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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period From to
Commission file number 000-21642
AMTRAN, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1617970
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7337 West Washington Street
Indianapolis, Indiana 46231
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(Address of principal executive offices) (Zip Code)
(317) 247-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, No Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes ______ No ______
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, Without Par Value - 12,066,021 shares as of February 29, 2000.
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated: (1) Any annual report
to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933.
Portions of the Amtran, Inc. and Subsidiaries' Proxy Statement dated April 5,
2000, are incorporated by reference into Part III.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT - 1999
AMTRAN INC. AND SUBSIDIARIES
Page #
PART I
Item 1. Business........................................................................................... 4
Item 2. Properties.........................................................................................10
Item 3. Legal Proceedings..................................................................................10
Item 4. Submission of Matters to a Vote of Security Holders................................................10
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters.......................11
Item 6. Selected Consolidated Financial Data...............................................................11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..............12
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.........................................32
Item 8. Financial Statements and Supplementary Data........................................................34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............49
PART III
Item 10. Directors and Officers of the Registrant...........................................................49
Item 11. Executive Compensation.............................................................................49
Item 12. Security Ownership of Certain Beneficial Owners and Management.....................................49
Item 13. Certain Relationships and Related Transactions.....................................................50
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.....................................50
Item 14d. Valuation and Qualifying Accounts..................................................................53
PART I - Continued
Item 1. Business
Amtran, Inc. (the "Company") owns American Trans Air, Inc. ("ATA"), the eleventh
largest passenger airline in the United States (based on 1999 revenues) and a
leading provider of airline services in selected markets. The Company is the
largest commercial charter airline in the United States and the largest provider
of passenger airline services to the U.S. military, in each case based on 1999
revenues. For the year ended December 31, 1999, the revenues of the Company
consisted of 55.7% scheduled service, 23.5% commercial charter service and 11.2%
military charter service, with the balance derived from related services.
Scheduled Service
The Company provides scheduled service through ATA to selected destinations
primarily from its gateways at Chicago-Midway and Indianapolis and also provides
transpacific services between the western United States and Hawaii. In the
second quarter of 1999, the Company added scheduled service between
Chicago-Midway and Philadelphia. The Company focuses on routes where it believes
it can be a leading provider of nonstop service and targets leisure and
value-oriented business travelers.
The Company believes that it has significant competitive advantages in each of
its primary markets.
Chicago-Midway, the Company's largest and fastest growing gateway,
represented approximately 56.7% of the Company's total scheduled service
capacity in 1999. The Company is the number one carrier in terms of market
share in 20 out of its 22 nonstop routes from Chicago-Midway. The Company
believes its service at this gateway would be difficult to replicate
because of limited available airport capacity. This competitive position is
enhanced by Chicago-Midway's proximity to downtown Chicago and the fact
that, for a substantial portion of the population within the metropolitan
region, Chicago-Midway is the most convenient airport. The Company began
service at Chicago-Midway in December 1992.
Hawaii represented approximately 18.5% of the Company's total scheduled
service capacity in 1999. The Company believes it is the lowest-cost
provider of scheduled service between the western United States and Hawaii,
which is critical in this price-sensitive, predominantly leisure market.
Furthermore, a majority of the Company's capacity in the Hawaiian market is
contracted to the nation's largest independent Hawaiian tour operator,
which assumes capacity, yield and fuel risk. The Company has served the
Hawaiian market since 1974 through its commercial charter operations and
since 1987 through its scheduled service operations.
Indianapolis represented approximately 14.0% of the Company's total
scheduled service capacity in 1999. The Company began scheduled service
from Indianapolis in 1986 and believes that it benefits from being
perceived as the hometown airline. The Company is the number one provider
in terms of market share in seven of its eight nonstop jet routes from
Indianapolis. In Indianapolis, the Company operates Ambassadair, the
nation's largest travel club with approximately 41,000 individual or family
memberships, providing the Company with a local marketing advantage similar
to a frequent flier program.
Commercial Charter Service
The Company is the largest commercial passenger charter airline in the United
States and provides services throughout the world, primarily to U.S. and
European tour operators. The Company seeks to maximize the profitability of
these operations by leveraging its leading market position, diverse aircraft
fleet and worldwide operating capability. The Company believes its commercial
charter services are a predictable source of revenues and operating profits in
part because its commercial charter contracts require tour operators to assume
capacity, yield and fuel price risk, and also because of the Company's ability
to re-deploy assets into favorable markets. The Company's commercial charter
services are marketed through a network of domestic sales offices along with a
London office.
Military/Government Charter Service
The Company has provided passenger airline services to the U.S. military since
1983 and is currently the largest commercial airline provider of these services.
The Company believes that because these operations are generally less seasonal
than leisure travel, they have tended to have a stabilizing impact on the
Company's operating margins. The U.S. government awards one-year contracts for
its military charter business and pre-negotiates contract prices for each type
of aircraft that a carrier makes available. The Company believes that its fleet
of aircraft is well suited to the needs of the military.
Strategy
The Company intends to enhance its position as a leading provider of passenger
airline services to selected markets where it can capitalize on its competitive
strengths. The key components of this strategy are:
Participate in Markets Where it Can Be a Leader
The Company focuses on markets where it can be a leading provider of airline
services. In scheduled service, the Company concentrates on routes where it can
be the number one or number two carrier. The Company achieves this result
principally through superior nonstop schedules, value-oriented service, focused
marketing efforts and certain airport and aircraft advantages. The Company is
the leading provider of commercial and military charter services in large part
because of its variety of aircraft types, superior operational performance and
its worldwide service capability.
Maintain Low-Cost Position
For 1997, 1998 and 1999, the Company's operating cost per available seat mile
("CASM") of 6.09(cent), 6.09(cent) and 6.84(cent), respectively, was the lowest
among large U.S. passenger airlines. The airline segment CASM was 5.97(cent),
6.00(cent) and 6.38(cent), respectively, for the years ended 1997, 1998 and
1999. See "--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations in Cents per ASM." The Company
believes that its low-cost structure provides a significant competitive
advantage, allowing it to operate profitably while pricing competitively in the
scheduled service and commercial and military charter markets. The Company
believes its low-cost position is primarily derived from its simplified product,
route structure, low aircraft ownership costs and low overhead costs.
Target Growth Opportunities
The Company intends to expand its operations selectively in areas where it
believes it can achieve attractive financial returns.
Charter Expansion. The Company has acquired five long-range Lockheed
L-1011-500 aircraft primarily for commercial and military charter service,
whose low-cost and high-seating capacity will enable the Company to compete
for business that it could not previously accommodate (e.g., nonstop
service to certain South American, European and Asian destinations).
Scheduled Service Expansion at Chicago-Midway. The Company plans to
increase frequencies and add up to four destinations from its
Chicago-Midway gateway over the next 12 months and to support this
expansion by adding four Boeing 757-200 aircraft to its fleet in 2000.
Included in these new destinations is new service between Chicago-Midway
and Ronald Reagan Washington National Airport, beginning April 3, 2000, as
well as new services to Boston and Seattle, beginning May 7, 2000. The
Company will also occupy additional gates upon completion of the new
terminal at Chicago-Midway to facilitate these expanding operations. In
addition, the Company will use the proceeds of a $17.0 million Special
Facility Revenue Bond issued in December 1999 to pay a portion of the cost
of construction of a Federal Inspection Service facility ("FIS") at the
Chicago-Midway Airport. This will allow international flights to operate
directly to and from Chicago-Midway.
Selected Acquisitions. The Company continually evaluates possible
acquisitions of related businesses or interests therein to enhance its
competitive position in its market segments. The Company also continues to
evaluate possible business combinations with air carriers and others that
could result in a change of control of Amtran.
Industry Overview
Scheduled Airline Service
In the United States, the scheduled airline business is dominated by large
scheduled airlines, most of which have developed hub-and-spoke route systems. As
a result of this structure, many smaller cities or airports are not served by
direct or nonstop flights to leisure destinations, and many secondary leisure
destinations do not receive direct or nonstop service from more than a few major
U.S. cities. In developing its business, the Company has focused on
low-frequency, nonstop or direct service from its principal gateways to leisure
or business destinations where there is little or no competing direct or nonstop
service.
Commercial and Military/Government Charter Airline Service
In the United States, the passenger charter airline business is served by major
scheduled airlines and a number of U.S. and non-U.S. charter airlines.
Historically, charter airlines have supplemented the service provided by
scheduled airlines by providing additional capacity at times of peak demand,
such as during the Persian Gulf War, and on a longer-term basis to supplement
the U.S. military's own passenger fleet. Based on the most recently available
Department of Transportation ("DOT") statistics, total charter flights by all
U.S. airlines represented approximately 2.7% of all available seat miles
("ASMs") flown within the United States during the twelve months ended September
30, 1999.
The Company's Airline Operations
Services Offered
The following table provides a summary of the Company's major revenue sources
for the periods indicated:
Year Ended December 31,
---------- --- --------- --- --------- --- --------- --- -----------
1999 1998 1997 1996 1995
---------- --- --------- --- --------- --- --------- --- -----------
(Dollars in millions)
Scheduled service $624.6 $511.3 $371.8 $386.5 $362.0
---------- --- --------- --- --------- --- --------- --- -----------
Commercial charter 263.8 222.6 228.1 226.4 229.5
Military charter 126.2 121.9 131.1 84.2 77.5
---------- --- --------- --- --------- --- --------- --- -----------
Total charter service 390.0 344.5 359.2 310.6 307.0
---------- --- --------- --- --------- --- --------- --- -----------
Other 107.8 63.6 52.2 53.8 46.0
---------- --- --------- --- --------- --- --------- --- -----------
Total $1,122.4 $919.4 $783.2 $750.9 $715.0
========== === ========= === ========= === ========= === ===========
Scheduled Service
The Company provides scheduled airline services on selected routes where it
believes that it can be one of the leading carriers in the market, focusing
primarily on low-cost, nonstop or direct flights. The Company currently provides
scheduled service primarily from its gateway cities of Chicago-Midway and
Indianapolis to popular vacation destinations such as Hawaii, Las Vegas,
Florida, California, Mexico and the Caribbean, as well as to New York's John F.
