Incorporated: 1973 as Ambassadair
Sales: $1.12 billion (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: AMTR
NAIC: 481211 Nonscheduled Chartered Passenger Air Transportation; 481212 Nonscheduled Chartered Freight Air Transportation; 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation; 56152 Tour Operators
Amtran, Inc. has outlasted most of its pre-deregulation peers to become America’s largest charter carrier and the biggest airline, according to Forbes, that no one’s ever heard of. The holding company’s American Trans Air (ATA) subsidiary flies seven million passengers a year, mostly tourists.
1970s-80s: Early Growth
Airline founder J. George Mikelsons was born in Riga, Latvia, and moved with his family first to Australia, then to Germany, and finally to Indianapolis, Indiana, in 1960. There he trained as a pilot, and in 1965 he took a position as a DC-7 copilot for a local travel club known as Voyager 1000.
In 1973, Mikelsons started his own travel club, Ambassadair, taking out a second mortgage on his home to fund the venture. For Ambassadair, Mikelsons not only flew the plane, a leased Boeing 720 dubbed “Miss Indy,” but he also drove the passengers to the airport in a second-hand school bus, loaded their baggage, and took them sightseeing once they reached their destination. As a travel club, Mikelsons’ start-up could not publish rate or schedule information; it could only serve its members. A second plane, acquired by Ambassadair in 1978, the year of deregulation in the American airline industry, was named “Spirit of Indiana.”
During this time, another entity, known as American Trans Air (ATA), was set up by Mikelsons to manage Ambassadair’s flight and travel operations. In 1981, however, ATA received its certification as a charter carrier and added eight Boeing 707s to the fleet. It began flying charters for the U.S. Department of Defense. Employees numbered 320 in 1982, when revenues were $30.5 million.
Mikelsons next formed Amtran, Inc., a holding company for Ambassadair and ATA, in 1984. ATA ditched the 707s in favor of 727s during this time and began operating wide-body aircraft as well, in the form of McDonnell Douglas DC-10s and Lockheed L-1011s. By the mid-1980s, Amtran had become the largest charter operator in North America and, according to Inc.magazine, the seventh fastest-growing private company in the United States.
In 1986, ATA launched its first scheduled service, between Indianapolis, Indiana, and four destinations in Florida. As a scheduled passenger carrier, ATA sought to distinguish itself by keeping its fares low and imposing few restrictions on travel times. Mikelsons remained involved in tour packages, and in 1987 created the ATA Vacations, Inc. subsidiary to oversee these operations.
The broader scope of Amtran’s operations necessitated a move to new corporate headquarters in Indianapolis, as well as construction of ATA’s own maintenance center at Indianapolis Airport. Amtran’s annual revenues had multiplied eight times in six years, reaching $254 million in 1988 and involving a workforce of 1,800. In 1989, ATA began operating four Boeing 757s, formerly owned by Singapore Airlines, and soon thereafter created ATA ExecuJet, a corporate jet and helicopter charter service. A freight handling subsidiary was created in 1991.
During the Persian Gulf War, ATA carried more troops (108,000) for the U.S. military than any other civil airline. These flights contributed some $50 million in revenues. However, as Operation Desert Storm ended, ATA was forced to lay off some of its workforce. The company posted its first loss, $2 million, in 1990. Between 85 and 90 percent of the company’s business at the time came from civil and military charters.
In the early 1990s, consolidation was expected to thin the ranks of independent carriers willing to deal with tour operators, much to ATA’s benefit. The company sought to raise the public perception of charter flights during this time by offering top-notch wine, food, and cabin service. In 1993, in addition to its considerable military transport duties, Amtran offered an around-the-world flight on an L-1011 priced at $45,000 a ticket. The trip reportedly took in $1 million for the company.
When it began flying out of Midway Airport in 1992, ATA carried 500,000 passengers out of Chicago alone. Operating revenues at this time reached $422 million and the workforce had increased to 2,400. ATA operated 12 L-1011s and seven 727s. The Ambassadair Travel Club had 27,000 members in 1992. Another club, Ports of Call, had also been established, and both clubs offered installment payment plans to their members.
Going Public in 1993
Amtran completed an initial public offering (IPO) on the NASDAQ in May 1993. Until that point, founder George Mikelsons had been the company’s sole shareholder; after the IPO he still retained a 73 percent stake in Amtran. The $40 million Amtran raised through the IPO helped strengthen its debt-heavy balance sheet after a couple of unprofitable years, while about half the money was earmarked for buying new planes. ATA also opened a new reservations center in Chicago and began flying out of Milwaukee. John Tague, a former Midway Airlines executive who joined ATA in 1991, was promoted to president and chief operating officer in 1993.
Scheduled flights accounted for between 25 and 30 percent of ATA’s revenues of $468 million in 1993. Vacation traffic accounted for 80 percent of ATA’s revenues, and the carrier soon began renewing its focus on vacation travelers. In alliance with tour operator Pleasant Hawaiian Holidays, ATA began flying to Hawaii from Los Angeles, San Francisco, and Chicago. (In 1992 ATA had become the first airline certified for extended—180 minute—flights over water in the Boeing 757.) The company soon acquired another Lockheed L-1011 and Boeing 757 aircraft to keep up with demand for seats.
By the mid-1990s, Amtran was retaining a workforce of 3,200. Membership at its Ambassadair travel club had reached some 90,000, and ATA was the largest charter carrier and the tenth largest airline in the United States. ATA carried more than five million passengers on its 25 jets in 1995. After the city of St. Petersburg, Florida, courted ATA to relocate its headquarters there, Indianapolis assembled a $40 million incentive package to keep the carrier at home. Much of the tax credits in this plan, which ATA accepted, hinged on the airline’s planned expansion in Indianapolis.
