              |  |                |  | 2    |  |       
|2007   |  | 14              |  | 3               |  |     |  |       
|2008   |  | 4               |  | 14              |  |     |  |       
|       |  |                 |  |                 |  |      |  |        
|Total* |  | 44              |  | 17              |  | 4    |  |       
|       |  |                 |  |                 |  |      |  |        

---

|* | We have purchase rights to acquire up to 25 B737 aircraft in addition to the totals shown above.
|- | ------------------------------------------------------------------------------------------------



Debt Agreements



As of June 30, 2004 we had a $15 million credit agreement with a lender. The agreement allowed us to obtain letters of credit and enter into hedge agreements with the
bank. The agreement contained certain covenant requirements including liquidity tests. We were in compliance with these covenants. At June 30, 2004, we had $12.0 million in letters of credit drawn against the previous credit agreement.



During April 2005, we signed a new credit agreement with our lender. The new credit
agreement includes a revolving line of credit for up to $25 million and additionally allows us to obtain letters of credit for up to $15 million and enter into hedge agreements with the bank. Advances on the revolving line of credit will bear
interest at



19



---

##### Table of Contents

a base rate plus a margin spread of 1.5 percent per annum. The agreement contains certain covenant requirements including
liquidity tests. We are in compliance with all applicable covenants. Available borrowings under the revolving line were $25 million as of the effective date of such agreement. At June 30, 2005, we had $11.0 million in letters of credit drawn against
the credit agreement.



During May 2005, we closed on a $19.6 million
financing arrangement for pre-delivery aircraft deposits. This agreement will fund up to 65 percent of our pre-delivery deposits on six B737 aircraft through February 2006. Advances on the financing arrangement will bear interest at the London
Interbank Offering rate (LIBOR) plus 2.35 percent.



In June 2005 and pursuant
to an existing loan facility to acquire three B737 aircraft, Airways financed the acquisition of the second B737 subject to such loan facility. In conjunction with the financing of that B737 aircraft, Airways issued equipment notes for an aggregate
amount of $28.5 million, which mature on June 17, 2017. The note bears interest (and the additional note to be entered into will bear interest) at a floating rate equal to the six-month US Dollar LIBOR rate in effect at the commencement of each
semi-annual period plus 1.5% and is payable June 17 and December 17. The note is (and the additional note to be entered into will be) secured by a first mortgage on the purchased aircraft. Airways will pay a commitment fee equal to 0.65% per annum
of the undrawn portion of the loan amount.



In July 2005 and pursuant to an
existing loan facility to acquire three B737 aircraft, Airways financed the acquisition of the second B737 subject to such loan facility. In conjunction with the financing of that B737 aircraft, Airways issued equipment notes for an aggregate amount
of $29.0 million, which mature on July 22, 2017. The note bears interest (and the additional note to be entered into will bear interest) at a floating rate equal to the six-month US Dollar LIBOR rate in effect at the commencement of each semi-annual
period plus 1.5% and is payable June 17 and December 17. The note is (and the additional note to be entered into will be) secured by a first mortgage on the purchased aircraft. Airways will pay a commitment fee equal to 0.25% per annum of the
undrawn portion of the loan amount.



Recently Issued
Accounting Standards



In December 2004, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Standards (SFAS) No. 123R, Share-Based Payment. SFAS No. 123R is a revision of SFAS No. 123, Accounting for Stock Based Compensation, and supersedes APB 25. Among other items SFAS
123R eliminates the use of APB 25 and the intrinsic value method of accounting for stock based compensation, and 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. The effective date of SFAS 123R is January 1, 2006 for public calendar year end companies.



SFAS 123R permits companies to adopt its requirements using either a modified prospective method, or a modified retrospective method. Under the
modified prospective method, compensation cost is recognized in payments granted after that date based on the requirements of SFAS 123 for all unvested awards granted prior to the effective date of SFAS 123R. Under the modified
retrospective method, the requirements are the same as under the modified prospective method, but also permits entities to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS
123.



We currently utilize a standard option pricing model, Black-Scholes, to
measure the fair value of the stock options granted to employees. While SFAS 123R permits entities to continue to use such a model, the standard also permits the use of a lattice model. We have not yet determined which model we will use to measure
the fair value of employee stock options upon the adoption of SFAS 123R.



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 an operating cash flow as under the current literature. This requirement will
reduce net operating cash flows and increase net financing cash flows in periods after the effective date. These amounts cannot be estimated because they depend on, among other things, when employees exercise stock options.



20



---

##### Table of Contents

SFAS 123R will be effective for us beginning January 1, 2006 (as extended by the SEC on April 4, 2005), SFAS 123R offers
alternative methods of adoption. At the present time, we have not yet determined which alternative method we will use. Depending on the method we adopt to calculate stock-based compensation expense upon the adoption of SFAS 123R, the pro forma
disclosure above may not be indicative of the stock-based compensation expense to be recognized in periods beginning after December 31, 2005.



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, 2004, other than those discussed below.



