by Brendan M. Lynch | December 01, 2004

An ATA plane

On empty:
ATA will restructure
and sell assets
at Chicago Midway.

Blaming a sluggish economy, 9/11, cutthroat pricing and ballooning fuel costs, ATA Airlines and its corporate parent, ATA Holdings Corp., filed for bankruptcy on Oct. 26. Indianapolis-based ATA, the nation’s 10th largest carrier, joined United and US Airways as major U.S. airlines now operating under Chapter 11 protection. 
    ATA also announced its intention to sell to rival AirTran $87.6 million worth of flight operations, gates and routes at Chicago’s Midway Airport, as well as arrival and departure slots at LaGuardia in New York City and Ronald Reagan National in Washington, D.C.
    Analysts said ATA’s bankruptcy will have little negative impact on travel to these important meetings destinations. “One way or another, it’s going to stay essentially competitive,” said John Heimlich, chief economist with the Washington D.C.-based Air Transport Association. “You have seen how much interest there is in those gates, and you are going to see some competition for them.”
    “I think the ATA bankruptcy will improve air travel to these three cities,” predicted Jay Ellenby, president and CEO of Baltimore’s Safe Harbors Travel Group Inc. “Airlines doing as well or better than ATA will be as successful with those same routes.”
    Indeed, in reaction to ATA’s cutbacks, Southwest Airlines announced in November it would add 16 nonstop flights from Chicago Midway.
But some experts warned more bankruptcies represent an ominous sign for travelers. On Oct. 12, Kevin Mitchell, chairman of the Radnor, Pa.-based Business Travel Coalition, told Congress “there is increasing probability the U.S. airline industry, a critical infrastructure for our country, will experience a catastrophic failure in the next 12 months.”
    Mitchell urged the government to ensure tickets would be honored by other carriers in the event of a future airline liquidation.
    Soaring fuel costs have been seen as the number-one cause for passenger carriers falling deeper into the red. “Our profits are really being wiped out,” Heimlich noted. “Just a dollar increase in the cost of a barrel adds $425 million to our industry’s [annual] operating expense.”
    Pressured by pricey jet fuel, many airlines now are on life support. Atlanta-based Delta Air Lines narrowly missed bankruptcy via a last-ditch financing deal plus concessions from its pilots’ union in late October. At press time, Independence Air, based in Dulles, Va., was seen as a likely candidate for bankruptcy due to high fuel costs and an $83 million jet lease payment due in January.
    Meanwhile, UAL, United’s corporate parent, and US Airways posted steeper-than-expected losses for the third quarter. Low-cost upstart JetBlue, based in Forest Hills, N.Y., saw its third-quarter profits plunge by 71 percent.
    “The ATA situation tells you there are underlying problems,” said Heimlich. “There is even the chance of a fourth-quarter loss for JetBlue. That means we’re facing some very serious challenges.”