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See accompanying Notes to Condensed Consolidated Financial Statements.

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See accompanying Notes to Condensed Consolidated Financial Statements.

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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 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 for reports on Form 10-Q. It is suggested that these unaudited interim fina ncial 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, 2003.

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:
AirTran Airways, Inc. offers low-fare, scheduled air transportation of passengers, serving 45 destinations across the United States.

Reclassification:
Certain 2003 amounts have been reclassified to conform to 2004 classifications.

Stock-Based Employee Compensation:
We grant stock options and restricted stock awards to certain officers, directors, and key employees. We account for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations and accordingly recognize compensation expense when the exercise price of an award is less than the fair value of our common stock on the grant date. Approximately 1,177,000 shares of common stock were issued pursuant to stock option exercises during 2004.

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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:

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Note 2 - Earnings Per Common Share

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

Note 3 - Comprehensive Income

Comprehensive income encompasses net income and "other comprehensive income," which includes all other non-owner transactions and events that change stockholders' equity. Other comprehensive income is composed of reclassifications to earnings of deferred gains and losses related to derivative financial instruments that qualified for hedge accounting. These derivative instruments were terminated in March 2002. Amounts are reclassified to earnings as the related fuel is used. Comprehensive income was $16.9 million and $57.3 million for the three months ended June 30, 2004 and 2003, respectively, and $21.0 million and $59.5 million for the six months ended June 30, 2004 and 2003, respectively. The differences between net income and comprehensive income for each of these periods are as follows:

Because net deferred tax assets were offset in full by a valuation allowance during 2003 there was no tax effect on the unrealized loss for 2003.

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An analysis of the amounts included in Accumulated other comprehensive loss shown below:

Pursuant to our agreement with an aircraft leasing company we have lease-financing commitments for 20 of the remaining B737 deliveries. Additionally, we have obtained financing commitments from an affiliate of The Boeing Company (Boeing) for up to 80 percent of the purchase price for 16 of the B737 firm orders in the event we are unable to secure financing from the financial markets on acceptable terms. 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.

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During the first six months of 2004, in connection with Airways' agreement with Boeing, Airways was refunded $5.3 million in previously paid aircraft deposits. We paid $22.8 million to Boeing in aircraft deposits for the acquisition of B717 and B737 aircraft.

Credit Agreement:
During 2002, we entered into a $15 million credit agreement with a term of one year, which was further extended during the first quarter of 2004 to June 30, 2004. The agreement allows us to obtain letters of credit and enter into hedge agreements with the bank. The agreement contains certain covenant requirements, including liquidity tests. We are in compliance with these covenants. At June 30, 2004, we had approximately $12.0 million in letters of credit drawn against the credit agreement. We are in the final stage of documentation regarding a new credit agreement and expect a definitive agreement forthcoming in the third quarter of 2004.

Other:
During 2002, we entered into a cancelable agreement with a regional jet contractor to provide regional jet service between pre-determined pairs of cities. We pay the contractor to operate the flights and we are entitled to all revenues associated with these flights. These payments are recorded on a net basis as a reduction to passenger revenues. During 2004, we reached an agreement to phase out this regional jet service by August 2004.

During 2003, we entered into an agreement with an air carrier to provide jet service between pre-determined pairs of cities. The air carrier provides its own aircraft, crew, maintenance, and hull and liability insurance in exchange for a fixed block hour rate for flights operated on our behalf. These payments are recorded on a net basis as a reduction of passenger revenues. During 2004, we reached an agreement to phase out this jet service by November 2004.

Note 6 - Income Taxes

At December 31, 2003, we had net operating loss (NOL) carryforwards for income tax purposes of approximately $118.4 million that begin to expire in 2016. We previously carried a valuation allowance on a significant portion of our deferred tax assets, including our NOL carryforwards. During 2003, as a result of profitable results in 2003 and 2002 and expectations of future profitability, we released the valuation allowance on the deferred tax asset related to our NOL carryforwards. Therefore, beginning in 2004, we are recording our provision for income taxes at an annualized effective rate of 38 percent. Income tax expense was $10.3 million and $1.6 million for the three months ended June 30, 2004 and 2003, respectively, and $12.8 million and $1.6 million for the six months ended June 30, 2004 and 2003, respectively.

Note 7 - Emergency Wartime Supplemental Appropriations Act

On April 16, 2003, Congress approved and the President signed into law the Emergency Wartime Supplemental Appropriations Act of 2003 (Wartime Act) which provided, among other things, for certain financial relief to the United States airline industry, including (i) $100 million to compensate U.S. air carriers for certain costs associated with strengthening flight deck doors and locks on aircraft and (ii) approximately $2.3 billion to be remitted to U.S. air carriers in the proportional share each such carrier has paid or collected in passenger security and air carrier security fees to the U.S. Transportation Security Administration (TSA). We were paid approximately $38.1 million as our share of the security fee reimbursement; the reimbursement was recorded in "Other (Income) Expense-Payment received under the Emergency Wartime Supplemental Appropriations Act, 2003" on our Condensed Consolidated Statements of Income. Compensation for the direct costs associated with strengthening flight deck doors and locks was recorded as a reduction to capitalized flight equipment when received.

Note 8 - Impairment/Lease Termination

During the second quarter of 2001, we announced our intention to retire our fleet of four Boeing 737-200 (B737-200) aircraft later that year. In connection with our retirement of these aircraft, we recorded an impairment loss and lease termination charge of $18.1 million.

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In June 2004, upon final lease termination of a B737-200, we reversed the remaining accrual of approximately $1.2 million related to the disposition of the lease. This was offset by a write-down of the asset costs of a B737-200 for $1.1 million to reflect the current fair market value of the aircraft. These amounts have been included as "Operating Expenses-Other operating" in our unaudited Condensed Consolidated Statements of Income.

Note 9 - Long-term Debt

In June 2003, Boeing Capital Corporation (Boeing Capital) exercised its remaining conversion rights related to Holdings' 7.75% Series B Senior Convertible Notes. The conversion resulted in a decrease in Holdings' overall debt of $5.5 million. In connection with the conversion, Holdings issued approximately 1.0 million shares of its common stock to Boeing Capital. In accordance with accounting principles generally accepted in the United States, Holdings expensed $1.6 million of debt discount and $0.2 million of debt issuance costs that had not been amortized. These amounts are shown on the unaudited Condensed Consolidated Statements of Income as "Other (Income) Expense-Convertible debt discount amortization".

Note 10 - Indemnifications and Guarantees

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 likelihood of payment in each case is considered remote. These indemnities consist of the following:

Certain of Airways' debt agreements related to certain aircraft-secured notes payable through 2014 and 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 dol lars 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.

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.

Note 11 - Subsequent Event

During July 2004, we converted options to firm orders for two new Boeing 737 aircraft. Delivery of the two new aircraft is scheduled to take place in the first quarter of 2006.

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RESULTS OF OPERATIONS

The tables below set forth selected financial and operating data for the indicated periods: