Carrier looks deeper at rent-a-plane roots to grow revenue: ATA aims to reverse declines in commercial charter

January 9, 2006

ATA Holdings Corp. is again plotting a course toward commercial charter, a segment of the airline industry hurt over the last decade by falling scheduled service fares that have erased charters' price advantage.

But rather than aiming at the leisure end of commercial charter-so battered by fare wars-the Indianapolis carrier will try to tap more lucrative segments such as "incentive" charters.

Among the clients: big corporations that send hundreds or thousands of their top salespeople each year to conferences in warm climates as a reward for their performance and as an incentive to keep up the good work.

Another potentially lucrative segment is commercial charter flights for sporting events and for team travel, said Subodh Karnik, ATA's chief commercial officer. He formerly was senior vice president of marketing planning at Delta Airlines, which racked up $45 million annually on such commercial business.

"That's a very significant part of the business we can go after," Karnik said.

Turning attention to commercial charter is an about-face for ATA, which has focused over the last decade on scheduled service.

In its recently filed bankruptcy reorganization plan, ATA projects commercial charter will generate $31.4 million in revenue in 2006 and perhaps more than $36 million in 2008.

In the nine months ended Sept. 30, commercial charter revenue was $10.6 million, a mere 1.2 percent of ATA's revenue.

"Commercial charter has sort of been a stepchild ... We realized that we absolutely have been paying less than full attention to it," Karnik said.

The reorganization plan says military charters followed by scheduled service will be ATA's top priorities after it emerges from bankruptcy court, which could occur as early as next month.

But in a report filed in bankruptcy court, ATA consultant Navigant Capital Advisors says commercial charters could generate 4 percent of revenue in 2006, up from just over 1 percent in 2005.

"Is it going to represent 60 or 70 percent of our business ongoing? Absolutely not," Karnik said. But "maybe we'll even want to double the business over the next year or two."

He said ATA would commit some of its aircraft to commercial charters, giving the airline's charter division more incentive to lasso new business.

While many analysts doubt ATA will be able to again eke out profit in the cutthroat scheduled service realm, at least one observer sees potential in commercial charter.

"There's definitely a niche market for that, there's no question about it. How you mine it is more problematic," said Doug Abbey, a principal of Washington, D.C.-based airline consulting firm Velocity Group.

ATA has an advantage in the area, however, given its long history in charter, Abbey said. ATA founder George Mikelsons began the carrier in the early 1970s as a charter carrier to vacation destinations.

Mikelsons later pursued military charters. In 1990-1991, ATA was the largest civilian passenger carrier of U.S. troops for Operation Desert Storm, carrying 108,000 people on 494 missions.

ATA branched into scheduled service in 1992. That segment has dominated its operations since, but ultimately led to its Chapter 11 bankruptcy filing in October 2004.

There still may be opportunities for charters for vacation travel, said Abbey, noting that not all low-cost scheduled carriers serve every domestic vacation spot. There also are a number of destinations becoming popular in Central America and Europe.

"Air travelers ... want to go to new and developing destinations," he said.

While commercial charter isn't as glamorous as scheduled service, it's also less vulnerable to predators grabbing market with cheap fares, Abbey said.

Karnik confirmed ATA is looking at working with specialty tour operators to lesser-known destinations, especially those not now reached with direct airline service.

While commercial charter "is not huge income ... it's guaranteed income," said Matt Ellis, a longtime ATA pilot who used to fly charter trips for Ambassadair. ATA recently sold the travel club to Indianapolis-based Grueninger Travel.

"I'm sure there's money to be made. I hope ATA is able to capitalize on commercial charter," Ellis said.

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