By David Bailey CHICAGO, Feb 25 (Reuters) - AmTran Inc. Chief Executive John Tague said on Monday he expects the No. 10 U.S. carrier to post a first-quarter operating profit as the airline navigates the turbulent travel industry following the Sept. 11 attacks. The parent of American Trans Air Inc. (AMTR), or ATA, also could report a second-quarter net profit, Tague also told Reuters in an interview. ATA, which offers low fares to leisure travelers, cut its schedule and laid off about 1,200 of its 8,000 employees following the attacks on the United States last September, but has recalled about 800 employees, Tague said. "We are not only back to a full schedule, but we are growing now," Tague said. The carrier reported a net loss of nearly $82 million in 2001 as it spent money to convert an aging fleet to new planes and focused on scheduled service over charter flights. The fleet plans remained substantially unchanged after the attacks, he said. "While our unit revenues are certainly down, there was not as precipitous a fall" as other major carriers that rely more on business travelers, he said. The carrier, founded in 1973, expects lower maintenance and fuel costs as it switches to newer aircraft to help offset higher insurance and security costs, Tague said. ATA has recalled all flight attendants furloughed after the attacks and has hired more customer reservation clerks, but a reduced need for maintenance positions will result in fewer recalls in that area, Tague said. Shares of AmTran rose $1.00, or 8.1 percent, to $13.40 Monday on the Nasdaq. RISING CAPACITY AND REVENUE AmTran said on Friday in a filing with the U.S. Securities and Exchange Commission that it expects systemwide capacity, measured by available seat miles, to rise about 2.9 percent in the first quarter and 3.0 percent in the second quarter compared with a year earlier. Systemwide traffic, measured by revenue passenger miles, is expected to rise 5.2 percent in the first quarter and 2.3 percent in the second quarter from a year ago, ATA said. ATA received about $43.6 million last year in compensation for direct losses from the attacks as part of the $15 billion federal bailout. The carrier expects to receive $25 million to $35 million in March or April in additional compensation, Tague said. ATA has no plans at this time to apply for federal loan guarantees under the federal package, he said. ATA expects to have 30 Boeing Co. (BA) 737-800s and another 25 Boeing 757s in two models by the end of the year, out of a total fleet of 67 jets. The 757 is the largest plane that can be used at ATA's Chicago-Midway hub. About one in five Chicago passengers now uses Midway, and part of ATA's plans includes expectations for that ratio to grow to about one in three passengers over several years, he said. CONFIDENT OF PILOT CONTRACT IN 2002 While it is doubtful an agreement can be reached with pilots in the first quarter, Tague said he "would be very surprised if we don't have a contract this year." The contract became amendable in Oct. 2000. Pilots and the airline are in mediation and the pilots would receive a considerable pay increase in either contract proposal presented, he said. ATA has been reinforcing cockpit doors with bullet resistant panels and are considering equipping cockpits with stun guns, Tague said. The carrier is only in favor of nonlethal measures, he said. 'SQUISHY' FARES The major U.S. carriers cut fares sharply to draw customers back to the skies after the attacks and fares have not returned to former levels yet as an industry, Tague said. The fare structure remained a problem even at former levels, he added. "The market is still pretty squishy out there," he said. For the industry to recover, the lowest available fares have to move up and there has to be some compression in fares from the highest to the lowest, Tague said. "The business traveler isn't going to just miraculously come back and pay what they were paying before," Tague said. "It is going to get better from where it is today, but it will be years before we see demand back to where it was before." Corporate cost-cutting has become ingrained since even before the attacks, Tague said. Also, the industry is setting itself up for a rougher fourth quarter than usual because carriers have added too much capacity in bids to gain market share when there still remains too little demand to absorb the added seats, Tague said.