ATA's Pain Is AirTran's Gain

AirTran Airways yesterday announced a deal to acquire assets at Chicago Midway, New York LaGuardia and Reagan Washington National airports from ATA Holdings Corp., which yesterday filed for Chapter 11 bankruptcy protection. The agreement, which contemplates code sharing between two of the nation's largest low-cost carriers, would position AirTran as an imposing competitor east of the Mississippi. In Chicago, the carrier would compete directly with Midway resident Southwest Airlines for a slice of the large business travel market.

AirTran is offering to pay $87.5 million to ATA, which operates ATA Airlines, currently the largest operator at Midway and tenth largest in the country. ATA chairman and CEO George Mikelsons cited excess capacity, high fuel prices, declining fares and the brutal hurricane season for its bankruptcy filing. The company said it would continue uninterrupted operations during the restructuring process.

ATA characterized AirTran as "one of the strongest low-cost carriers" and committed to serve Midway during "a gradual, measured exit from Chicago." Specifically, AirTran would pick up ATA's Midway flight operations, including several routes and as many as 14 gate leases. AirTran expects to assume ATA's Midway services within a few months and develop marketing, frequent flyer program and codeshare links with ATA. The deal must be approved by the City of Chicago and the U.S. Bankruptcy Court for the Southern District of Indiana. It likely will close in the next couple of days, barring competitive bids from other carriers.

AirTran's existing Midway presence has included flights only to its Atlanta hub, but as it ramps up service at the airport, the carrier would compete directly with Southwest. ATA and Southwest currently offer competing nonstop service from Midway to Ft. Lauderdale, Indianapolis, Las Vegas, Los Angeles, Orlando, Philadelphia, Phoenix, Seattle and Tampa. They also operate to different airports in the Boston, Baltimore/Washington and Oakland/San Francisco metropolitan areas.

"We have 19 gates there and available capacity to add more flights," said Southwest CEO Gary Kelly, in an interview last week with BTN. "I see the potential under certain circumstances that we would want even more than the 19 gates."

Kelly said Southwest has been modeling a number of scenarios that could lead it to picking up assets from ailing carriers. "We do have some competitive overlap with ATA Airlines," he said. "If ATA downsizes, that very well could translate to Southwest growth opportunities at Midway."

At press time it was unclear whether Southwest put a bid on the table or if America West Airlines made a play for ATA assets, as had been reported by PlaneBusiness Banter a few weeks ago.

If the AirTran deal is finalized and the Orlando-based carrier plunges into the Chicago market, it would represent the latest growth spurt beyond the East Coast. AirTran also has a toehold in Dallas Ft. Worth, with the potential to boost operations as rival Delta withdraws to stronger hubs in Atlanta and Cincinnati.

"Adding a hub in Chicago is an important strategic expansion for AirTran Airways' growing network," said president and CFO Robert Fornaro. "This addition will give AirTran Airways a true national presence."

AirTran also snatched 19 departure and arrival slots at New York's LaGuardia Airport and eight at Reagan Washington National Airport.

In announcing a third-quarter loss of $9.8 million this morning--driven primarily by the volatile hurricane season in Florida--AirTran this morning said year-to-date passenger revenues exceeded $735 million, a 12 percent jump. Before acquiring any ATA assets, the carrier was closing in on major carrier status by nearing $1 billion in annual passenger revenues. It should easily reach that threshold in 2005 as Midway operations are integrated into its network.

For its part, ATA said it would reorganize "as a formidable low-fare carrier" with a focus on the Indianapolis hub, service to Hawaii and military charters. To maintain operations, ATA received permission from the Air Transportation Stabilization Board to use cash collateral from a government-backed loan while the company searches for debtor-in-possession financing.