Kennedy and LaGuardia Airports, Philadelphia, Denver and Dallas-Ft. Worth.
Beginning in April 1997 the Company had entered into a code-share agreement with
Chicago Express to operate passenger airline services between Chicago-Midway and
the cities of Indianapolis, Milwaukee, Des Moines, Dayton and Grand Rapids using
Jetstream 31 propeller aircraft. The agreement was expanded in October 1997 to
include Lansing and Madison. On April 30, 1999, the Company acquired all of the
issued and outstanding stock of Chicago Express. Chicago Express' results of
operations, beginning May 1999, were consolidated into the Company, replacing
the fixed fee per flight previously recorded by the Company. This generated no
material change to operating expenses and the operating revenues associated with
these operations were already reflected in the Company's results of operations.
In January 2000, Chicago Express entered into an agreement to purchase nine SAAB
340B aircraft, engines and related parts. The aircraft will be placed into
service throughout 2000 in conjunction with the return of the current fleet of
Jetstream 31s to the lessor.
Included in the Company's jet scheduled service are bulk sales agreements with
tour operators. Under these arrangements, which are very similar to charter
sales, the tour operator may take up to 85% of an aircraft as a bulk-seat
purchase. The seats which the Company retains are sold through its own scheduled
service distribution network. Under bulk sales arrangements, the Company is
obligated to provide transportation to the tour operators' customers even in the
event of non-payment to the Company by tour operators. To minimize its credit
exposure under these arrangements, the Company requires bonding or a security
deposit for a portion of the contract price. Bulk seat sales amounted to $59.0
million, $68.6 million and $71.2 million in 1997, 1998 and 1999, respectively,
which represented 7.5%, 7.5% and 6.3%, respectively, of the Company's
consolidated revenues for such periods.
Commercial Charter
Commercial charter represented 29.1%, 24.2% and 23.5%, respectively of the
Company's consolidated revenues for 1997, 1998 and 1999. The Company's principal
customers for commercial charter are tour operators, sponsors of incentive
travel packages and specialty charter customers.
Tour Operator Programs. These leisure-market programs are generally contracted
for repetitive, round-trip patterns, operating over varying periods of time. In
such an arrangement, the tour operator pays a fixed price for use of the
aircraft, including the crew and all necessary passenger and aircraft handling
services, and assumes responsibility and risk for the actual sale of the
available aircraft seats. Under most of its contracts with tour operators, the
Company passes through increases in fuel costs from a contracted price. Under
these contracts, if the fuel increase causes the tour operator's fuel cost to
rise in excess of 10%, the tour operator has the option of canceling the
contract. The Company is exposed to increases in fuel costs that occur within 14
days of flight time.
Although the Company serves tour operators on a worldwide basis, its primary
customers are U.S.-based. The Company's five largest tour operator customers
represented approximately 16.2%, 14.4% and 12.5%, respectively, of the Company's
consolidated revenues for 1997, 1998 and 1999, and the ten largest tour operator
customers represented approximately 20.8%, 17.5% and 14.7%, respectively, of the
Company's consolidated revenues for the same periods.
Incentive Travel Programs. Many corporations offer travel to leisure
destinations or special events as incentive awards for their employees. The
Company has historically provided air travel for many corporate incentive
programs. Incentive travel customers range from national incentive marketing
companies who arrange such programs for corporate clients, to large corporations
that handle their incentive travel programs on an in-house basis.
Specialty Charters. The Company operates a significant number of specialty
charter flights. These programs are normally contracted on a single round-trip
basis and vary extensively in nature. These flights allow the Company to
increase aircraft utilization during off-peak periods.
Military/Government Charter
In 1997, 1998 and 1999, sales to the U.S. military and other governmental
agencies were approximately 16.8%, 13.3% and 11.2%, respectively, of the
Company's consolidated revenues. Traditionally, the Company's focus has been on
short-term military "contract expansion" business which is routinely awarded by
the U.S. government based on availability of appropriate aircraft. The U.S.
government awards one-year contracts for its military charter business, and
pre-negotiates contract prices for each type of aircraft a carrier makes
available. Such contracts are awarded based upon the participating airlines'
average costs. The short-term expansion business is awarded pro rata to those
carriers with aircraft availability who have been awarded the most fixed-award
business, and then to any additional carrier that has aircraft available. The
Company's current contractor teaming arrangement significantly increases the
likelihood that the team will receive both fixed-award and contract expansion
business. See "--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Military/Government Charter Revenues."
The Company is subject to biennial inspections by the Department of Defense as a
condition of retaining its eligibility to perform military charter flights. The
last such inspection was completed in the fourth quarter of 1999.
Other Business
In addition to its core charter and scheduled service businesses, the Company
operates several other smaller businesses that complement its core businesses.
The Company sells ground arrangements (hotels, car rentals and attractions)
through its Ambassadair and ATA Leisure Corp. subsidiary brands such as ATA
Vacations, Travel Charter and Key Tours; provides airframe and powerplant
mechanic training through American Trans Air Training Corporation; and provides
helicopter charter services through its ExecuJet subsidiary. Additionally, the
Company, through its subsidiary Amber Air Freight, markets cargo services in the
Company's scheduled and charter operations. In aggregate, these businesses,
together with incidental revenues associated with core charter and scheduled
service operations, accounted for 6.6%, 6.9% and 9.6%, respectively, of
consolidated revenues in 1997, 1998 and 1999.
Aircraft Fleet
As of December 31, 1999, the Company was certified to operate a fleet of 18
Lockheed L-1011s, 24 Boeing 727-200ADVs and 11 Boeing 757-200s. As of December
31, 1999 the Company had also taken delivery of one incremental Lockheed
L-1011-500 which was undergoing modifications and not yet flight certified. The
Company also acquired Chicago Express on April 30, 1999, which is separately
certified to operate nine Jetstream 31 propeller aircraft.
Lockheed L-1011 Aircraft
The Company's 19 Lockheed L-1011 aircraft are wide-body aircraft, 11 of which
have a range of 2,971 nautical miles, three of which have a range of 3,425
nautical miles, and five of which have a range of 5,577 nautical miles. (One
aircraft did not operate on the Company's certificate as of December 31, 1999,
but is scheduled to be placed into service in the first quarter of 2000.) These
aircraft conform to the FAA's Stage 3 noise requirements and have a low
ownership cost relative to other wide-body aircraft types. See "--Environmental
Matters." These aircraft have an average age of approximately 24 years. As of
December 31, 1999, 18 of these aircraft were owned by the Company and one was
under an operating lease that expires in March 2003. Certain of the Lockheed
L-1011 aircraft owned by the Company are subject to mortgages and other security
interests granted in favor of the Company's lenders under its revolving credit
facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Boeing 727-200ADV Aircraft
The Company's 24 Boeing 727-200ADV aircraft are narrow-body aircraft equipped
with high-thrust, JT8D-17/-17A engines and have a range of 2,050 nautical miles.
These aircraft conform to Stage 3 noise requirements as of December 31, 1999 and
have an average age of approximately 20 years. The Company leases 14 of these
aircraft, with initial lease terms that expire between October 2000 and August
2003, subject to the Company's right to extend each lease for varying terms or
purchase the aircraft.
Boeing 757-200 Aircraft
The Company's 11 Boeing 757-200 aircraft are relatively new, narrow-body
aircraft, all of which have a range of 3,679 nautical miles. These aircraft, all
of which are leased, have an average age of approximately three years and meet
Stage 3 noise requirements. The Company's Boeing 757-200s have higher ownership
costs than the Company's Lockheed L-1011 and Boeing 727-200ADV aircraft, but
lower operational costs. In addition, the Company's Boeing 757-200s have the
capacity to operate on extended flights over water. The leases for the Company's
Boeing 757-200 aircraft have initial terms that expire on various dates between
December 2001 and September 2019, subject to the Company's right to extend each
lease for varying terms.
In order to enhance the reliability of its service, the Company seeks to
maintain at least two spare Lockheed L-1011 and three spare Boeing 727-200
aircraft at all times. Spare aircraft can be dispatched on short notice to most
locations where a substitute aircraft is needed for mechanical or other reasons.
Although Lockheed L-1011 and Boeing 727-200ADV aircraft are subject to the FAA's
Aging Aircraft program, the Company does not currently expect that its cost of
compliance for these aircraft will be material. See "--Regulation."
Flight Operations
Worldwide flight operations are planned and controlled by the Company's Flight
Operations Group based in Indianapolis, Indiana, which is staffed on a 24-hour
basis, seven days a week. Logistical support necessary for extended operations
away from the Company's fixed bases is coordinated through its global
communications network. The Company has the ability to dispatch maintenance and
operational personnel and equipment as necessary to support temporary operations
around the world.
Maintenance and Support
The Company's Maintenance and Engineering Center is located at Indianapolis
International Airport. This 120,000 square-foot facility was designed to meet
the maintenance needs of the Company's fleet and to provide supervision and
control of purchased maintenance services. The Company has approximately 1,200
employees supporting its maintenance and technical efforts.
The Company currently maintains 14 permanent maintenance facilities, including
its Indianapolis facility. In addition, the Company utilizes "road teams," which
are dispatched primarily as charter flight operations require to arrange and
supervise maintenance services at temporary locations. The Company also uses
road teams to supervise all maintenance not performed in-house.
Fuel Price Risk Management
The Company has fuel reimbursement clauses and guarantees which applied to
approximately 53.4%, 45.0% and 34.8%, respectively, of consolidated revenues in
1997, 1998 and 1999. The Company did not engage in any material fuel hedging
activities in 1997, but engaged in a fuel hedging program from 1998 to mid-1999,
which hedged a significant portion of its scheduled service fuel exposure during
that time period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Operating Expenses - Fuel and Oil."
Competition
The Company's products and services face varying degrees of competition in
diverse markets.
Competition for Scheduled Services
In scheduled service, the Company competes both against the large U.S. scheduled
service airlines and, from time to time, against smaller regional or start-up
airlines. Competition is generally on the basis of price, schedule and
frequency, quality of service and convenience.
