ATA Airlines shut down operations and stranded thousands of travelers Thursday when an unexpected loss of key charter flights and soaring fuel costs forced the carrier into bankruptcy.
Once the nation’s 10th-largest air carrier, ATA entered bankruptcy for the second time in just over three years. The company had more than 2,200 employees, and “virtually all” were told that their jobs were gone, company spokesman Michael Freitag said.
Many passengers learned of the collapse at ticket counters, where advisories were posted in the handful of cities ATA still served. About 10,000 passengers flew ATA each day before operations were shut down, according to the airline.
“It ruins my vacation,” said Beatrice Martinez, who was trying to reach Guadalajara, Mexico, from Midway International Airport in Chicago. “I’m in shock. So I guess I’ll try to make other arrangements. Right now I just need to get to Mexico.”
Airlines are struggling with rising fuel prices, labor strife, depressed ticket demand and heightened competition, said George Godlin, an analyst for Moody’s Investor Service.
“We’re in a perfect storm kind of environment right now,” he said.
The ATA bankruptcy generated little surprise. It was the second carrier to declare bankruptcy in just the past two weeks. Aloha Airlines filed for Chapter 11 bankruptcy protection last month, a little more than two years after emerging from bankruptcy.
“We are seeing some of the very marginal carriers shut down ... and will probably see more,” said Ray Neidl, an analyst at Calyon Securities in New York.
Analysts don’t think larger carriers are in imminent danger of bankruptcy. But many industry observers have long warned that sustained high fuel prices and a slowing economy could push larger airlines to the brink.
“I do think that this bankruptcy highlights the difficult times the industry is facing with oil above $100 a barrel,” said Jim Corridore, an analyst at Standard & Poor’s in New York. “While I don’t think that any major network airlines are currently at risk of bankruptcy due to the high cash levels they have amassed over the past few years, I think that they will certainly be weakened and unable to offset higher oil with higher revenues.”
Tough operating conditions have led to merger talks industrywide. Negotiations between Delta Air Lines Inc. and Northwest Airlines Corp. recently stalled over a dispute between pilot unions.
ATA said in a statement that the cancellation of a critical agreement with FedEx Corp. for most of the airline’s charter business left it unable to offset exorbitant fuel prices.
That agreement gave ATA a significant share of the airlift contracts to fly military members and their families overseas, ATA said. FedEx told ATA that that agreement would end when the government’s 2009 fiscal year begins in October.
“This termination is a full year earlier than the term specified in a letter of agreement between FedEx and ATA,” the airline’s statement said.
FedEx officials could not be reached for immediate comment.
ATA retrenched in 2006 after emerging from bankruptcy, focusing on an increase in its military charter business. The airline operated approximately 50 commercial flights per day, mostly between Hawaii and four west coast cities — Oakland, Los Angeles, Phoenix and Las Vegas.
ATA announced last month that it would leave Chicago’s Midway Airport, which it had used as a hub since 1992.
ATA’s bankruptcy will also affect Southwest Airlines customers. The Dallas-based airline has a code-share agreement with ATA for travel to Hawaii.
Southwest said Thursday that it immediately began rebooking passengers with dates and times as close to the original travel plans as possible. Southwest said it would give priority to customers who are scheduled to travel in the next 14 days.
“ATA Airlines has been an outstanding partner for Southwest, and we are disappointed to hear this unfortunate news,” Gary Kelly, Southwest Airlines chief executive officer, said in a press release. “We are sad to end our codeshare relationship with ATA but understand it’s extremely difficult for an airline to flourish in today’s arduous financial environment that has been plagued by soaring fuel prices.”