=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2003/05= /16/BU253603.DTL ---------------------------------------------------------------------- Friday, May 16, 2003 (SF Chronicle) More frequent flier/Low-key budget airline ATA expands SFO presence David Armstrong, Chronicle Staff Writer Back in 2001, Southwest Airlines, the high-flying low-cost carrier, pull= ed out of San Francisco International Airport and decamped across the bay to Oakland International. Since then, SFO, hurt by a falloff in its normally lucrative internation= al service due to the poor economy, the Iraq war and fears about terrorism and SARS, has looked for a low-cost carrier to step up and fill the void in domestic travel, which has fared somewhat better. Enter ATA Airlines of Indianapolis, a low-cost carrier that is ratcheting up service at SFO and, according to J. George Mikelsons, its founder, chairman and chief executive officer, is planning more. "We've got 35 weekly departures at SFO," Mikelsons said on a recent visit to San Francisco. "In June, we're going to go to 62 a week. In April, we initiated service between SFO and Cancun, Mexico, and to Indianapolis. For the future, we're looking for other des- tinations, possibly San Francisco nonstop to the East Coast." ATA is not as high profile as folksy Southwest, the dominant carrier at Oakland, or sleek JetBlue, which also flies out of Oakland. SUCCESSFUL TEMPLATE Nevertheless, ATA has quietly helped establish the basic pattern for successful low-cost airlines: Start small, offer reliable, no-frills service, fly mostly to smaller, less-congested airports, turn around flights quickly and get airplanes back in the air to boost productivity. And, most importantly: Offer routinely low fares, not just as special discounts. ATA caps its one-way domestic fares at $299 and does not require minimum stays. The formula has worked for ATA, which reported a $1.5 million profit in the first quarter of this year as several major carriers posted huge losses. The airline made money in the first half of 2002 but slumped in the second half, ending with a full-year loss of $175 million. A federal loan guarantee of $168 million, designed to cushion the effects of the Sept. 11 terrorist attacks on U.S. airlines, will cover most of that. ATA began flying at SFO in 1994, when it entered the low-fare niche dominated by Southwest. Southwest, based in Dallas, eventually pulled out of SFO because of weather-related delays on rainy, foggy or windy days. Mikelsons said that is not a major concern for ATA. As he sees it, San Francisco's glamour more than compensates for the occasional climatic blemish. 'A SEXIER DESTINATION' "You can expect some weather-related delays in San Francisco," Mikelsons said, "but you couldn't get me over to Oakland with a stick. "No. 1, San Francisco is the sexier destination. Everyone's heart belongs to San Francisco, it's beautiful. No. 2, it's underserved -- San Francisco does not have a low-cost carrier." SFO does have other low-cost carriers such as Frontier Airlines and America West. But they are not making as hard a push in the city as ATA, a company Mikelsons founded in 1973 as a charter airline and built into the nation's 10th-largest commercial airline. ATA also operates a hub at Midway Airport in Chicago to complement its home base in Indianapolis. At SFO, ATA caters chiefly to leisure travelers jetting off to Hawaii and Cancun, Mexico, on vacation and business travelers heading to Chicago and the Midwest. The Hawaii market is important to ATA, which partners on tours with Pleasant Hawaiian Holidays and flies to the islands 13 times weekly from SFO, which Mikelsons sees as a growing West Coast gateway. >From June through August, ATA will increase that to 18 weekly departures to Hawaii from San Francisco. Once-high-flying SFO, the Bay Area's largest airport, needs the business. SFO's passenger count fell from 40 million in the boom year 2000 to just 33 million last year. ATA's growing presence at SFO is "very important," SFO Airport Director John L. Martin said. "Given the state of the economy, the traveler is more cost-conscious than ever. The business traveler is flying low-fare carriers more and more. And having a low-cost carrier here is good for competition between the airlines." SENIOR AIRLINE BOSS Of Mikelsons, who founded ATA at age 36, Martin said, "He is a very low-key guy personally. He is also very sharp." The son of immigrants from Latvia, Mikelsons, a licensed pilot, has head= ed ATA for 30 years, making him the longest-serving airline boss in the nation. ATA, which Mikelsons took public 10 years ago, has historically been profitable. When ATA and the rest of the industry flew into turbulence last year -- attributed to the poor economy, post-Sept. 11, 2001, fear of flying and prewar jitters -- Mikelsons replaced his president and CEO, John Tague, taking those posts himself. Tague joined bankrupt United Airlines as an executive vice president early this month. Mikelsons expects ATA to be strongly in the black in the second quarter = of this year, thanks partly to its robust charter business with the Pentagon, which spiked during the Iraq war, and its low operating costs. Many other airlines also do business with the military, but government work is more important to ATA's bottom line than most carriers. "Our cost per available seat mile (an industry standard) was just 7.04 cents, the lowest of any airline," Mikelsons told an ATA shareholders' meeting in Indianapolis on Monday. Additionally, ATA carried 10 million passengers in 2002, its most ever. DUBIOUS ABOUT BIG PLAYERS Low-key and affable, Mikelsons is skeptical that the major carriers -- with their high operating costs and complex hub-and-spoke airport systems -- can compete efficiently with low-cost operations such as ATA, which have generally made money, even in bad years. He is also dubious about the mainline carriers' ability to create and sustain low-cost carriers of their own, which several big airlines are trying to do. United Airlines has said it will start a low-fare carrier late this year. Delta Air Lines launched a low-fare carrier, called Song, last month. "They have squandered billions of dollars over the years," Mikelsons said of money-losing majors such as United, Delta and American Airlines. The major carriers, he said, don't know how to reinvent themselves as low-cost carriers. "It would be like asking Bill Gates to get by on $500 a week. It's awfully tough to get your costs back down again." As things stand, the main competition for ATA is not the majors but rival low-cost carriers, said Terry Trippler, an airline analyst at Cheapseats.com. "ATA doesn't make a lot of noise," he said. "Southwest is Southwest, they built this great airline. Air Trans (the former ValuJet) has got a business class. JetBlue has got the seat-back TVs. ATA just hasn't got a niche. They've got to do something to get people excited." NEW FLEET, LOW FARES Mikelsons is reckoning that additional low-cost flights and new aircraft -- ATA has replaced most of its fleet in the past two years -- will generate excitement. He has also proposed that low-cost carriers offer fliers increased flexibility by setting up a national code-share alliance enabling travelers to book flights on any participating carrier. Mikelsons floated that idea Monday -- too recently to know whether it wi= ll fly -- but Trippler calls it "a fantastic idea. I'm excited about his vision. It's to his credit that he thought of it." Meanwhile, Mikelsons said, ATA will pilot its own course, with San Francisco very much in the flight plan. "We will continue to grow like a mushroom at midnight," he said. ATA GLANCE Founded: 1973 Headquarters: Indianapolis Destinations from SFO: Hawaii; Chicago; Cancun, Mexico (new); Indianapol= is (new) Employees: 7,000 Went public: 1993 -- traded on Nasdaq as ATAH Top executive: J. George Mikelsons, chairman, president and chief executive officer Source: ATA E-mail David Armstrong at davidarmstrong@xxxxxxxxxxxxxxxx=20 ---------------------------------------------------------------------- Copyright 2003 SF Chronicle