Competition for Commercial Charter Services
In the commercial charter market, the Company competes both against the major
U.S. scheduled airlines and against small U.S. charter airlines. The Company
also competes against several European and Mexican charter and scheduled
airlines. The scheduled carriers compete for leisure travel customers with the
Company's commercial charter operations in a variety of ways, including
wholesaling discounted seats on scheduled flights to tour operators, promoting
packaged tours to travel agents for sale to retail customers and selling
discounted, airfare-only products to the public. As a result, all charter
airlines, including the Company, generally are required to compete for customers
against the lowest revenue-generating seats of the scheduled airlines.
The Company also competes directly against other charter airlines. In the United
States, these charter airlines are smaller in size than the Company. In Europe,
several charter airlines are as large or larger than the Company. Certain
European charter airlines are affiliates of large scheduled airlines or tour
operators.
Competition for Military/Government Charter Services
The Company competes for military and other government charters with primarily
smaller U.S. airlines. The allocation of U.S. military air transportation
contracts is based upon the number and type of aircraft a carrier, alone or
through a teaming arrangement, makes available for use to the military.
Insurance
The Company carries types and amounts of insurance customary in the airline
industry, including coverage for public liability, passenger liability, property
damage, aircraft loss or damage, baggage and cargo liability and workers'
compensation. Under the Company's current insurance policies, it will not be
covered by such insurance were it to fly, without the consent of its insurance
provider, to certain high-risk countries. The Company will support certain U.S.
government operations in areas where its insurance policy does not provide
coverage when the U.S. government provides replacement insurance coverage.
Employees
As of December 31, 1999, the Company had approximately 7,000 full and part-time
employees, approximately 2,400 of whom were represented under collective
bargaining agreements. The Company's flight attendants are represented by the
Association of Flight Attendants ("AFA"), and the Company's cockpit crews are
represented by the Air Line Pilots Association ("ALPA"). The current collective
bargaining agreement with the AFA became subject to amendment, but did not
expire, in December 1998. The current collective bargaining agreement with ALPA
will be subject to amendment, but will not expire, in September 2000. The
Company began negotiations with the AFA in the third quarter of 1998 to amend
the collective bargaining agreement, and a tentative agreement was announced on
February 14, 2000. The flight dispatchers elected the Transport Workers Union to
represent them in October 1999. Due to the small number of dispatchers, this
election is expected to have a minimal impact on the Company's operations.
The Company believes that relations with its employees are good. A prolonged
dispute with employees who are represented by a union, or any sizable number of
employees, could have an adverse impact on the Company's operations.
Regulation
The Company is subject to a wide range of governmental regulation, including
that of the DOT and the Federal Aviation Administration ("FAA").
The DOT principally regulates economic matters affecting air service, including:
air carrier certification and fitness; insurance; leasing arrangements;
allocation of route rights and authorization of proposed scheduled and charter
operations; allocation of landing slots and departing slots; consumer
protection; and competitive practices. The FAA primarily regulates flight
operations, especially matters affecting air safety, including airworthiness
requirements for each type of aircraft and crew certification. The FAA requires
each carrier to obtain an operating certificate and operations specifications
authorizing the carrier to fly to specific airports using specified equipment.
Several aspects of airline operations are subject to regulation or oversight by
federal agencies other than the DOT and FAA. The United States Postal Service
has jurisdiction over certain aspects of the transportation of mail and related
services provided by the Company through its cargo affiliate. Labor relations in
the air transportation industry are generally regulated under the Railway Labor
Act, which vests in the National Mediation Board certain regulatory powers with
respect to disputes between airlines and labor unions arising under collective
bargaining agreements. The Company is subject to the jurisdiction of the Federal
Communications Commission regarding the utilization of its radio facilities. In
addition, the Immigration and Naturalization Service, the U.S. Customs Service,
and the Animal and Plant Health Inspection Service of the Department of
Agriculture have jurisdiction over inspection of the Company's aircraft,
passengers and cargo to ensure the Company's compliance with U.S. immigration,
customs and import laws. Also, while the Company's aircraft are in foreign
countries, they must comply with the requirements of similar authorities in
those countries. The Commerce Department also regulates the export and re-export
of the Company's U.S.-manufactured aircraft and equipment.
In addition to various federal regulations, local governments and authorities in
certain markets have adopted regulations governing various aspects of aircraft
operations, including noise abatement, curfews and use of airport facilities.
Many U.S. airports have adopted or are considering adopting a Passenger Facility
Charge of up to $3.00 generally payable by each passenger departing from the
airport and remitted by the Company to the applicable airport authority.
At the Company's aircraft maintenance facilities, materials are used that are
regulated as hazardous under federal, state and local laws. The Company is
required to maintain programs to protect the safety of the employees who use
these materials and to manage and dispose of any waste generated by the use of
these materials in compliance with these laws. More generally, the Company is
also subject at these facilities to federal, state and local regulations
relating to protection of the environment and to discharge of material into the
environment. The Company does not expect that the costs associated with ongoing
compliance with any of these regulations will have a material impact on the
Company's capital expenditures, earnings or competitive position. Additional
laws and regulations have been proposed from time to time that could
significantly increase the cost of airline operations by, for instance, imposing
additional requirements or restrictions on operations.
Based upon bilateral aviation agreements between the U.S. and other nations,
and, in the absence of such agreements, comity and reciprocity principles, the
Company, as a charter carrier, is generally not restricted as to the frequency
of its flights to and from most foreign destinations. However, these agreements
generally restrict the Company to the carriage of passengers and cargo on
flights which either originate in the U.S. and terminate in a single foreign
nation, or which originate in a single foreign nation and terminate in the U.S.
Proposals for any additional charter service must generally be specifically
approved by the civil aeronautics authorities in the relevant countries.
Approval of such requests is typically based on considerations of comity and
reciprocity and cannot be guaranteed.
The Company believes it is in compliance with all requirements necessary to
maintain in good standing its operating authority granted by the DOT and its air
carrier operating certificate issued by the FAA. A modification, suspension or
revocation of any of the Company's DOT or FAA authorizations or certificates
could have a material adverse effect upon the Company.
Environmental Matters
Under the Airport Noise and Capacity Act of 1990 and related FAA regulations,
the Company's aircraft must comply with certain Stage 3 noise restrictions by
certain specified deadlines. In general, the Company is prohibited from
operating any Stage 2 aircraft after December 31, 1999. As of December 31, 1999,
the Company's entire fleet met Stage 3 requirements.
In addition to the aircraft noise regulations administered by the FAA, the
Environmental Protection Agency regulates operations, including air carrier
operations, which affect the quality of air in the United States. The Company
believes it has made all necessary modifications to its operating fleet to meet
fuel-venting requirements and smoke-emissions standards.
Item 2. Properties
The Company leases three adjacent office buildings in Indianapolis consisting of
approximately 136,000 square feet. These buildings are located approximately one
mile from the Indianapolis International Airport terminal and are used as
principal business offices and for the Indianapolis reservations center.
The Company's Maintenance and Engineering Center is also located at Indianapolis
International Airport. This 120,000 square-foot facility was designed to meet
the base maintenance needs of the Company's operations, as well as to provide
support services for other maintenance locations. The Indianapolis Maintenance
and Engineering Center is an FAA-certificated repair station and has the
capability to perform routine, as well as non-routine, maintenance on the
Company's aircraft.
During the second quarter of 1999, the Company completed construction of a
120,000 square-foot building immediately adjacent to the Company's hangar at
Indianapolis International Airport. In 1995, the Company completed the lease of
Hangar No. 2 at Chicago's Midway Airport for an initial lease term of ten years,
subject to two five-year renewal options. The Company has completed significant
improvements to this leased property, which is used to provide line maintenance
for the Boeing 757-200 and Boeing 727-200 narrow-body fleets.
Since 1995, the Company has occupied an 18,700 square-foot reservation facility
located near Chicago's O'Hare Airport. This reservation facility serves
customers in the greater Chicago metropolitan area in support of the
Chicago-Midway scheduled service operation.
The Company also routinely leases various properties at airports around the
world for use by passenger service, flight operations and maintenance staffs.
Other properties are also leased for the use of sales office staff.
At December 31, 1999, the Company was certified to operate a fleet of 53
aircraft. The following table summarizes the ownership characteristics of each
aircraft type operated by the Company as of the end of 1999.
Ownership Boeing Boeing Lockheed Lockheed
Status 727-200ADV 757-200ER L-1011-50/100 L-1011-500
Owned 1 N/A 1 4
(Unencumbered)
Owned 9 N/A 12 N/A
(Encumbered-Pledged on
Bank Facility)
Leased 14 9 N/A N/A
(Fixed Buy-out)
Operating-Lease N/A 2 1 N/A
(No Buy-out)
TOTAL 24 11 14 4
Item 3. Legal Proceedings
Various claims, contractual disputes and lawsuits against the Company arise
periodically involving complaints which are normal and reasonably foreseeable in
light of the nature of the Company's business. The majority of these suits are
covered by insurance. In the opinion of management, the resolution of these
claims will not have a material adverse effect on the business, operating
results or financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the quarter ended
December 31, 1999.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol "AMTR." The Company had 272 registered
shareholders at December 31, 1999, and 279 registered shareholders at December
31, 1998.
Year Ended December 31, 1999
Market Prices of Common Stock High Low Close
--------------- -------------------- -------------------
First quarter 28 1/8 18 1/2 19
Second quarter 25 18 7/8 24 5/8
Third quarter 27 1/2 18 1/2 18 3/4
Fourth quarter 22 16 1/2 19 3/8
Year Ended December 31, 1998
Market Prices of Common Stock High Low Close
--------------- -------------------- -------------------
First quarter 16 3/8 7 1/2 16 1/4
Second quarter 27 15 1/8 24 5/8
Third quarter 30 20 7/8 23 1/2
Fourth quarter 27 5/8 13 3/4 27 1/8
No dividends have been paid on the Company's common stock since becoming publicly held.
Item 6. Selected Consolidated Financial Data-(Unaudited)
The unaudited selected consolidated financial data in this table have been
derived from the consolidated financial statements of the Company for the
respective periods presented. The data should be read in conjunction with the
consolidated financial statements and related notes.
