ATA Cultivating Deeper Connections To Corp. Market

With a formalized sales program, presence in many large business centers and entry into the transcon battle, ATA Airlines is trying to penetrate deeper into the corporate market. BTN editors David Jonas and David Meyer last month met with George Mikelsons, ATA chairman, president and CEO, who returned from retirement in August 2002.

BTN: Please explain how ATA has become more relevant to the business traveler.

George Mikelsons: Three, four, five years ago, we gave out straw hats and had palm trees painted on our planes because we primarily were attracting leisure travelers. Then we started flying into Philadelphia, New York, etc., and took the palm trees off. Now, on eight flights a day between Chicago and New York, you won't find one straw hat. It's laptops on top of laptops. For every high flyer who wants Red Carpet lounges and upgrades, there are about 10 whose travel managers are saying, "Hey, let's look at these low-cost carriers."

BTN: What is your current business mix, and what do corporate deals look like?

Mikelsons: We have no sophisticated way of measuring business mix, but the percentage is huge. In typically business markets, we see more business travelers than leisure travelers. Three years ago, there were no corporate sales efforts. Now, when we knock on the door of a large corporation, the reception is quite warm. It is very lucrative. Corporate deals are generally based on volume. If Eli Lilly buys so many tickets, they would get the lowest price. A smaller company would pay slightly more. Certainly we are rewarding their loyalty (see chart, left).

BTN: How important to corporate clients is ATA's entry into the transcontinental market?

Mikelsons: We are enthusiastically eyeing transcons. Our first foray will be San Francisco-Newark on Oct. 26, and advance bookings indicate it will be quite successful. If it is, we certainly will introduce others. We also enthusiastically are looking to expand internationally. Value shouldn't cease as you cross an international boundary, or even an ocean.

BTN: Is crossing an ocean with scheduled service really in ATA's business plan at this point?

Mikelsons: We are a cat walking around a hot bowl of milk. If your cost per available seat mile is low, it gets even lower when you increase length of haul. There are opportunities, but you have to be careful because international is the last bastion of the legacy carriers. They'd be reluctant to give that up. Is it in the immediate business plan? Absolutely not.

BTN: Continental vice president of pricing Jim Stevens said Continental will lose "$10 million to $12 million a year" competing against you on the Newark-San Francisco route, yet Continental "is not too worried" about ATA. What's your response?

Mikelsons: I am disappointed to hear that they will lose money because we have every intention of making money on that route. It is a battle of costs. With our CASM of 6.92 cents, you can do a lot of things that the legacy carriers cannot. The idea is to go into a market at a fare level you can sustain forever and be profitable.

BTN: Do you think the economy is improving and that airlines will be able to raise fares?

Mikelsons: Yes, the economy is improving and, yes, everybody is raising fares, somewhat. When low-cost carriers raise fares, we do it by $10 and are deliriously happy. The big guys have larger numbers in mind because they need to cover their huge overhead, but we have stuck to a cost-plus mentality in order to not sully our reputation. This aggressive yield management that American Airlines once upon a time introduced—and everyone else copied—has been resented by the public. It is absolutely imperative low-cost carriers keep their identity and not gouge people. Also, if you charge $1,400 because you can, you lose the discipline of keeping your costs low.

BTN: Where is ATA now in terms of cost control?

Mikelsons: We have cut costs mercilessly. In the last year, we cut 19 percent of our unit costs, despite a 23 percent increase in the price of fuel. We will finish the year with a CASM of 6.92 cents or so. Only JetBlue has a lower CASM than that. Also, I subscribe to the philosophy that fuel in '04 will be cheaper than in '03. I don't fear fuel simply because we have the newest, most fuel-efficient fleet.

BTN: What is the mix of ATA ticket sales in terms of distribution, and what is the future of airline distribution?

Mikelsons: About 66 percent of our bookings are electronic; half of that is on ATA.com. The greatest future is for airlines' own booking machinery. It costs us $4 or $5 for our own res people to do it, but it costs us cents to take it on ATA.com. We are doing everything in our power to drive it all through ATA.com.

BTN: Is that a hindrance for the corporate market, which still primarily deals with large travel agencies?

Mikelsons: It is a hindrance, but more are saying, "If that is the way we have to do business with you, then we will go through ATA.com." It's not that difficult.

BTN: Can ATA maintain its rapid growth?

Mikelsons: We slowed down the growth of the airline and are back to profitability. The growth has been a little too robust for my liking. When I came back in August 2002, in the following month ATA was running 41 percent more available seat miles than the year before. If you run an airline on that basis, unless you have the brand-name recognition of JetBlue, you can't maintain that growth. We have slowed it down to 10 percent to 11 percent growth in '04. An unfortunate byproduct of our fast growth is that our customer service numbers certainly were not up to my expectations. Yet, consumer complaints have come way down, and on-time performance is getting significantly better. Up until last month, our baggage service was pretty lousy. People were waiting too long, especially in Midway. We have spent a tremendous amount of effort to make sure that, as we emerge into the limelight, we don't look bad. As for on-time performance, we have entered many new markets, and it is a matter of adjusting block times. By the end of this year, we should have everything fixed to the point that we will look pretty good.

BTN: Can you envision ATA entering codeshare partnerships?

Mikelsons: Absolutely. None of the low-cost carriers have done that, but I have been an enthusiastic proponent. The reason none of us have is because we have different res systems, etc.

BTN: That has not stopped the big carriers.

Mikelsons: They have had beaucoup bucks to throw at this stuff, until recently. Also, the low-cost carriers are so punch drunk with their own success. I am not the only one interested, but we are all saying that we will do it someday soon. Right now, it still is a land rush. But will we do it eventually? Sure.

BTN: Would it have to be with a fellow low-cost carrier?

Mikelsons: The big guys don't like us much, but sooner or later we'll do long-haul scheduled service to more than just Hawaii. Then, we will most certainly go after other carriers very aggressively. Look at the number of people Ryanair carries intra-Europe. Whether it is them, EasyJet or someone else, if they can connect with AirTran, ATA, etc., you can really grow a network.

BTN: Consolidation has been discussed quite a bit in this industry. Yet, it has not occurred in the domestic market, despite chronic overcapacity. Why?

Mikelsons: Every time the industry is scared out of its britches, everyone talks about mergers. As a practical matter, it doesn't work. There have been absolute disasters. Also, it is so difficult to get the industry to give up marketshare, but why? What are they getting? Marketshare of losses? To grow because you want to be the biggest gorilla in the market, defend your hub and make the public pay fares they don't want to pay doesn't work. Instead of just trying to cut costs, airlines try to drive one another out of certain markets. The end result is that the stupid industry has not ever made a dollar.