Military discount airline fare

Business strategy: Discount airline ATA adds upscale class

By RICK BARRETT rbarrett@journalsentinel.com, Journal Sentinel

Thursday, August 26, 2004

Comfortable, two-across leather seats, free cocktails and personalized airline service aimed at harried business travelers. Sound familiar?

Many Wisconsin road warriors would think of Midwest Airlines when it comes to travel perks, even though it no longer serves free champagne, as the Oak Creek airline has won accolades for more than 20 years of upscale service.

But the latest offering for business travelers is coming from ATA Airlines, a struggling discount carrier based in Indianapolis with some flights from Milwaukee and many more from Chicago's Midway Airport.

Starting this fall, ATA will offer what it calls business-class service on Boeing 737-800 and 757-300 airplanes. Each of the large planes will have 12 wide leather seats, and the travelers who fill those seats will get perks such as priority check-in and boarding.

By offering more comfort and amenities for at least some passengers, ATA hopes to find a profitable niche in a marketplace dominated by no-frills service and rock-bottom fares.

The strategic move comes as the discount airline is battered by competition, low ticket prices, high fuel costs and a decline in its military charter service. It comes even as ATA has warned that it will likely run out of cash in early 2005 and is restructuring its finances, possibly as Midwest restructured in 2003.

"Under current operating assumptions and absent any changes to existing aircraft lease obligations, the company does not expect to have sufficient cash to meet its cash obligations in the first quarter of 2005," ATA Holdings Corp., the parent of ATA, said in a report to the Securities and Exchange Commission for the three months ended June 30.

Focus on major airlines

ATA's new service will include features important to frequent travelers, according to the airline's research, such as two seats on each side of the aisle, rather than three. The leather seats will be 4 inches wider than typical coach seats, will have more leg room and seat pitch, and will have six-way adjustable headrests.

Passengers in the new business-class section will get a shared center console for work purposes, complimentary cocktails and sodas, and digital in-flight entertainment.

ATA spent more than a year researching what frequent travelers wanted in a business-class section, said John Happ, the airline's senior vice president of marketing and sales.

"We looked at pretty much everything," he said. "Midwest Airline's product is unique and cutting-edge, but we focused more on what the major airlines were offering in their first-class passenger sections."

The highest ATA business-class fare will be $399 one way, and that's for a cross-country flight such as Boston to Los Angeles, according to Happ. A similar flight on a major airline would cost about $550.

ATA's highest one-way coach fare is about $300, Happ said. Passengers will be able to upgrade to business class the day of their flight for $40, provided seats are available.

The new service seems similar to what AirTran Airways has offered in a limited business-class section, said David Stempler, president of the Air Travelers Association in Washington, D.C.

A ticket for AirTran's business-class service is more expensive than its regular coach fare but costs less than what major airlines charge for first-class sections, according to Stempler.

"It's within the manageable zone for many travelers," he said.

Welcome change

ATA lost $90.7 million in the first six months of the year, has restructured some debt, and its 1,100 pilots have agreed to a concessions package that will save about $43 million over two years.

ATA and other airlines are experimenting with business models in an attempt to show a profit in a bleak operating environment.

"If what you have isn't working, then you try something else," Stempler said.

ATA has a limited number of flights from Milwaukee, on smaller planes, and its passengers won't be able to get business-class service from here. They will be able to catch the service from ATA connecting flights in Chicago and other large cities.

The discount airline's business-class section could be welcomed, as frequent travelers crave more comfort at a reasonable price, said Kevin Mitchell, chairman of the Business Travel Coalition, based in Radnor, Pa.

"It makes your attitude about going on the road a little better if you know that airline seat is pure leather, and you have room to get some work done or kick back and have a drink on a Friday night," he said.

ATA's business-class section won't be much of a threat to Midwest Airlines, which has two-across leather seats on its Signature Service flights.

Midwest still has an advantage over ATA in the Milwaukee market because it has non-stop flights from here, said Jay Sorensen, a former Midwest executive who runs a business consulting service in Shorewood.

"I don't see this as competition for Midwest flights from Milwaukee," he said.

ATA could be doing the right thing by offering two-class service, in part because it has large airplanes that sometimes depart with rows of empty seats anyway.

"We have the dubious distinction of having the highest number of seats per airplane of any domestic airline," Happ said.

The move should strengthen the airline's image with business travelers, who haven't warmed up to no-frills discount carriers, said Matthew Bennett, publisher of FirstClassFlyer.com, a Web site for frequent and first-class fliers.

Developing a business-class section poses a minimal risk for ATA as it faces much larger, more ominous financial issues, although there's some risk of the change in business strategy becoming a time distraction for the airline's management, according to Mitchell.

But while the major airlines also struggle to survive, the window is open for low-cost carriers such as ATA to gain market share, he said.

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