Amtran, Inc.
Five-Year Summary
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data and ratios) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
Operating revenues $ 1,122,366 $ 919,369 $ 783,193 $ 750,851 $ 715,009
Operating expenses 1,032,339 843,996 769,709 786,907 697,073
Operating income (loss) (1) 90,027 75,373 13,484 (36,056) 17,936
Income (loss) before taxes 77,797 67,210 6,027 (39,581) 14,653
Net income (loss) 47,342 40,081 1,572 (26,674) 8,524
Net income (loss) per share - basic (2) 3.86 3.41 0.14 (2.31) 0.74
Net income (loss) per share - diluted (2) 3.51 3.07 0.13 (2.31) 0.74
Balance Sheet Data (at end of period):
Property and equipment, net $ 511,832 $ 329,332 $ 267,681 $ 224,540 $ 240,768
Total assets 815,281 594,549 450,857 369,601 413,137
Total debt 347,871 246,671 191,804 149,371 138,247
Shareholders' equity (3) 151,376 102,751 56,990 54,744 81,185
Ratio of total debt to shareholders' equity 2.30 2.40 3.37 2.73 1.70
Ratio of total liabilities to shareholders' equity 4.39 4.79 6.91 5.75 4.09
Selected Operating Statistics for
Consolidated Passenger Services: (4)
Revenue passengers carried (thousands) 7,044.6 6,168.3 5,307.4 5,680.5 5,368.2
Revenue passenger miles (millions) 10,949.0 9,758.1 8,986.0 9,172.4 8,907.7
Available seat miles (millions) 15,082.6 13,851.7 12,647.7 13,295.5 12,521.4
Passenger load factor 72.6% 70.5% 71.0% 69.0% 71.1%
(1) The Company has reclassified gain (loss) on the sale of operating assets
for 1995 from non-operating gain (loss) to operating income (loss) to be
consistent with the 1996-1999 presentation. Also, in the third quarter of
1996, the Company recorded a $4.7 million loss on the disposal of leased
assets associated with the reconfiguration of its fleet.
(2) In 1997, the Company adopted Financial Accounting Standards Board
Statement 128, "Earnings per Share," which established new standards for
the calculation and disclosure of earnings per share. All prior period
earnings per share amounts disclosed in this five-year summary have been
restated to conform to the new standards under Statement 128.
(3) No dividends were paid in any periods presented.
(4) Operating statistics pertain only to ATA (including the operations of
Chicago Express) and do not include information for other operating
subsidiaries of the Company.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Amtran is a leading provider of targeted scheduled airline services and charter
airline services to leisure and other value-oriented travelers. Amtran, through
its principal subsidiary, ATA, has been operating for 27 years and is the
eleventh largest U.S. passenger airline in terms of 1999 revenues. ATA provides
scheduled service through nonstop and connecting flights from the gateways of
Chicago-Midway and Indianapolis to popular vacation destinations such as Hawaii,
Las Vegas, Florida, California, Mexico and the Caribbean, as well as to
Philadelphia, Denver, Dallas-Ft. Worth and New York City's LaGuardia and John F.
Kennedy Airports. ATA also provides charter service throughout the world to
independent tour operators, specialty charter customers and the U.S. military.
For the year ended December 31, 1999, the Company generated record operating
income and net income. Although all business units performed well during this
period, scheduled service continued to generate the strongest overall growth in
pricing and traffic of the major business units.
o Scheduled service revenue per available seat mile ("RASM") increased 7.5% in
1999, as compared to 1998.
o Scheduled service ASMs increased 13.6% between 1999 and 1998.
o Load factor increased to 77.4% in 1999 as compared to 74.4% in 1998.
In 1999, the Company's consolidated measures of RASM and CASM were impacted by
the acquisition of tour operators Travel Charter and Key Tours, because these
companies contributed significant operating revenue and expense to consolidated
results, without increasing ASMs. The operations of these tour operators, along
with the Company's existing vacation package brand, ATA Vacations, have been
combined and reported as a separate operating segment, ATA Leisure Corp.
("ATALC") (see Note 13 to Consolidated Financial Statements).
Results of Operations in Cents Per ASM
The following table sets forth, for the periods indicated, consolidated
operating revenues and expenses expressed as cents per ASM.
Cents per ASM
Year Ended December 31,
1999 1998 1997
---- ---- ----
Consolidated operating revenues: 7.44 6.64 6.19
Consolidated operating expenses:
Salaries, wages and benefits 1.67 1.52 1.36
Fuel and oil 1.13 0.99 1.22
Depreciation and amortization 0.64 0.57 0.49
Handling, landing and navigation fees 0.59 0.54 0.55
Aircraft rentals 0.39 0.38 0.43
Aircraft maintenance, materials and repairs 0.37 0.39 0.41
Crew and other employee travel 0.33 0.30 0.29
Ground package cost 0.33 0.14 0.15
Passenger service 0.26 0.24 0.26
Commissions 0.26 0.21 0.21
Other selling expenses 0.19 0.16 0.12
Advertising 0.12 0.13 0.10
Facilities and other rentals 0.09 0.07 0.07
Other 0.47 0.45 0.43
---- ---- ----
Total consolidated operating expenses 6.84 6.09 6.09
---- ---- ----
Consolidated operating income 0.60 0.55 0.10
==== ==== ====
ASMs (in thousands) 15,082,630 13,851,731 12,647,683
The following table sets forth, for the periods indicated, operating revenues
and expenses for each reportable segment, in thousands of dollars, and expressed
as cents per ASM.
Year Ended December 31,
- --------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Airline and Other
Operating revenue (000s) $1,027,526 $897,884 $758,971
RASM (cents) 6.81 6.48 6.00
Operating expense (000s) $ 961,935 $830,977 $755,492
CASM (cents) 6.38 6.00 5.97
ATALC
Operating revenue (000s) $ 94,840 $ 21,485 $ 24,222
RASM (cents) 0.63 0.16 0.19
Operating expense (000s) $ 70,404 $ 13,019 $ 14,217
CASM (cents) 0.46 0.09 0.12
Year Ended December 31, 1999, Versus Year Ended December 31, 1998
Consolidated Flight Operating and Financial Data
The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company. Data
shown for "Jet" operations include the consolidated operations of Lockheed
L-1011, Boeing 727-200 and Boeing 757-200 aircraft in all of the Company's
business units. Data shown for "J31" operations include the operations of
Jetstream 31 propeller aircraft by Chicago Express as the ATA Connection.
Twelve Months Ended December 31,
- ------------------------------------- ----------------------------------------------------------------
1999 1998 Inc (Dec) % Inc (Dec)
- ------------------------------------- --------------- --------------- ---------------- ---------------
Departures Jet 50,207 45,881 4,326 9.43
Departures J31(a) 17,716 16,388 1,328 8.10
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Departures (b) 67,923 62,269 5,654 9.08
- ------------------------------------- --------------- --------------- ---------------- ---------------
Block Hours Jet 157,481 144,237 13,244 9.18
Block Hours J31 17,979 16,166 1,813 11.21
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Block Hours (c) 175,460 160,403 15,057 9.39
- ------------------------------------- --------------- --------------- ---------------- ---------------
RPMs Jet (000s) 10,913,081 9,727,097 1,185,984 12.19
RPMs J31 (000s) 35,922 30,991 4,931 15.91
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 10,949,003 9,758,088 1,190,915 12.20
- ------------------------------------- --------------- --------------- ---------------- ---------------
ASMs Jet (000s) 15,025,000 13,799,507 1,225,493 8.88
ASMs J31 (000s) 57,630 52,224 5,406 10.35
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 15,082,630 13,851,731 1,230,899 8.89
- ------------------------------------- --------------- --------------- ---------------- ---------------
Load Factor Jet 72.63 70.49 2.14 3.04
Load Factor J31 62.33 59.34 2.99 5.04
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Load Factor (f) 72.59 70.45 2.14 3.04
- ------------------------------------- --------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 6,838,339 5,991,662 846,677 14.13
Passengers Enplaned J31 206,304 176,604 29,700 16.82
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 7,044,643 6,168,266 876,377 14.21
- ------------------------------------- --------------- --------------- ---------------- ---------------
Revenue (000s) $1,122,366 $919,369 $202,997 22.08
RASM in cents (h) 7.44 6.64 0.80 12.05
CASM in cents (i) 6.84 6.09 0.75 12.32
Yield in cents (j) 10.25 9.42 0.83 8.81
- ------------------------------------- --------------- --------------- ---------------- ---------------
See footnotes (g) through (j) on page 15.
(a) Chicago Express Airlines, Inc. ("Chicago Express") provides service between
Chicago-Midway and the cities of Indianapolis, Milwaukee, Des Moines, Dayton,
Grand Rapids, Lansing and Madison as the ATA Connection, using Jetstream 31
("J31") propeller aircraft.
(b) A departure is a single takeoff and landing operated by a single aircraft
between an origin city and a destination city.
(c) Block hours for any aircraft represent the elapsed time computed from the
moment the aircraft first moves under its own power from the origin city
boarding ramp to the moment it comes to rest at the destination city boarding
ramp.
(d) Revenue passenger miles (RPMs) represent the number of seats occupied by
revenue passengers multiplied by the number of miles those seats are flown. RPMs
are an industry measure of the total seat capacity actually sold by the Company.
(e) Available seat miles (ASMs) represent the number of seats available for sale
to revenue passengers multiplied by the number of miles those seats are flown.
ASMs are an industry measure of the total seat capacity offered for sale by the
Company, whether sold or not.
(f) Passenger load factor is the percentage derived by dividing RPMs by ASMs.
Passenger load factor is relevant to the evaluation of scheduled service because
incremental passengers normally provide incremental revenue and profitability
when seats are sold individually. In the case of commercial charter and
military/government charter, load factor is less relevant because an entire
aircraft is sold by the Company instead of individual seats. Consolidated load
factors and scheduled service load factors for the Company are shown in the
appropriate tables for industry comparability, but load factors for individual
charter businesses are omitted from applicable tables.
