Atlantic Southeast Airlines, Inc.

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Atlantic Southeast Airlines, Inc.

100 Hartsfield Centre Parkway, Suite 800
Atlanta, Georgia 30354-1356
U.S.A.
Telephone: (404) 766-1400
Toll Free: (800) 282-3424
Fax: (404) 209-0162
Web site: http://www.asa-air.com

Wholly Owned Subsidiary of Delta Air Lines, Inc.
Incorporated: 1979
Employees: 4,400
Sales: $621.94 million (2000)
NAIC: 481111 Scheduled Passenger Air Transportation

Atlantic Southeast Airlines, Inc. (ASA) is a leading regional airline based in Atlanta, Georgia. A subsidiary of Delta Air Lines, Inc. since 1999, ASA carries more than six million passengers a year, with a large portion of them making connections to mainline Delta flights.

Formation of Company: 1979

Atlantic Southeast Airlines was formed after Southern Airways, a local carrier based in Atlanta, agreed to merge with North Central Airlines in 1978. Three Southern Airways executives—George F. Pickett, Jr., Robert Priddy, and John Beiser—resigned in January 1979 to form their own airline. Atlantic Southeast Airlines was registered on March 12,1979 and began service on June 26.

Pickett, Priddy, and Beiser believed Republic Airlines—the sum of the Southern/North Central merger—would neglect local routes as it attempted to expand nationally after the merger went into effect in July 1979. They raised $260,000 from investors who shared this belief.

ASA’s first scheduled service consisted of daily flights between Atlanta and Columbus, Georgia, via a single, 14-seat Twin Otter aircraft. The airline carried 12,000 passengers its first year. Macon, Georgia, was added in 1980. By 1982, ASA was connecting 16 destinations.

In 1983, ASA acquired Coastal Air Limited, which had been operating as Southeastern Airlines, gaining a new hub in Memphis as well as nine other new markets in Georgia, Florida, Mississippi, and Tennessee. By this time, ASA was trading over-the-counter under the NASDAQ ticker symbol ASAI.

One outstanding feature of ASA’s success, wrote R.E.G. Davies and George Haddaway in their book Commuter Airlines of the United States, was the airline’s ability to keep its breakeven load factor in the neighborhood of 33 to 36 percent. The airline only had to fill a third of its available seats to make money; the rest was profit.

Flying with Delta in 1984

Delta Air Lines, the major carrier based in Atlanta, had also been growing since deregulation in the early 1980s. ASA became a “Delta Connection” airline traffic provider on May 1, 1984; its flights were listed in computer reservation systems with Delta’s prefix (DL), leading travel agents to route Delta’s connecting flights to ASA. ASA’s net income tripled to $5 million in the first year of this new association. In May 1986, Delta acquired 20 percent of ASA’s voting stock for about $38 million.

On December 14, 1986, ASA opened a new hub at Dallas/Ft. Worth International, which was dominated by American Airlines, not Delta. Within six months, ASA was flying 110 daily flights out of DFW, connecting nine cities. Revenues for the year were $92.3 million, up 22.5 percent from 1985. Net income increased slightly to $10 million. ASA was already known as the most profitable commuter airline in the United States, though price competition was putting new pressure on margins. Delta’s merger with Western Airlines, announced in 1987, created even more demand, yet profits soon stalled, noted Business Week, due to ASA’s investment in its new hubs.

A strike at Eastern Airlines, Delta’s main competitor in Atlanta, worked in ASA’s favor. The strike cut Eastern’s traffic by 60 percent and drove thousands of passengers to Delta and ASA. Revenues increased to $181 million in 1989, making ASA second only to WestAir among U.S. commuter airlines.

One of the three original founders, Robert Priddy, left the company in 1987. After working with Air Midwest and Mesa Airlines, he created another Atlanta-based airline: ValuJet (later called AirTran).

Profits in the 1990s

The 1990s began with disaster for ASA: the April 5, 1991 crash of an Embraer EMB-120 Brasilia turboprop near Brunswick, Georgia, killed 23 people. The fact that former Senator John G. Tower was among the fatalities compounded the media’s exposure. The National Transportation Safety Board (NTSB) cited a malfunctioning propeller as the likely cause. Nevertheless, ASA’s financial state remained healthy. It posted a record $32.5 million profit in 1991, while its giant partner Delta lost $239.5 million. Other feeder airlines were tending to fare better than the majors, who collectively were losing billions due to the Gulf War and a worldwide economic downturn. ASA’s fortunes continued to grow into the mid-1990s, as competing feeder airlines dropped out of certain markets.

