An Analysis of the Causes and Results of the ATA Airlines Failure - Research Paper Example

Airplan Background Information of ATA Airlines ATA Airlines was a former American company that operated low-cost scheduled and chartered flights. Theairline which was formed in 1978 under the banner of American Trans Air, was based in Indianapolis in Indiana. The company operated its scheduled flights within the United States and commercial and military charter flights across different parts if the world. The main airports where the airline operated from were Oakland international Airport, Chicago Midway International Airport and Honolulu International Airport (ATA Airlines). The airline used to offer packages such as the ATA Flier Program and the ATA Travel Awards which were low cost programs which afforded travelers the chance to earn travel points which they could use to get discounts. The airline was also a big employer which had more than 2,230 people by the time of its demise (Maxon, 2008). The company has had many financial troubles since its inception. The worst came in 2006 when it filed for bankruptcy and in 2008 when it failed to emerge from Chapter 11 bankruptcy protection (Lawton, 2007). There are many causes of the failure of ATA Airlines. These causes had a huge impact on the operations of ATA which led to its final demise. Below is an analysis of the causes and results of the company’s failure. There is also an overview of the possible solutions that could have saved the company from going under. Causes of Failure Company and Global Financial Crisis The company was going through some financial difficulties when it closed down its operations. It could not finance its takeovers and neither could it sustain its existing operations. The financial crisis that hit the world did not spare ATA Airlines. The global financial crisis did a lot to make matters worse for the company. It was forced to file for bankruptcy twice: in 2006 and in 2008 (Maxon, 2008). The second time that the airline filed for bankruptcy was also the last time it was operational. Poor leadership Mismanagement might have led to the failure of ATA Airlines. Lack of leadership might have contributed to the fate that ATA Airlines fell to. Poor leadership may have led to the poor decisions that the Airline made. These decisions included takeovers and increasing operations even when it was clear that the company was not in a financial situation safe enough to carry out those operations (Lawton, 2007). Lack of Operational Strategies It seems that ATA operated without having a solid operational strategy. The company sought to expand many of its flight services with little regard to the financial implications that this could have on its business (ATA Airlines). This lack of operational strategies led to the airline filing for bankruptcy twice, in 2006 and in 2008. Rapid Expansion In the 1990s and 2000s ATA Airlines was expanding its operations at a very fast rate. The airline in 2007 added several flight services which were based in its Chicago hub. In April of the same year, the company changed its name to Global Aero Logistics in order to reflect its changing global operations. The airline went on to acquire World Airways and North American Airlines which were subsidiaries of the World Air holdings, Inc. ATA or global Aero Logistics spent a total of $315 million (ATA Airlines). Results of Failure Bankruptcy ATA has filed for two bankruptcies since its formation in 1978. The first bankruptcy case was in 2006 after the airline cancelled many of its scheduled flights from its Chicago hub to Orlando, San Francisco and Fort Myers. These cancellations saw the airline operating only 18 departures from Chicago. The cancellations also saw the airline loose 13 of its gates at Midway. In January 2006, ATA Airlines was taken private by pre-bankruptcy creditors who invested more than $100 million in the company. The following month, the airline was bale to emerge from the protection of Chapter 11 bankruptcy, but this did not stop the company from going downhill (Lawton, 2007). The second bankruptcy filing by ATA was in April, 2008. a few months before ATA filed for bankruptcy, it had tried to expand its operations in various parts of the US. The airline acquired their airlines and added flights to and from its hubs. However, this expansion proved to be the company’s undoing. In 2008, ATA Airlines failed to contract some military charter operations. This was the main reason given for the company’s sudden demise (Hadden and Luce, 2008). Layoffs Following the first bankruptcy filing the airline lost a considerable number of its workforce. Due to its financial situation, it could not afford all the employees it had and some of them had to be laid off. These layoffs were also as a result of the mergers that the company was involved in. some departments in the company were combined with departments from other companies, and this caused redundancy leading to the laying off of a sizable number of employees from ATA airlines (Maxon, 2008). Service termination In 2007, ATA Airlines terminated all flight services on such routes as the Chicago Midway International Airport, Washington National Airport, LaGuardia Airport in New York and the LA/Ontario International Airport. Following these service terminations, ATA Airlines was left to operate only in four destinations from Chicago. Services and packages were cut so as to save costs within the organization (ATA Airlines). This service termination, however, did not make things better for the company as it was forced to close its doors in 2008. End of Operations After its Chapter 11 Protection period ended, ATA tried to turn around and make profits. However, the effort was in vain and the company finally ended its operations in 2008. A month before the company went down, Subodh Karnik had resigned as the CEO and he was replaced by john Denison and acting chief executive. One of the reasons given for Karnik’s resignation was poor implementation of the airlines policies as well as the pressure from the financial problems that the airline was experiencing then (Maxon, 2008). Solutions ATA Airlines was a company that had the potential of expanding its operations to a large market without facing the kind of challenges that it did. One of the solutions that would have helped ATA airlines become a big company was good leadership. However this was lacking especially in the last twenty years preceding its demise (Hadden and Luce, 2008). Proper leadership would have enabled the company to come up with fool proof strategies to carry out its operations without encountering financial and other challenges (Doganis, 2006). Proper leadership would also have enabled the company to continue offering its services without having to rely on bankruptcy protection programs from the government. Another solution would have been proper management of the company’s resources. ATA had the capability of taking on its major competitors even though it was a small company (Hadden and Luce, 2008). Before the financial woes of the late 90s and the 2000-2010 decade, the company had been doing very well on the local and international scene (ATA Airlines). However, this did not last as the company embarked on an ambitious plan to expand its operations with little regard on the financial implications this expansion had. ATA Airlines should also have considered cementing its local market presence before diversifying its operations to the rest of the world (Doganis, 2006). This might have saved it from encountering financial challenges as it tried to maintain many of these extra operations. Careful planning of the company’s strategies could also have enabled the company to weather out some of the problems that led to its demise (Lawton, 2007). It seems that ATA also failed to determine the necessary steps to regain its footing after its first bankruptcy filing. Instead, ATA decided to continue with its expansion program in the market and this failed. With the proper leadership and clear operational strategies and objectives, ATA might have been able to go through the 2008 financial crisis unscathed or only scarcely unscathed. References ATA Airlines,The ATA Airlines Story, retrived 9 December, 2010, from: http://ataairlines.net/ Doganis, R. (2006). The Airline Business. London: Routledge Hadden, B. and Luce, R.H. (2008). Branson’s Flight Plan, Time Magazine. New York: Time Inc Lawton, T.C (2007). Strategic Management in Aviation: Critical Essays. New York: Ashgate Maxon, T. (2008). ATA Airlines Files For Bankruptcy, Shuts Down. The Dallas Morning News, Retrieved December 9, 2010 from: http://www.dallasnews.com/sharedcontent/dws/bus/stories/0400408dnbusatabankruptcy.29626fbd.html Read More