(g) Passengers enplaned are the number of revenue passengers who occupied seats
on the Company's flights. This measure is also referred to as "passengers
boarded."
(h) Revenue per ASM (expressed in cents) is total operating revenue divided by
total ASMs. This measure is also referred to as "RASM." RASM measures the
Company's unit revenue using total available seat capacity. In the case of
scheduled service, RASM is a measure of the combined impact of load factor and
yield (see (j) below for the definition of yield).
(i) Cost per ASM (expressed in cents) is total operating expense divided by
total ASMs. This measure is also referred to as "CASM." CASM measures the
Company's unit cost using total available seat capacity.
(j) Revenue per RPM (expressed in cents) is total operating revenue divided by
total RPMs. This measure is also referred to as "yield." Yield is relevant to
the evaluation of scheduled service because yield is a measure of the average
price paid by customers purchasing individual seats. Yield is less relevant to
the commercial charter and military/government charter businesses because the
entire aircraft is sold at one time for one price. Consolidated yields and
scheduled service yields are shown in the appropriate tables for industry
comparability, but yields for individual charter businesses are omitted from
applicable tables.
Operating Revenues
Total operating revenues in 1999 increased 22.0% to $1.122 billion from $919.4
million in 1998. This increase was due to a $113.4 million increase in scheduled
service revenues, a $41.2 million increase in commercial charter revenues, a
$35.0 million increase in ground package revenues, a $9.1 million increase in
other revenues, and a $4.3 million increase in military/government charter
revenues.
Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in
scheduled service. Data shown for "J31" operations include the operations of
Jetstream 31 propeller aircraft operated by Chicago Express as the ATA
Connection.
Twelve Months Ended December 31,
- ------------------------------------- --------------- --------------- ---------------- ---------------
1999 1998 Inc (Dec) % Inc (Dec)
- ------------------------------------- --------------- --------------- ---------------- ---------------
Departures Jet 35,402 31,237 4,165 13.33
Departures J31(a) 17,716 16,388 1,328 8.10
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Departures (b) 53,118 47,625 5,493 11.53
- ------------------------------------- --------------- --------------- ---------------- ---------------
Block Hours Jet 104,555 92,263 12,292 13.32
Block Hours J31 17,979 16,166 1,813 11.21
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Block Hours (c) 122,534 108,429 14,105 13.01
- ------------------------------------- --------------- --------------- ---------------- ---------------
RPMs Jet (000s) 6,828,181 5,777,555 1,050,626 18.18
RPMs J31 (000s) 35,922 30,991 4,931 15.91
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 6,864,103 5,808,546 1,055,557 18.17
- ------------------------------------- --------------- --------------- ---------------- ---------------
ASMs Jet (000s) 8,809,564 7,756,330 1,053,234 13.58
ASMs J31 (000s) 57,630 52,224 5,406 10.35
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 8,867,194 7,808,554 1,058,640 13.56
- ------------------------------------- --------------- --------------- ---------------- ---------------
Load Factor Jet 77.51 74.49 3.02 4.05
Load Factor J31 62.33 59.34 2.99 5.04
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Load Factor (f) 77.41 74.39 3.02 4.06
- ------------------------------------- --------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 4,878,643 4,094,454 784,189 19.15
Passengers Enplaned J31 206,304 176,604 29,700 16.82
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 5,084,947 4,271,058 813,889 19.06
- ------------------------------------- --------------- --------------- ---------------- ---------------
Revenue (000s) $624,647 $511,254 $113,393 22.18
RASM in cents (h) 7.04 6.55 0.49 7.48
Yield in cents (j) 9.10 8.80 0.30 3.41
Revenue per segment $ (k) 122.84 119.70 3.14 2.62
- ------------------------------------- --------------- --------------- ---------------- ---------------
See footnotes (a) through (j) on pages 14 and 15.
(k) Revenue per segment flown is determined by dividing total scheduled service
revenues by the number of passengers boarded. Revenue per segment is a broad
measure of the average price obtained for all flight segments flown by
passengers in the Company's scheduled service route network.
Scheduled service revenues in 1999 increased 22.2% to $624.6 million from $511.3
million in 1998. Scheduled service revenues comprised 55.7% of consolidated
revenues in 1999, as compared to 55.6% of consolidated revenues in 1998.
The Company's scheduled service at Chicago-Midway accounted for approximately
56.7% of scheduled service ASMs and 77.2% of scheduled service departures in
1999, as compared to 53.4% and 73.5%, respectively, during 1998. During 1998,
the Company began nonstop service to New York's LaGuardia Airport, Dallas-Ft.
Worth and Denver, which continued throughout 1999. During 1999, the Company
began nonstop service to Philadelphia, which was not served during 1998. In
addition to these new services, the Company served the following existing jet
markets in both years: Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles, New
York's John F. Kennedy International Airport, Orlando, Phoenix, St. Petersburg,
San Francisco and Sarasota. The Company has announced that effective April 3,
2000 it will begin nonstop service to Washington D.C., and effective May 7,
2000, it will begin nonstop service from Chicago-Midway to both Boston and
Seattle.
Beginning in 1997, the Company also had a code-share agreement with Chicago
Express under which, as later amended, Chicago Express operated 19-seat
Jetstream 31 propeller aircraft between Chicago-Midway and the cities of
Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing and Madison.
On April 30, 1999, the Company acquired all of the issued and outstanding stock
of Chicago Express Airlines, Inc., which continues to operate these services as
a wholly owned subsidiary of the Company.
The Company's operations at Chicago-Midway continued to be the fastest growing
portion of its scheduled service business in 1999. The Company operated a peak
schedule of 67 daily jet and commuter departures from Chicago-Midway and served
22 destinations on a nonstop basis in the summer of 1999, as compared to 57 peak
daily departures and 21 nonstop destinations served in the summer of 1998. In
1998, the Company completed a $1.7 million renovation of the existing terminal
facilities at Chicago-Midway to enhance their attractiveness and convenience for
its customers. The Company also presently expects to occupy 12 jet gates and one
commuter aircraft gate at the new Chicago-Midway terminal which is presently
scheduled for completion in 2004, as compared to the six jet gates currently
occupied in the existing terminal.
The Company's growing commitment to Chicago-Midway is consistent with its
strategy for enhancing revenues and profitability in scheduled service by
focusing primarily on low cost, nonstop flights from airports where it has
market or aircraft advantages in addition to its low cost. The Company expects
its growing concentration of connecting flights at Chicago-Midway to provide
both revenue premiums and operating cost efficiencies, as compared to the
Company's other gateway cities. In addition, the Company plans to build an FIS
facility at Chicago-Midway to facilitate direct international flights.
The Company's Hawaii service accounted for 18.5% of scheduled service ASMs and
4.7% of scheduled service departures in 1999, as compared to 21.3% and 5.4%,
respectively, in 1998. The Company provided nonstop services in both years from
Los Angeles, Phoenix and San Francisco to both Honolulu and Maui, with
connecting service between Honolulu and Maui. The Company provides these
services through a marketing alliance with the largest independent tour operator
serving leisure travelers to Hawaii from the United States. The Company
distributes the remaining seats on these flights through normal scheduled
service distribution channels. The Company believes it has superior operating
efficiencies in west coast-Hawaii markets due to the higher daily hours of
utilization obtained for both aircraft and crews in this market than for other
commercial charter and military applications.
The Company's Indianapolis service accounted for 14.0% of scheduled service ASMs
and 10.8% of scheduled service departures in 1999, as compared to 16.1% and
12.7%, respectively, in 1998. In 1999 and 1998, the Company operated nonstop to
Cancun, Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles, Orlando, St.
Petersburg, San Francisco and Sarasota. The Company has served Indianapolis for
27 years through the Ambassadair Travel Club and in scheduled service since
1986.
On June 9, 1999, nonstop service commenced between Ft. Lauderdale and San Juan,
Puerto Rico, and on June 16, 1999, nonstop service was begun between New York's
John F. Kennedy International Airport and San Juan. Between June and September
1999, the Company operated seasonal service between New York's John F. Kennedy
International Airport and Dublin and Shannon, Ireland.
The Company continuously evaluates the profitability of its scheduled service
markets and expects to adjust its service from time to time. The Company
believes that scheduled service yields and load factors in 1999 and 1998 have
benefited from strong customer demand for air transportation in the United
States during a period of constrained industry growth in seat capacity relative
to this demand.
Commercial Charter Revenues. The Company's commercial charter revenues are
derived principally from independent tour operators and specialty charter
customers. The Company's commercial charter product provides full-service air
transportation to hundreds of customer-designated destinations throughout the
world. The Company believes that tour operator and specialty charter are
businesses where the Company's experience and size provide meaningful
competitive advantage and are businesses to which the Company remains committed.
Commercial charter revenues accounted for 23.5% of consolidated revenues in
1999, as compared to 24.2% in 1998.
The Company has expanded its seat capacity in the commercial and
military/government charter business units through the acquisition of long-range
Lockheed L-1011 series 500 aircraft. In July 1998, the Company committed to the
purchase of five such aircraft for delivery between the third quarter of 1998
and the end of 1999. Although Lockheed L-1011 series 500 maintenance procedures
and cockpit design are similar to the Company's existing fleet of Lockheed
L-1011 series 50 and series 100 aircraft, they differ operationally in that
their ten-to-eleven-hour range permits them to operate nonstop to parts of Asia,
South America and Central and Eastern Europe using an all-coach seating
configuration preferred by the U.S. military and most of the Company's
commercial charter customers. The Company placed four of these aircraft into
service in commercial and military/government charter operations during 1999,
which has increased the available seat capacity for these charter business
units, in addition to opening new long-range market opportunities to the Company
which it cannot serve with its existing fleet. The Company expects to place the
fifth L-1011 series 500 aircraft into service in the first quarter of 2000.
The following table sets forth, for the periods indicated, certain key operating
and financial data for the commercial charter operations of the Company.
