Midwest Sale Saga Diverted To New Route
AirTran has pulled out of the negotiations with Midwest, suggesting that a higher price is at hand through another buyer, perhaps Northwest Air Group and another local partner.
So the saga continues, though the future of Milwaukee-based air service is getting really cloudy.
One thing is for sure: the days of the old Midwest are numbered.
Yes, their days are indeed numbered. Their cost structure is too high, their market share too small, and they are fast becoming an anachronism in an industry that is fast moving to homogenization. A very low standard of homogeneity.
At a local level, their main problem is Milwaukee. Yes, the hometown of our Hometown Airline is one of the things that will kill it. The most reliable predictor of air service growth is economic growth in the cities that an airline serves. Milwaukee is a no-growth - or at best a very slow growth - region. Midwest's hometown market, therefore, isn't getting any bigger anytime soon. At least not soon enough to allow them to weather massive industry restructuring that is well underway.
Air Tran's interest puzzled me at first. I wondered why a Sunbelt airline would want a hub in in the Great White North with its weather problems, off-center location and unionized workforce. Now, I know a little about the airline industry, but apparently Joe Leonard knows more, (imagine that!) so there's an opportunity that I'm was not at first seeing. I would guess that the opportunity rests on the fact that hub airports are getting scare. MKE also has capacity, it's well-located to Chicago, which would allow Air Tran and Southwest to split the region north-south, and MKE is far less likely to close in foul weather than ORD.
The irony here is that the day may come when we wish Air Tran was our Hometown Airline. If Northwest really is interested, it is to basically dismantle Midwest. They have hubs in Detroit and MSP. Why another in Milwaukee? Those two hubs are already subject to bad weather, so why another in Milwaukee? (Do they really need another place to imprison people on airplanes on the ground for eight hours?) And there's little fleet commonality. They have been seriously trying to cut into Midwest's market for several years. Perhaps they calculated that it is a better use of their resources to buy it and put it out of their misery. One thing is sure: if NWA buys it, it's history. (I realize the NWA scenario is pure speculation at this point.)
The future of the US airline industry is one of a few national legacy carriers - 3, tops - and a clutch of low cost carriers, maybe four or five. And even the legacy carriers won't look a whole lot different from the LCC's.
A directly comparable situation that I'm familiar with is the US Air dehubbing of Pittsburgh. US Air was their Hometown Airline for years. (OK, their headquarters was in DC, but PIT was their big hub.) They controlled as much as 83% of the market there. Problem was that PIT built a big, expensive new terminal complex and asked US Air to pay for it in the form of higher landing fees. When they went into Chapter 11, the Pittsburgh hub was a logical place to cut costs, so they did. Now US Air is (almost) just another airline there. As a result, there are more low fare airlines, and US Air had to compete for the first time in decades. Pittsburghers are quite pleased. The County, which owns the airport, isn't because they don't have the revenue stream that they once had to pay the $1.2 billion bill for the new facility. But all the traveling public wants is cheap, reliable, and more or less safe air transportation. Milwaukeeans, too.
Anyway, the Midwest board is going to make a cold-blooded business decision, chocolate cookies be damned. I rarely take issue with anything Jim says, but in this case I must. Midwest Airline's future is crystal clear.
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