ATA plunges into bankruptcy over intense competition at Chicago Midway.
With over 192,000 passengers passing through it daily, Chicago O’Hare is currently one of the busiest airports in the world and a name that is familiar to flyers the world over. Far fewer have heard of Chicago Midway – the city’s second airport. Yet Chicago Midway is shaping up to become the location for one of the most brutal no frills airlines fights of recent years.
The continuing problems created by both 9/11 and the extremely high fuel costs at present claimed another victim last month in the US. The country’s tenth largest airline ATA filed for chapter 11 bankruptcy protection and stated that it intended to return to its roots and refocus on Indianapolis. As a direct result it intended therefore to leave Midway.
A major user of Midway airport.
The announcement has caused a lot of people to sit up and take notice. ATA was responsible for 39% of the 17 million passengers a year and had 14 gates at the airport along with a considerable number of highly valuable take off and landing slots. As part of ATA’s restructuring to generate much needed funds, these are now up for auction on the 10th December with Judge Basil Lorch III expected to rule on 16th December. It’s expected that the revenue for these assets will exceed US $90m as interest is high.
Due to its geographical location in North America plus the fact that it has a major city on its doorstep, Chicago’s airports provide the perfect opportunity for airlines to create hubs to route the maximum amount of people around their network. O’Hare is the headquarters of United as well as being American’s second US hub and unsurprisingly congestion at O’Hare is severe – three rounds of reductions have occurred this year as airlines cut flights to try and reduce the problem. Midway does not have the same problem and costs are much lower, favouring a budget airline organisation which can ill afford high airport costs or delays.
Who's game for the fight, and who's not.
JetBlue has ruled itself out of the auction stating that it has no interest, but the other major budget airlines in the US are all queuing up. AirTran was first to state an interest – it’s thought that it wants to reduce dependency on its Atlanta hub where it’s facing a severe price war with dominant carrier Delta. AmericaWest is also interested – Chicago Midway would be ideal as their two hubs (Phoenix and Las Vegas) are both based in the West. Both of them will be concerned by SouthWest entering the fray. The third largest airline in the US and the worlds first ever budget airline, SouthWest is already increasing Chicago flights to 166 departures a day to 32 cities, and has 2,900 employees based at Midway. SouthWest’s CEO Gary Kelly stated that whilst the airline is not interested in ATA’s planes, expansion at Midway is Southwest’s top priority.
As for ATA...
As for ATA itself, the founder and Chairman J. George Mikelsons said he's not completely responsible for the Indianapolis carrier's plunge into bankruptcy. He has a point as he had already retired and presumably was intending to live off his ATA stockholdings which pre 9/11 were worth more than $250 million in value. To his credit he’s come out of retirement and intends to rebuild the airline and take it back to its roots though maybe it has something to do with the fact that estimates put his stock value at $10 million.
Industry analysts have pointed the finger in various directions for the bankruptcy. Almost all of ATA’s planes are leased, and they’re big. Too big. At the time Mikelson favoured smaller planes due to greater flexibility and due to his share holdings could have overruled the executives responsible but didn’t. Fuel price increases have hit them hard. This year’s bill is $100 million more than last year for the same amount of fuel. Falling ticket sales have not helped either, whilst demand from the military for charter flights has also dropped considerably. There are various reasons for the bankruptcy protection decision, but they lost $91m in first half of 2004 and this needs to be resolved.
With 7,700 employees at the moment ATA states it’s determined to minimise any further redundancies and proposes to save costs by downsizing its fleet instead, getting rid of its leased large 757 and 767’s and returning to much smaller planes. The passenger levels have to be increased as well; travellers in the US often have to fly via hubs to get to their final destination and ATA intends to fly directly between underserved cities to coax passengers away from having to fly via a hub. As it’s leaving Midway it will need its own hub and intends to settle into Indianopolis. This is more sensible than it sounds, as passengers could tie into long haul destinations available with other carriers from Indianapolis. It’s difficult times at ATA and tough decisions will have to be made to ensure it’s survival, but for the immediate time being, all flights will continue as normal.