The retired Southwest Airlines executive helping pilot ATA Holdings Inc. out of bankruptcy said he’s confident the Indianapolis carrier could again fly solo, despite a virtual pullout from its hometown and what to some is a precarious reliance on code sharing with competitor Southwest.
John Denison, former chief financial officer and executive vice president at Dallas-based Southwest, said ATA’s long-term strategy could include boosting frequency of flights from ATA’s Chicago Midway Airport hub to key markets such as New York or Newark.
“They could easily stand on their own,” Denison said of ATA. “You could easily have a situation where the company wasn’t at all dependent on anybody for code sharing.”
Denison’s hopeful view of a resurrected ATA contrasts with near-term financial challenges. The airline is expected to lose more than $120 million in 2004. A cash investment by Southwest as part of a deal to acquire six of ATA’s Midway gates has been eroded because of losses at Indianapolis International, said Gil Viets, ATA’s chief financial officer.
And with hundreds of jobs on the bubble in Indianapolis, ATA is again seeking concessions from pilots and flight attendants.
“If you help us out, it’s more likely the airline will survive,” is the essence of ATA’s request, said Air Line Pilots Association spokesman Rusty Ayres.
“They are more concerned about their cash burn … to ride it out long enough to see results from the Southwest code share” agreement, Ayres added.
Code sharing, in which ATA will fly Southwest passengers on nearly a dozen Midway routes where Southwest doesn’t fly, is expected to generate $50 million a year for ATA, which hopes to emerge from bankruptcy reorganization late this year.
The alliance with ATA, the most extensive Southwest has launched with another carrier, began Feb. 4 and is expected to make Midway profitable for ATA. Midway hasn’t been profitable for the local carrier largely because of an industry fare war that drove carriers to slash prices below cost. Besides its Midway troubles, ATA has been saddled with expensive leases for a new fleet of Boeing 737-800s acquired just before the 2001 terrorist attacks, which reduced aircraft values and curbed passenger traffic.
ATA is shedding costs amid Chapter 11, including a reduction in its fleet to 45 planes from 65. ATA announced Jan. 26 it would slash its Indianapolis service, from a planned 54 flights to just four in April. The news stunned the airline’s 2,300 Indianapolis-area employees, who were used to ATA’s being the dominant carrier here. Executives blamed a ratcheted-up expansion by Minneapolis-based Northwest Airlines and other competitors for the retrenchment.
Since the announcement, shock has turned to anger as chat rooms buzz with criticism that management knew two years ago that Northwest was looking to expand in Indianapolis and shouldn’t have been surprised.
Viets counters that the Indianapolis expansion initially was predicated on a deal to sell gates at Midway, New York and Washington, D.C., to Orlando-based AirTran Airways. That deal was part of ATA’s Oct. 26 bankruptcy filing. ATA planned to fall back on Indianapolis and grow service here as a way to return to profitability.
Viets said that changed when Northwest recently grew an expansion plan announced in July. “They attacked with lower fares, more planes and it drove prices down immensely,” Viets added.
Denison, 60, isn’t about to break out the life vests. He said several units within ATA are “very strong,” including military charters. Military flights represented almost $235 million, or 20 percent, of ATA’s $1.2 billion in revenue during the first nine months of 2004.
Also strong are ATA’s Hawaiian operations, which may eventually become part of code sharing with Southwest. Much of ATA’s aircraft fleet is already certified to fly across oceans; Southwest’s is not.
Further, Denison sees code sharing with Southwest as a way to moderate the seasonal drops in passenger traffic, which for ATA has tended to slow in January and early February and scuttle earnings.
While the airlines have agreed to a long-term code-sharing agreement, “We need to be able to stand on our own legs,” said Sean Frick, ATA’s strategic planner.
Whether the nation’s 10th-largest airline-a ranking that will plummet with April’s Indianapolis retrenchment-can stand on its own again without the Southwest lifeline is a matter of debate.
Airline economist Alan Bender said he doesn’t see many obstacles if ATA wanted to return to its niche in military and charter flying that dates to ATA’s founding in the early 1970s-but not so with scheduled service.
“Other than as a long-haul affiliate or wing of Southwest, I don’t see that they have any role to play in the scheduled air transportation system at this point,” said the Embry-Riddle University economist.
Besides its code-sharing agreement, Southwest loaned ATA $47 million, bought access to six ATA gates at Midway for $40 million, and plans to take a $30 million, or 27.5 percent, stake in ATA in the form of new stock to be issued by the Indianapolis carrier.
Southwest officials said previously they don’t intend to hold that stake in ATA for long. But what happens is very much uncertain, as this is the first significant code-sharing deal Southwest has ever had with another carrier.
The deal violates a long-standing principal of Southwest: Don’t commingle with another carrier. Southwest has always prided itself on good service and few passenger complaints, something that could be jeopardized if its passengers have a bad experience on ATA, Bender said. “This is very much an experiment.”
It was Denison who hired Southwest’s new free-thinker, CEO Gary Kelly.
Denison downplays his ties to Southwest. He makes a point to call himself an ATA employee. He talks of being encouraged by his discussions with workers, saying by and large they’ve been dedicated to turning around ATA and making code sharing work.
The industry veteran is trying to do his best to make sure they stay on board amid the storm. During a visit to ATA’s Indianapolis maintenance hangar last week, Denison greeted nearly every worker he passed in the corridors, as if he were a political candidate looking for votes. His gregarious demeanor seemed to startle some employees, who had expected Southwest and the creditors committee to appoint a harsh bean counter.
Earlier, sitting in a conference room with Viets and Frick, Denison often apologized to them for speaking out of turn as he gave his assessment of ATA’s situation.
“Someone like myself can only come in to help people make decisions,” said Denison, dressed in a knit shirt and casual pants appropriate for the golf course.
Indeed, the Plano, Texas, resident said he’s been playing golf for much of the last three years since retiring from Southwest. Denison admits he initially turned down a request by Southwest to become ATA’s chief restructuring officer. He also turned down ATA’s creditors’ committee on more than one occasion, but reconsidered after concluding: “I don’t think I felt I had finished my life’s work.”
Denison is no stranger to troubled companies. He previously worked in management positions at Chrysler during its near-collapse in the 1970s, and at LTV Corp., an aerospace company, during a difficult period.
“Business,” Denison said, “is not nuclear physics.”