- ----------------------------------- ----------------------------------------------------------------
Twelve Months Ended December 31,
- ----------------------------------- ----------------------------------------------------------------
1999 1998 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures (b) 10,212 9,602 610 6.35
Block Hours (c) 37,119 33,516 3,603 10.75
RPMs (000s) (d) 3,253,165 3,009,638 243,527 8.09
ASMs (000s) (e) 4,129,966 3,882,202 247,764 6.38
Passengers Enplaned (g) 1,753,237 1,617,901 135,336 8.36
Revenue (000s) $263,766 $222,571 $41,195 18.51
RASM in cents (h) 6.39 5.73 0.66 11.52
- ----------------------------------- --------------- ---------------- --------------- ---------------
See footnotes (b) through (h) on pages 14 and 15.
The Company operates in two principal components of the commercial charter
business, known as "track charter" and "specialty charter." The larger track
charter business component is generally comprised of low frequency but
repetitive domestic and international flights between city pairs, which support
high passenger load factors and are marketed through tour operators, providing
value-priced and convenient nonstop service to vacation destinations for the
leisure traveler. Since track charter resembles scheduled service in terms of
its repetitive flying patterns between fixed-city pairs, it allows the Company
to achieve reasonable levels of crew and aircraft utilization (although less
than for scheduled service), and provides the Company with meaningful protection
from some fuel price increases through the use of fuel escalation reimbursement
clauses in tour operator contracts. Track charter accounted for approximately
$193.8 million in revenues in 1999, as compared to $176.4 million in 1998.
Specialty charter (including incentive travel programs) is a product which is
designed to meet the unique requirements of the customer and is a business
characterized by lower frequency of operation and by greater variation in city
pairs served than the track charter business. Specialty charter includes such
diverse contracts as flying university alumni to football games, transporting
political candidates on campaign trips and moving NASA space shuttle ground
crews to alternate landing sites. The Company also operates an increasing number
of trips in all-first-class configuration for certain corporate and high-end
leisure clients. Although lower utilization of crews and aircraft and infrequent
service to specialty destinations often result in higher average operating
costs, the Company has determined that the revenue premium earned by meeting
special customer requirements more than compensates for these increased costs.
The diversity of the Company's three fleet types also permits the Company to
meet a customer's particular needs by choosing the aircraft type which provides
the most economical solution for those requirements. Specialty charter accounted
for approximately $40.0 million in revenues in 1999, as compared to $35.1
million in 1998.
Military/Government Charter Revenues. The following table sets forth, for the
periods indicated, certain key operating and financial data for the
military/government flight operations of the Company.
- -------------------------------- ---------------------------------------------------------------
Twelve Months Ended December 31,
- -------------------------------- ---------------------------------------------------------------
1999 1998 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures (b) 4,444 4,447 (3) (0.07)
Block Hours (c) 15,354 16,389 (1,035) (6.32)
RPMs (000s) (d) 818,627 821,813 (3,186) (0.39)
ASMs (000s) (e) 2,027,471 1,963,069 64,402 3.28
Passengers Enplaned (g) 199,013 205,641 (6,628) (3.22)
Revenue (000s) $126,213 $121,911 $4,302 3.53
RASM in cents (h) 6.23 6.21 0.02 0.32
- -------------------------------- --------------- --------------- --------------- ---------------
See footnotes (b) through (h) on pages 14 and 15.
The Company participates in two related military/government charter programs
known as "fixed-award" and "short-term expansion." Pursuant to the U.S.
military's fixed-award system, each participating airline is awarded certain
"mobilization value points" based upon the number and type of aircraft made
available by that airline for military flying. In order to increase the number
of points awarded, the Company has traditionally participated in contractor
teaming arrangements with other airlines. Under these arrangements, the team has
a greater likelihood of receiving fixed-award business and, to the extent that
the award includes passenger transport, the opportunity for the Company to
operate this flying is enhanced since the Company represents a majority of the
passenger transport capacity of the team. As part of its participation in
teaming arrangements, the Company pays a commission to the team, which passes
that revenue on to all team members based upon their mobilization points.
All airlines participating in the fixed-award business contract annually with
the U.S. military from October 1 to the following September 30. For each
contract year, reimbursement rates are determined for aircraft types and mission
categories based upon operating cost data submitted by the participating
airlines. These contracts are generally not subject to renegotiation once they
become effective.
Short-term expansion business is awarded by the U.S. military first on a pro
rata basis to those carriers who have been provided fixed-award business and
then to any other carrier with aircraft availability. Expansion flying is
generally offered to airlines on very short notice.
The overall amount of military flying that the Company performs in any one year
is dependent upon several factors, including: (i) the percentage of mobilization
value points represented by the Company's team as compared to total mobilization
value points of all providers of military service; (ii) the percentage of
passenger capacity of the Company with respect to its own team; (iii) the amount
of fixed-award and expansion flying required by the U.S. military in each
contract year; and (iv) the availability of the Company's aircraft to accept and
fly expansion awards.
In April 1999, the Company announced that it had joined a new teaming
arrangement with several major passenger and cargo airlines. Under this new
teaming arrangement, the Company expects its military/government charter
revenues to increase to approximately $180.0 million for the contract year
beginning October 1999. This represents more than a 40% increase over the
Company's fiscal year 1999 military/government charter revenues of $126.2
million.
Ground Package Revenues. The Company earns ground package revenues through the
sale of hotel, car rental and cruise accommodations in conjunction with the
Company's air transportation product. The Company markets these ground packages
to its Ambassadair club members and through its ATA Leisure Corp. subsidiary to
its scheduled service and tour operator customers. In 1999, ground package
revenues increased 150.9% to $58.2 million, as compared to $23.2 million in
1998.
Effective January 31, 1999, the Company completed the acquisition of Travel
Charter International ("TCI") in Detroit, Michigan (see Note 12 to Consolidated
Financial Statements). TCI provides tour packages, including ground
arrangements, primarily to Mexican, Caribbean and Central American destinations
during the winter season, and to Europe in the summer. Prior to the acquisition,
the Company had a relationship with TCI as a major provider of passenger airline
services for over 14 years. Approximately $15.6 million of the increase in
ground package revenues was attributable to the incremental ground package
revenues of TCI, none of which were included in the Company's results of
operations in 1998.
Effective April 30, 1999, the Company completed the purchase of Key Tours, Inc.
and affiliated companies, also a tour operator serving the Detroit metropolitan
area (see Note 12 to Consolidated Financial Statements). Key Tours provides tour
packages, including ground arrangements, to such leisure destinations as Las
Vegas and Florida. The Company has had a relationship with Key Tours as a major
provider of passenger airline services for over 15 years. Approximately $16.6
million of the increase in ground package revenues was attributable to the
incremental ground package revenues of Key Tours, none of which were included in
the Company's results of operations in 1998.
The number of ground packages sold and the average revenue earned by the Company
for a ground package sale are a function of the mix of vacation destinations
served, the quality and types of ground accommodations offered and general
competitive conditions with other air carriers offering similar products in the
Company's markets, all of which are factors that can change from period to
period.
Other Revenues. Other revenues are comprised of the consolidated revenues of
affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled and charter operations of the Company. Other
revenues increased 22.8% to $49.6 million during 1999, as compared to $40.4
million in 1998. The Company's other revenues increased primarily due to higher
revenues earned in non-passenger airline businesses, especially cargo revenues
which increased approximately $6.5 million, largely due to the acquisition of
the remaining 50% of the Amber Air Freight partnership at the beginning of 1999
(see Note 12 to Consolidated Financial Statements).
Operating Expenses
Salaries, Wages and Benefits. Salaries, wages and benefits include the cost of
salaries and wages paid to the Company's employees, together with the Company's
cost of employee benefits and payroll-related local, state and federal taxes.
Salaries, wages and benefits expense in 1999 increased 19.5% to $252.6 million,
as compared to $211.3 million in 1998.
The Company increased its average equivalent employees by approximately 14.8% in
1999 as compared to 1998, in order to appropriately staff the Company's growth
between periods. This growth was most significant in categories of employees
which are influenced directly by flight activity. Some employment growth in 1999
was also provided to improve customer service in targeted areas, such as at
airport ticket counters, in reservations and in other departments primarily
involved in delivering services to the Company's customers. The Company also
recorded $6.7 million in additional salaries, wages and benefits in 1999
attributable to new companies acquired (see Note 12 to Consolidated Financial
Statements). The average rate of pay earned by the Company's employees
(including all categories of salaries, wages and benefits) increased by
approximately 4.1% in 1999 as compared to 1998.
In 1999, the Company recorded $6.4 million in variable compensation and related
payroll taxes as compared to 1998, when $8.9 million in such compensation was
recorded. The Company's variable compensation plans in both 1999 and 1998 paid
significant cash awards to employees as a result of the achievement of specific
profitability targets.
Salaries, wages and benefits cost per ASM increased 9.9% in 1999 to 1.67 cents,
as compared to 1.52 cents in 1998. This unit-cost increase was attributable both
to the faster rate of growth in average equivalent employees between years than
seat capacity, and to the increase in average salaries paid between years.
Fuel and Oil. Fuel and oil expense increased 24.4% to $170.9 million in 1999, as
compared to $137.4 million in 1998. The Company consumed 11.3% more gallons of
jet fuel for flying operations between years, which resulted in an increase in
fuel expense of approximately $15.0 million. Jet fuel consumption increased
primarily due to the increased number of block hours of jet flying operations
between periods. The Company flew 157,481 jet block hours in 1999, as compared
to 144,237 jet block hours in 1998, an increase of 9.2% between years.
Fuel consumption growth between 1999 and 1998 was more than total block hour
growth since the Lockheed L-1011 fleet flew proportionately more block hours and
consumes approximately twice the gallons per block hour of the Boeing 727-200
and Boeing 757-200.
During 1999, the Company's average cost per gallon of jet fuel consumed
increased by 12.0% as compared to 1998, resulting in an increase in fuel and oil
expense of approximately $18.0 million between years. This increase in fuel
price was experienced generally in the airline industry as a result of
significant increases in average crude oil and distillate market prices as
compared to 1998, particularly in the last two quarters of 1999.
The Company entered into fuel price hedge contracts during 1998 and the first
six months of 1999 under which the Company sought to reduce the risk of fuel
price increases. These hedges impacted fuel and oil expense by 1.8% and 1.2% in
1999 and 1998, respectively.