Turboprop airliners used by various regional carriers continued to malfunction into the mid-1990s, creating negative publicity for this sector of the airline industry. An ASA aircraft suffered another fatal crash on August 21, 1995, near Carrollton, Georgia. Also attributed to a propeller failure, this was ASA’s 12th accident since 1983.

ASA had operated a number of different types of turboprop aircraft since its founding, including the Embraer EMB-110 Bandeirante and EMB-120 Brasilia (for which it was the launch customer in 1985), the de Havilland Dash 7, the Shorts 360, and the ATR 72. Company executives had considered operating small jets for several years but rejected the idea due to fear of alienating their major airline partner. Finally, in late 1995, ASA began leasing five British Aerospace BAe 146 jets configured to seat 88 passengers each. In addition to offering passengers greater perceived comfort and safety, the jets tripled the range of ASA’s turboprop-driven planes. This made them perfect for picking up some longer, low-traffic routes that Delta was handed over to ASA. However, the BAe 146 ultimately proved to be rather unreliable, resulting in an embarrassing number of canceled flights just as Atlanta was hosting the 1996 Summer Games.

ASA wagered its fortunes on an even smaller jet, the Can-adair Regional Jet built by Bombardier. In 1997, the carrier ordered 30 of these sleek, 50-seat planes and placed options on 60 more, paying about $600 million. (Rival Comair, another Delta feeder airline, had begun flying regional jets in 1991). ASA ordered another 27 regional jets in 1998 (for delivery between 2000 and 2003). In 1998, ASA was operating 85 planes and had annual income of more than $55 million.

From 1,600 employees in 1995, employment at ASA grew to about 2,500 in the late 1990s. Record hiring by the airline industry meant that ASA would soon resort to classified ads to find qualified pilots. Many pilots saw regional airlines such as ASA as a transitional step towards a job with the majors, resulting in a constant need for new flight crews. ASA had 850 pilots in 1999; 200 of them were new hires.

Purchase of ASA by Delta: 1999

ASA Holdings, parent company of Atlantic Southeast Airlines, Inc., agreed to be acquired by Delta in early 1999. Delta had proposed the buyout in late January at the same time it was demanding changes in its relationship with ASA that would certainly cut into the regional’s profits, reported the Atlanta Journal and Constitution. Passengers connecting from Delta flights accounted for 80 percent of ASA’s business. The ASA board agreed to sell the 80 percent of the company that Delta did not already own for about $700 million rather than watch its share values dwindle. ASA became a wholly owned subsidiary of Delta in May 1999.

Delta soon began integrating ASA’s Atlanta schedule more closely with its own, an action that allowed the major airline to transfer its larger jets to longer routes. The acquisition of ASA was intended to keep other carriers from making inroads into Delta’s strongest areas, the Southeast and Texas. However, with the purchase came a large pay differential between Delta and ASA pilots that threatened to become a contentious bargaining issue, noted the New York Times. American Airlines, which had recently acquired Reno Air Inc., faced a similar situation, which resulted in work disruptions.

The remaining two founders, George F. Pickett, Jr., and John Beiser, left ASA after it was acquired by Delta. Skip Barnette, the first head of Delta Express, a low-cost offshoot of Delta, was made ASA’s new CEO. His immediate goal was to raise the level of customer service, which had fallen markedly in the past few years, to the standards that its parent company had set.

Company Perspectives:

Our Vision: To Be the Best Regional Airline.

Provide a safe, reliable, friendly, hassle-free travel experience for every passenger, every time. Create an environment that recognizes the value of every team member. Achieve efficiency in everything we do. Embrace teamwork as the foundation for success.

Key Dates:

1979:: ASA is formed by three former executives of Southern Airways.
1983:: Coastal Air Limited (Southeastern Airlines) is acquired.
1984:: ASA becomes a Delta Connection carrier.
1986:: A new hub at Dallas/Ft. Worth International opens; Delta acquires 20 percent of voting stock.
1995:: ASA begins flying small jets on certain routes.
1999:: Delta buys ASA’s remaining shares.

A $4 million renovation of ASA’s Atlanta facilities was launched almost immediately; another $14 million in capital investment from Delta soon followed as well as acquisitions of new aircraft. In contrast to the slow expansion that characterized ASA’s first years in business, in 2000 ASA added 22 new markets and 18 new planes, lifting the fleet to 106 aircraft. Employment reached 3,500.

As reported by Air Transport World, Delta was using some of ASA’s 38 regional jets as a cost-effective way to test new markets. When demand grew sufficiently, as on routes to Manchester, New Hampshire, and Jacksonville, Florida, Delta assigned its own larger planes to them. At the same time, it would replace mainline service with regional jets when demand fell, as in Chattanooga, Tennessee, and Augusta, Georgia.