Also during this time, ATA became a global concern. A weak dollar and lower labor costs helped make ATA attractive in Europe, where charter airlines already enjoyed a better public perception. ATA opened a sales office in Frankfurt and began operating seasonal routes to Ireland (Shannon and Dublin) from New York’s JFK International Airport. The company also opened another maintenance hangar at Midway to service its fleet there and launched the ATA Connection in conjunction with Chicago Express, a shuttle service that linked Chicago, Grand Rapids, Des Moines, and Dayton. Lansing, Michigan, and Madison, Wisconsin, were soon added to the ATA Connection route. Amidst this expansion, Tague, the company’s president and COO, left the Amtran executive team to start his own consulting practice.
Troubled Times: 1996
The year 1996 marked the beginning of increased competition from a major player in the industry. In January 1996, Southwest Airlines, the king of budget carriers, entered ATA’s Florida markets. This was just the beginning of the bad news. Like most budget carriers, ATA saw a dip in bookings after the ValuJet crash in the Everglades on May 11, 1996. Although ATA should have clearly been differentiated from the flock of start-up airlines at the time, being a well-established company with a good safety record, one of the company’s jets suffered a decompression incident on May 12, 1996, that was widely reported in the immediate aftermath of the ValuJet disaster. With its reputation suddenly under media scrutiny, the company also experienced financial stress in the form of rising fuel costs.
A change in leadership was imminent. Mikelsons stepped down as CEO of Amtran in August 1996, remaining active as chairman. Stanley L. Pace, leader of a consulting team dispatched by Boston-based Bain & Co., was named CEO and president, filling the vacancy left by Tague. Pace brought considerable experience to Amtran, having helped develop a turnaround strategy for Continental Airlines.
At American Trans Air, safety has always been our number one objective. With over twenty-five years in the airline business, we have come a long way from our origins as a travel club back in 1973, but have never compromised our commitment to your safety. Our Safety Division, headed by a company Vice President reporting directly to the CEO, is continuously engaged in audits of the other divisions of the company to ensure appropriate standards are met or exceeded. Furthermore, the division is constantly reviewing its own programs with the objective of maintaining our proactive safety leadership.
Competitive pressure from Southwest Airlines and Delta Express forced ATA to retrench from the scheduled market. Increased sales on this side had not led to increased profits. Amtran trimmed its route structure, cutting scheduled service to Boston entirely. It also canceled leases on five Boeing 757s. In the fall, the company announced plans to lay off 1,000 of its 5,300 workers. Amtran lost $27 million in 1996, its worst year ever. Positive developments for the year were few and included the launch of ATA’s new web site, which began offering special bargain fares on the web, and was able to take and record reservations online.
Stanley Pace left the company in May 1997, returning to his home state of Texas. Ironically, the $2 million it cost to pay off his contract wiped out the company’s second quarter earnings. Before he left, he had recommended that Amtran merge with the beleaguered ValuJet, a proposal Mikelsons promptly vetoed. ValuJet eventually merged with AirWays Corporation to form AirTran Holdings, Inc., and Tague returned to Amtran in the roles of president and CEO.
A Sterling 25th Anniversary in 1998
Nevertheless, at the company’s 25th anniversary in 1998, there were plenty of reasons to celebrate. From origins as a simple travel club, the company had nearly achieved major carrier status; it was the 11th largest in the country in that capacity, as well as the country’s largest charter operator. The airline began to post record results in a booming economy with lowered fuel costs. ATA carried more than six million passengers in 1998, and revenues reached $919 million.
In this optimistic environment, ATA ordered more planes and reserved a dozen gates at a new terminal at Midway Airport. Only Southwest Airlines had a larger presence there. ATA boosted flight frequencies at Midway 50 percent in the summer of 1998 and announced plans to hire 500 workers in the area. ATA also began competing with United Airlines on the route between that major airline’s two largest hubs, Chicago and Denver. It also took on American Airlines, offering connections from that airline’s biggest hubs, Dallas and Chicago. The two majors soon cut fares in response to ATA’s threat. Still, the risky bet seemed to pay off in record earnings for Amtran. Mikelsons had once told Air Transport World, “If there is a cornerstone to our philosophy it is cowardice.”
Amtran postponed a planned stock offering in August 1998 due to a general softening among airline stocks. Amtran’s stock originally sold for $16 a share, slipped to $9 in 1996, and rose to $28 in July 1998 before falling to $23. The offering would have brought in $37 million and reduced Mikelsons’ holding to a minority.
Acquisitions characterized the late 1990s at Amtran. In March 1999, Amtran bought out T.G. Shown Associates Inc., which owned the other half of its $13 million a year Amber Air Freight venture. A few weeks later, it announced plans to sell at least part of its stake in Chicago Express Airlines. The unit operated nine turboprop planes and brought in $9 million a year in sales. Amtran also bought Chicago Express, Key Tours, and Travel Charter.
ATA; Ambassadair; ATA Vacations, Inc.; ExecuJet; Amber Air Freight; American Trans Air Training Corporation.
Southwest Airlines Co.; Delta Express; US Airways Group, Inc.
- Pilot J. George Mikelsons starts his own tour company, Ambassadair.
- American Trans Air (ATA), another Mikelsons entity, begins flying military charters.
- Amtran, Inc. holding company is formed.
- Amtran goes public.
- High fuel costs, competition, and the ValuJet crisis produce ATA’s worst year ever.
- An invigorated ATA takes on United and America at their own hubs, and thrives.
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—Frederick C. Ingram