Fuel and oil expense increased 14.1% to 1.13 cents per ASM in 1999, as compared
to 0.99 cents per ASM in 1998, primarily due to the period-to-period increase in
the average price of fuel consumed.
Depreciation and Amortization. Depreciation and amortization expense increased
22.0% to $96.0 million in 1999, as compared to $78.7 million in 1998. The
Company recorded goodwill amortization expense of $0.9 million in 1999 due to
the acquisition of new businesses (see Note 12 to Consolidated Financial
Statements), which was not incurred in 1998.
Depreciation expense attributable to owned engines, airframes and leasehold
improvements increased $9.0 million in 1999, as compared to 1998. The Company
purchased nine Boeing 727-200 aircraft in 1999, which had been previously
financed through operating leases, thereby increasing depreciation expense on
engines and airframes between years. The Company recorded a reduction in
aircraft rental expense between periods for the termination of operating leases
for these aircraft, which is further described below under "Aircraft Rentals."
The Company also placed four Lockheed L-1011-500 owned aircraft into service in
1999, none of which were owned in 1998. The Company also increased its
investment in rotable parts and computer hardware and software, among other
items of property and equipment, resulting in an increase in depreciation
expense of $6.6 million in 1999, as compared to 1998.
Amortization of capitalized engine and airframe overhauls increased $9.7 million
in 1999, as compared to 1998, after including the offsetting amortization
associated with manufacturers' credits. Changes to the cost of overhaul
amortization were partly due to the increase in total block hours and cycles
flown between comparable periods for the Boeing 727-200 and Lockheed L-1011
fleets since such expense varies with that activity, and partly due to the
completion of more engine and airframe overhauls between periods for these fleet
types. Rolls-Royce-powered Boeing 757-200 aircraft, nine of which were delivered
new from the manufacturer between late 1995 and late 1999, are not presently
generating any engine or airframe overhaul expense since the initial
post-delivery overhauls for these aircraft are not yet due under the Company's
maintenance programs.
The cost of engine overhauls that become worthless due to early engine failures
and which cannot be economically repaired is charged to depreciation and
amortization expense in the period the engine fails. Depreciation and
amortization expense attributable to these write-offs decreased $2.3 million in
1999, as compared to 1998. When these early engine failures can be economically
repaired, the related repairs are charged to aircraft maintenance, materials and
repairs expense.
As is more fully explained in Note 11 to Consolidated Financial Statements,
certain changes in accounting estimates for depreciation have been made by the
Company. Effective July 1, 1998, the Company extended the estimated useful life
of the 13 owned Lockheed L-1011 series 50 and series 100 aircraft to a common
retirement date of December 2004, and also reduced the estimated salvage value
of the related airframes, engines and rotables. This change in estimate reduced
depreciation expense in 1999 by $2.0 million, as compared to 1998. In addition,
effective January 1, 1999, the Company extended the estimated useful lives of
capitalized Boeing 727-200 airframes, engines and improvements, all leasehold
improvements, and all rotable parts associated with this fleet, and reduced the
associated estimated salvage values. The effect of this change in estimate was
to reduce depreciation expense in 1999 by $4.6 million, as compared to 1998.
Depreciation and amortization expense per ASM increased 12.3% to 0.64 cents in
1999, as compared to 0.57 cents in 1998.
Handling, Landing and Navigation Fees. Handling and landing fees include the
costs incurred by the Company at airports to land and service its aircraft and
to handle passenger check-in, security and baggage where the Company elects to
use third-party contract services in lieu of its own employees. Where the
Company uses its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are incurred when the Company's aircraft fly over certain foreign airspace.
Handling, landing and navigation fees increased by 19.7% to $89.3 million in
1999, as compared to $74.6 million in 1998. The total number of system-wide jet
departures between 1999 and 1998 increased by 9.4% to 50,207 from 45,881,
resulting in approximately $6.8 million in volume-related handling and landing
expense increases between periods. Many of these departures were to destinations
with significantly higher handling costs and landing fees, and proportionately
more such departures were made by wide-body L-1011 aircraft which incur higher
handling and landing costs per departure. These price and departure mix
variances resulted in $4.7 million more handling and landing costs in 1999 than
in 1998. The Company incurred approximately $1.1 million in higher deicing costs
in 1999, as compared with 1998, attributable to the impact of more winter
weather on flight operations in 1999 than in 1998. Additionally, the Company
recorded approximately $1.4 million in higher cargo handling expenses in 1999,
as compared to 1998, due to the acquisition of T.G. Shown Associates, Inc. in
January 1999 (see Note 12 to Consolidated Financial Statements).
The cost per ASM for handling, landing and navigation fees increased 9.3%
to 0.59 cents in 1999, from 0.54 cents in 1998.
Aircraft Rentals. Aircraft rentals expense for 1999 increased 10.5% to $58.7
million from $53.1 million in 1998. The Company financed four and refinanced one
additional Boeing 757-200 aircraft in 1999 with operating leases, including two
aircraft delivered new from the manufacturer at the end of 1998, and two others
delivered in October and November 1999, increasing aircraft rentals expense by
$12.5 million in 1999, as compared to 1998.
The Company also owned nine Boeing 727-200 aircraft during most of 1999 which
had been financed through operating leases during most of 1998, thereby reducing
aircraft rentals expense by $6.9 million between years.
Aircraft rentals cost per ASM for 1999 was 0.39 cents, an increase of 2.6% from
0.38 cents per ASM in 1998.
Aircraft Maintenance, Materials and Repairs. This expense includes the cost of
expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for airframe check and line maintenance activities,
and other non-capitalized direct costs related to fleet maintenance, including
spare engine leases, parts loan and exchange fees, and related shipping costs.
Aircraft maintenance, materials and repairs expense increased 3.5% to $55.6
million in 1999, as compared to $53.7 million in 1998.
The Company expensed a total of 53 maintenance checks on its fleet during 1999,
as compared to 51 in 1998. The cost of materials consumed and components
repaired in association with such checks and other maintenance activity
increased by $2.3 million between 1999 and 1998.
The cost per ASM of aircraft maintenance materials decreased 5.1% to 0.37 cents
in 1999, as compared to 0.39 cents in 1998.
Crew and Other Employee Travel. Crew and other employee travel is primarily the
cost of air transportation, hotels and per diem reimbursements to cockpit and
cabin crew members incurred to position crews away from their bases to operate
Company flights throughout the world. The cost of air transportation is
generally more significant for the commercial and military/government charter
business units since these flights often operate between cities in which Company
crews are not normally based and may involve extensive international positioning
of crews. Hotel and per diem expenses are incurred for scheduled, commercial and
military/government charter services, although higher per diem and hotel rates
generally apply to international assignments.
The cost of crew and other employee travel increased 19.5% to $49.7 million in
1999, as compared to $41.6 million in 1998. During 1999, the Company's average
full-time-equivalent cockpit and cabin crew employment was 9.7% higher than in
1998, while jet block hours flown increased by 9.2% between the same periods.
The Company also experienced lower utilization of crew members due to the
increase in military business.
The average cost of hotel rooms per full-time-equivalent crew member increased
17.6% in 1999, as compared to 1998. Such hotel costs increased primarily due to
higher room rates paid in 1999.
The cost per ASM for crew and other employee travel increased 10.0% to 0.33
cents in 1999, from 0.30 cents in 1998.
Ground Package Cost. Ground package cost is incurred by the Company with hotels,
car rental companies, cruise lines and similar vendors who provide ground and
cruise accommodations to Ambassadair and ATA Vacations customers as well as to
customers of Travel Charter and Key Tours, which were acquired by the Company in
1999 (see Note 12 to Consolidated Financial Statements). Ground package cost
increased 151.3% to $49.0 million in 1999, as compared to $19.5 million in 1998.
Approximately $27.3 million of this increase was attributable to the operations
of Travel Charter and Key Tours in 1999, none of which costs were incurred in
1998.
The cost per ASM of ground packages increased 135.7% to 0.33 cents in 1999, as
compared to 0.14 cents in 1998. This increase is a result of the acquisition of
the tour operators, Travel Charter and Key Tours.
Passenger Service. Passenger service expense includes the onboard costs of meal
and non-alcoholic beverage catering, the cost of alcoholic beverages and
in-flight movie headsets sold, and the cost of onboard entertainment programs,
together with certain costs incurred for mishandled baggage and passengers
inconvenienced due to flight delays or cancellations. For 1999 and 1998,
catering represented 82.0% and 84.1%, respectively, of total passenger service
expense.
The total cost of passenger service increased 15.3% to $39.2 million in 1999, as
compared to $34.0 million in 1998. The Company experienced a decrease of
approximately 2.7% in the average unit cost of catering each passenger between
years, primarily because in 1999 there were relatively more scheduled service
passengers in the Company's business mix, who are provided a less expensive
catering product than the Company's longer-stage-length commercial and
military/government charter passengers. This resulted in a
price-and-business-mix reduction of $1.0 million in catering expense in 1999, as
compared to 1998. Total jet passengers boarded, however, increased 14.1% between
years, resulting in approximately $3.9 million in higher- volume-related
catering expenses between the same sets of comparative periods.
The cost per ASM of passenger service increased 8.3% to 0.26 cents in 1999, as
compared to 0.24 cents in 1998.
Commissions. The Company incurs commissions expense in association with the sale
by travel agents of single seats on scheduled service and ground packages for
its tour operator customers. In addition, the Company incurs commissions to
secure some commercial and military/government charter business. Commissions
expense increased 37.2% to $39.1 million in 1999, as compared to $28.5 million
in 1998.
Approximately $7.5 million of the increase in commissions in 1999, as compared
to 1998, was attributable to commissions paid to travel agents by Travel Charter
and Key Tours, which were acquired during the first half of 1999 (see Note 12 to
Consolidated Financial Statements). Such commissions were not included in the
Company's results of operations in 1998.
Scheduled service commissions expense increased by $2.8 million between 1999 and
1998, due to the corresponding increase in commissionable revenues earned
between periods. The Company experienced a decrease in fourth quarter 1999
commission expenses due to an industry decrease in travel agency commissions
paid from 8.0% to 5.0%. Commission expense cost per ASM increased 23.8% to 0.26
cents in 1999, as compared to 0.21 cents in 1998.
