The collapse of ATA Airlines, a low-fares network carrier, creates a possible turning point in the evolution of the US low-cost sector as others eye its most valuable airport slots.

Within hours of ATA's late-October bankruptcy filing, both AirTran Airways and America West Airlines revealed that they were interested in the ATA assets at Chicago's Midway airport, while Southwest Airlines quickly announced growth at the low-fares centre.

AirTran, based in Orlando, said it had a tentative agreement to acquire ATA's 14 Midway gates, 19 take-off and landing slots at New York's LaGuardia airport and eight slots at Washington's Reagan National for $87.5 million. But America West could also bid at the bankruptcy court. America West officials believe that ATA is overgauged at Midway with its 175-seat Boeing 737-800s and fleet of 757s, including some 250-seat 757-300s.

AirTran also operates a smaller fleet, mostly Boeing 717s, but also new 737-700s. AirTran says it will wet-lease ATA aircraft and codeshare with ATA until more of its own Boeings are delivered.

JP Morgan's Jamie Baker, who estimates that ATA loses $50 million a year at Midway, warns this would be a flawed strategy for AirTran. "Entering a money-losing operation with hopes of downgauging one's way to profitability, smacks of legacy-airline behaviour," he says, comparing it with American's unsuccessful takeover of TWA and its St Louis operation.

Similarly, America West must avoid being too ambitious, its executives concede, especially after its third-quarter loss of $44 million as unit revenues eroded sharply in the face of transcontinental competition. With both AirTran and America West mired in deficits, a major mistake such as unsuccessful expansion could reshape the sector.

But whichever takes over ATA's position at low-fares centre Midway, it will face an expanded Southwest. The carrier has announced it will add 16 daily flights to its 145 Midway frequencies, and would like to add about seven more gates to its 19 at the airport. Seven of the destinations Southwest is adding are served by ATA. The largest growth will take place in services to Fort Lauderdale and Orlando in Florida and Manchester in New Hampshire.

Southwest chief executive Gary Kelly told reporters that growth in Chicago would be the airline's top priority for 2005. "Chicago is our fourth largest market and there is no desire on our part to stand still on it," says Kelly. He adds that Southwest could add as many as 60 737-700s next year, but is not interested in ATA's equipment.

ATA, which is based in Indianapolis even though most of its flights are at Midway, has lined up $15.5 million in financing from the state of Indiana to keep it from liquidation. The carrier will return to its original base as its hub. The bankruptcy, during which the Air Transportation Stabilization Board will continue its support of a $140 million ATA loan package, puts an end to speculation that ATA would attempt to launch overseas low-fares flights. The airline had less than $1 million in unrestricted cash when it filed.



Source: Airline Business