Aviation Fuel



Our efforts to reduce our exposure to
increases in the price and availability of aviation fuel include the utilization of advance fuel purchase agreements that include fixed-price fuel contracts and fuel cap contracts. Fixed-price fuel contracts are agreements to purchase defined
quantities of aviation fuel from a third party at defined prices. Fuel cap contracts are agreements to purchase defined quantities of aviation fuel from a third party at a price not to exceed a defined price, thereby limiting our exposure to
increases in the price of aviation fuel. As of June 30, 2005, utilizing fixed-price fuel contracts and fuel cap contracts we agreed to purchase approximately 49 percent, 18 percent, and 12 percent of our fuel needs through the end of December 2005,
2006, and 2007, respectively at a price no higher than $1.66, $1.62, and $1.58, respectively per gallon of aviation fuel including delivery to our operations hub in Atlanta and other locations for 2005. During the third quarter 2005, we entered into
additional fixed-price fuel contracts and fuel contracts. These new contracts increased our total future fuel commitments to approximately 55 percent, 23 percent and 16 percent of our fuel needs in 2005, 2006 and 2007, respectively, at prices not
higher than $1.72, $1.62 and $1.58, respectively, per gallon of aviation fuel. Aircraft fuel is a significant expenditure because our operations are inherently dependent on the use of petroleum products.



Aircraft fuel represented approximately 31.2 percent and 22.5 percent of total operating
expenses for the three months ended June 30, 2005 and 2004, respectively, and 29.5 percent and 22.4 percent of total operating expenses for the six months ended June 30, 2005 and 2004, respectively.



ITEM 4. CONTROLS AND PROCEDURES



Disclosure
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. Based on an evaluation of our disclosure controls and procedures conducted by our management as of June 30, 2005, with the participation of the Chief Executive and Chief Financial Officers, the Chief Executive and
Chief Financial Officers believe that these controls and procedures are effective to ensure that we are able to collect, process, and disclose information we are required to disclose in the reports we file with the SEC within the required time
periods.



There has been no change in our internal control over financial
reporting during the three months ended June 30, 2005, that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.



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 2. Unregistered Sales of Equity Securities and Use of Proceeds



None



21



---

##### Table of Contents

Item 3. Defaults upon Senior Securities



None



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



Our annual meeting of stockholders was held on May 17, 2005. We solicited proxies for the meeting pursuant to Regulation 14A under the Securities Exchange Act of 1934.



Managements nominees for election to our Board of Directors as listed in our proxy
statement were elected for three-year terms, with the results of the voting as follows (there were no broker non-votes on this matter):



|                      |  |            |  |              
|--------------------- |  | ---------- |  | -------------
|Nominee               |  | Votes For  |  | VotesWithheld
|G. Peter DAloia      |  | 81,058,177 |  | 1,184,744    
|Jere A. Drummond      |  | 81,059,738 |  | 1,183,183    
|John F. Fiedler       |  | 80,651,403 |  | 1,591,518    
|William J. Usery, Jr. |  | 80,996,867 |  | 1,246,054    



As indicated in the table above, G.
Peter DAloia, Jere A. Drummond, John F. Fiedler and William J. Usery, Jr. were elected as Class II Directors for terms expiring at the 2008 annual meeting of stockholders. The terms of the following Class I Directors will continue until the
annual meeting in 2006: Don L. Chapman, Lewis H. Jordan and Joseph B. Leonard. The terms of the following Class III Directors will continue until the annual meeting in 2007: J. Veronica Biggins and Robert L. Fornaro.



Also at the annual meeting, stockholders were asked to vote for amendments to the 2002
Long-Term Incentive Plan. The purpose of the vote was to add an additional 2,500,000 shares to the 2002 Long-Term Incentive Plan and to make certain other amendments thereto as described in the Companys proxy statement filed with the S.E.C. on
April 11, 2005. At the annual meeting, the amendments to the 2002 Long-Term Incentive Plan were approved, with 48,088,480 shares voting for, 5,687,295 voting against, and 1,055,912 abstaining. There were also 27,411,234 broker non-votes.



Item 5. Other Information



None



22



---

##### Table of Contents

Item 6. Exhibits



The following exhibits are
filed with this report:



|    |  |             |  |                                                                                       
|--- |  | ----------- |  | --------------------------------------------------------------------------------------
|(a) |  | Exhibit No. |  | Description                                                                           
|    |  | 10.1 -      |  | The Association of Flight Attendants-CWA, AFL-CIO, Flight Attendant Labor Contract (1)
|    |  |            
|    |  | 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                                  

---

|(1) | Incorporated by reference to the Companys report on Form 8-K filed with the SEC on May 26, 2005
|--- | ------------------------------------------------------------------------------------------------



23



---

##### Table of Contents

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: August 9, 2005 |  | /s/ Stanley J. Gadek                        
|                     |  | Stanley J. Gadek                            
|                     |  | Senior Vice President, Finance,             
|                     |  | Treasurer and Chief Financial Officer       
|                     |  | (Principal Accounting and Financial Officer)



24



---

##### Table of Contents

|              |  |                                                                                       
|------------- |  | --------------------------------------------------------------------------------------
|EXHIBIT INDEX
|Exhibit No.   |  | Description                                                                           
|10.1 -        |  | The Association of Flight Attendants-CWA, AFL-CIO, Flight Attendant Labor Contract (1)
|              | 
|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                                  

---

|(1) | Incorporated by reference to the Companys report on Form 8-K filed with the SEC on May 26, 2005
|--- | ------------------------------------------------------------------------------------------------



25