Other Selling Expenses. Other selling expenses are comprised primarily of
booking fees paid to computer reservation systems ("CRS"), credit card fees
incurred when selling single seats and ground packages to customers using credit
cards for payment, and toll-free telephone service for customers who contact the
Company directly to book reservations. Other selling expenses increased 27.1% to
$28.1 million in 1999, as compared to $22.1 million in 1998. Scheduled service
passengers boarded increased 19.1% between the same periods. All such selling
expenses increased due to growth in the scheduled service and tour operator
business units between periods. Other selling cost per ASM increased 18.8% to
0.19 cents in 1999, as compared to 0.16 cents in 1998.
Advertising. Advertising expense increased 4.5% to $18.6 million in 1999, as
compared to $17.8 million in 1998. The Company incurs advertising costs
primarily to support single-seat scheduled service sales and the sale of
air-and-ground packages. Advertising support for these lines of businesses was
increased in 1999, consistent with the Company's overall strategy to enhance
scheduled service RASM through increases in load factor and yield. The cost per
ASM of advertising decreased 7.7% to 0.12 cents in 1999, as compared to 0.13
cents in 1998.
Facilities and Other Rentals. Facilities and other rentals include the cost of
all ground facilities that are leased by the Company such as airport space,
regional sales offices and general offices. The cost of facilities and other
rentals increased 40.0% to $13.3 million in 1999, as compared to $9.5 million in
1998. Approximately $1.7 million of the growth in facilities costs between
periods was attributable to the need to provide facilities at airport locations
to support new scheduled service destinations and expanded services at existing
destinations. Facility costs also increased $0.8 million as a result of the
acquisition of new business (see Note 12 to Consolidated Financial Statements).
The cost per ASM for facilities and other rentals increased 28.6% to 0.09 cents
in 1999, as compared to 0.07 cents in 1998.
Other Operating Expenses. Other operating expenses increased 16.1% to $72.2
million in 1999, as compared to $62.2 million in 1998. Other operating expenses
increased primarily due to the cost of passenger air transportation purchased by
Travel Charter and Key Tours from air carriers other than the Company during
1999, none of which was included in the Company's 1998 results of operation.
Other operating cost per ASM increased 4.4% to 0.47 cents in 1999, as compared
to 0.45 cents in 1998.
Interest Income and Expense. Interest expense in 1999 increased to $21.0
million, as compared to $12.8 million in 1998. The increase in interest expense
between periods was primarily due to changes in the Company's capital structure
resulting from the sale in December 1998 of $125.0 million in principal amount
of 9.625% unsecured senior notes. In December 1999, the Company completed an
additional sale of $75.0 million principal amount of 10.5% unsecured senior
notes. Interest expense of $11.5 million was recorded in 1999 for these notes,
which was not incurred in 1998.
The interest expense increase in 1999 was partially offset by $1.7 million due
to more interest being capitalized primarily on Boeing 757-200 and Lockheed
L-1011-500 fleet acquisitions, and $2.3 million due to the repayment of a note
payable secured by a Boeing 757-200 aircraft, which had been outstanding during
1998.
The Company invested excess cash balances in short-term government securities
and commercial paper and thereby earned $5.4 million in interest income in 1999,
as compared to $4.4 million in 1998.
Other Non-Operating Income. The Company holds a membership interest in the SITA
Foundation ("SITA"), an organization which provides data communication services
to the airline industry. SITA's primary asset is its ownership in Equant N.V.
("Equant"). In February and December 1999, SITA sold a portion of its interest
in Equant in a secondary public offering and distributed the pro rata proceeds
to certain of its members (including Amtran, Inc.) that elected to participate
in the offering. The Company recorded a gain on the sale of Equant shares of
$1.7 million in the first quarter of 1999 and a similar gain of $1.3 million in
the fourth quarter of 1999.
Income Tax Expense. In 1999 the Company recorded $30.5 million in income tax
expense applicable to $77.8 million of pre-tax income for that period, while in
1998, income tax expense was $27.1 million on pre-tax income of $67.2 million.
The effective tax rate applicable to 1999 was 39.2%, as compared to 40.4% in
1998.
Year Ended December 31, 1998, Versus Year Ended December 31, 1997
Consolidated Flight Operating and Financial Data
The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company. Data
shown for "Jet" operations include the consolidated operations of Lockheed
L-1011, Boeing 727-200 and Boeing 757-200 aircraft in all of the Company's
business units. Data shown for "J31" operations include the operations of
Jetstream 31 propeller aircraft operated by Chicago Express as the ATA
Connection.
Twelve Months Ended December 31,
- ------------------------------------- ----------------------------------------------------------------
1998 1997 Inc (Dec) % Inc (Dec)
- ------------------------------------- --------------- --------------- ---------------- ---------------
Departures Jet 45,881 39,517 6,364 16.10
Departures J31(a) 16,388 10,091 6,297 62.40
- ------------------------------------- --------------- --------------- --------------- ----------------
Total Departures (b) 62,269 49,608 12,661 25.52
- ------------------------------------- --------------- --------------- ---------------- ---------------
Block Hours Jet 144,237 129,216 15,021 11.62
Block Hours J31 16,166 10,210 5,956 58.33
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Block Hours (c) 160,403 139,426 20,977 15.05
- ------------------------------------- --------------- --------------- ---------------- ---------------
RPMs Jet (000s) 9,727,097 8,967,900 759,197 8.47
RPMs J31 (000s) 30,991 18,055 12,936 71.65
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 9,758,088 8,985,955 772,133 8.59
- ------------------------------------- --------------- --------------- ---------------- ---------------
ASMs Jet (000s) 13,799,507 12,615,230 1,184,277 9.39
ASMs J31 (000s) 52,224 32,453 19,771 60.92
- ------------------------------------- --------------- --------------- --------------- ----------------
Total ASMs (000s) (e) 13,851,731 12,647,683 1,204,048 9.52
- ------------------------------------- --------------- --------------- ---------------- ---------------
Load Factor Jet 70.49 71.09 (0.60) (0.84)
Load Factor J31 59.34 55.63 3.71 6.67
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Load Factor (f) 70.45 71.05 (0.60) (0.84)
- ------------------------------------- --------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 5,991,662 5,210,578 781,084 14.99
Passengers Enplaned J31 176,604 96,812 79,792 82.42
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 6,168,266 5,307,390 860,876 16.22
- ------------------------------------- --------------- --------------- ---------------- ---------------
Revenue (000s) $919,369 $783,193 $136,176 17.39
RASM in cents (h) 6.64 6.19 0.45 7.27
CASM in cents (i) 6.09 6.09 - -
Yield in cents (j) 9.42 8.72 0.70 8.03
- ------------------------------------- --------------- --------------- ---------------- ---------------
See footnotes (a) through (j) on pages 14 and 15.
Operating Revenues
Total operating revenues in 1998 increased 17.4% to $919.4 million from $783.2
million in 1997. This increase was due to a $139.5 million increase in scheduled
service revenues, a $10.5 million increase in other revenues and a $0.9 million
increase in ground package revenues, partially offset by a $5.5 million decrease
in commercial charter revenues, and a $9.2 million decrease in
military/government charter revenues.
Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in
scheduled service. Data shown for "J31" operations include the operations of
Jetstream 31 propeller aircraft operated by Chicago Express as the ATA
Connection.
Twelve Months Ended December 31,
- ------------------------------------- ----------------------------------------------------------------
1998 1997 Inc (Dec) % Inc (Dec)
- ------------------------------------- --------------- --------------- ---------------- ---------------
Departures Jet 31,237 23,800 7,437 31.25
Departures J31(a) 16,388 10,091 6,297 62.40
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Departures (b) 47,625 33,891 13,734 40.52
- ------------------------------------- --------------- --------------- ---------------- ---------------
Block Hours Jet 92,263 72,883 19,380 26.59
Block Hours J31 16,166 10,210 5,956 58.33
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Block Hours (c) 108,429 83,093 25,336 30.49
- ------------------------------------- --------------- --------------- ---------------- ---------------
RPMs Jet (000s) 5,777,555 4,523,245 1,254,310 27.73
RPMs J31 (000s) 30,991 18,055 12,936 71.65
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 5,808,546 4,541,300 1,267,246 27.90
- ------------------------------------- --------------- --------------- ---------------- ---------------
ASMs Jet (000s) 7,756,330 6,209,825 1,546,505 24.90
ASMs J31 (000s) 52,224 32,453 19,771 60.92
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 7,808,554 6,242,278 1,566,276 25.09
- ------------------------------------- --------------- --------------- ---------------- ---------------
Load Factor Jet 74.49 72.84 1.65 2.27
Load Factor J31 59.34 55.63 3.71 6.67
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Load Factor (f) 74.39 72.75 1.64 2.25
- ------------------------------------- --------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 4,094,454 3,087,706 1,006,748 32.61
Passengers Enplaned J31 176,604 96,812 79,792 82.42
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 4,271,058 3,184,518 1,086,540 34.12
- ------------------------------------- --------------- --------------- ---------------- ---------------
Revenue (000s) $511,254 $371,762 $139,492 37.52
RASM in cents (h) 6.55 5.96 0.59 9.90
Yield in cents (j) 8.80 8.19 0.61 7.45
Revenue per segment $ (k) 119.70 116.74 2.96 2.54
- ------------------------------------- --------------- --------------- ---------------- ---------------
See footnotes (a) through (j) on pages 14 and 15. See footnote (k) on page 16.
Scheduled service revenues in 1998 increased 37.5% to $511.3 million from $371.8
million in 1997. Scheduled service revenues comprised 55.6% of consolidated
revenues in 1998, as compared to 47.5% of consolidated revenues in 1997.
Between April 1997 and April 1999, the Company operated under a code share
agreement with Chicago Express under which Chicago Express flew 19-seat
Jetstream 31 propeller aircraft as the ATA Connection between Chicago-Midway and
the cities of Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing
and Madison. The period-to-period percentag