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AirTran intensifies the battle over Milwaukee

30-Dec-2009

Without question, the US airport of the year would have to be Milwaukee (MKE), once a Business-traveler back water, which is now in the throws of a pitched battle between three carriers. At a time when most carriers are cutting back, the capacity for Milwaukee is on the rise with low fare carriers pouring in seats.

The battle really began with the failing fortunes of Midwest Airlines. Indeed, the impact of Midwest’s near-death experience before being rescued by Republic Airways Holdings earlier this year, capacity for the airport actually dropped – by 0.89% year to date through Nov-2009 when available seats dropped to 9.803 million from 9.891 million. Last year, it was up 5.99% over year to date Nov-2007. 

But this year, not only saw the beginning of Midwest’s recovery starting last summer, but heavy capacity infusions from AirTran Airways and Southwest. Indeed, Republic Holdings CEO Bryan Bedford said earlier this month that the competition there was not sustainable. Even so, with a cost leadership among the three carriers, he expects to come out ahead. For the company as a whole, MKE only represents 25% of Republic’s brand services exposure.

He indicated the market was limited and would not respond to fare stimulation. “Milwaukee is not a destination market that you can stimulate by price,” he said noting the advantages held by Midwest Airlines. “I don’t care how cheap you make it; you don’t go there unless you have to, so there is no reason price stimulation will be a competitive advantage. But what we do have is a 1.1 million – which, by the way, is the same as the population there – frequent fliers who are willing to pay us a premium to get on Midwest because they love that cookie.”

However, Milwaukee is not a market unto itself and that is likely what at east AirTran is banking on. Its catchment area includes the points north of Chicago which are either closer to Milwaukee than O’Hare or at least equidistant from the two points. Only 60 miles from the second city, cheap Milwaukee flights could stimulate the market by marketing itself as a Chicago gateway.

Indeed, AirTran is committed to the market as its Midwest hub, announcing yesterday it is opening both pilot and flight attendant bases there in April which will include 50 pilots to support Boeing 737 operations. Clearly aimed at wrestling the home-town airline moniker away from Midwest, Air Tran indicated payroll at MKE will top USD6.5 million annually.

By April, AirTran will employ more than 300 crew members in Milwaukee and will support the growing Milwaukee hub with a pilot and flight attendant base, a line maintenance station, regional human resources, sales and community relations staff, and an airport station consisting of more than 200 customer service agents and other personnel, it said. The airline's total Milwaukee payroll is estimated to be more than $11.5 million per year.

"As we continue to grow our Milwaukee operation, we have reached a point where we need to add flight crew bases in Milwaukee to make our airline more efficient and to support the flying out of Milwaukee," said Kevin Healy, senior vice president of marketing and planning. "These new Milwaukee jobs further demonstrate our commitment to Southeast Wisconsin."

It does not, however, sound as if it will be hiring, further complicating the outlook for the Midwest Airlines pilots laid off as a result of Republic’s grounding of the 717s. Bedford indicated Republic saved USD3 million per aircraft when it substituted the Embraer 190s and the lower RJET cost structure. AirTran said its flight crews will have the option to bid for the Milwaukee positions based on seniority with the company. The airline notified its pilots and flight attendants of its plans on Monday, 28-Dec-2009.

AirTran enjoys a 25.09% passenger share at Milwaukee to Midwest’s 19.55%, Southwest’s 8.71% and Northwest/Delta’s 8.99%.

American Eagle, American’s regional affiliate will add service on 31-Jan-2010 to Dallas/Fort Worth bringing the total number of AE flights between the two points to five. However, at 2.90% market share it is not expected to make much of a dent with the aircraft it plans – a combination of 70-seat Bombardier CRJ-700 and 50-seat Embraer ERJ-145 jets.

Meanwhile, Midwest continues to build back with new service next April to San Francisco and Raleigh/Durham. The nonstops will be flown by Frontier’s A319s and Republic’s Embraer 170s, respectively. With the new service, Midwest will provide nonstop service from Milwaukee to 34 cities.

In addition to its latest announcement about its crew base in Milwaukee, AirTran also signed a deal recently with SkyWest Airlines, which has added the low-cost carrier to its stable of partners. SkyWest had been a Midwest Connect and in November enjoyed a 5.04% market share, surpassed only by the 5.64% of Republic’s Chautauqua. Sister company, Republic has a 1.10% market share.

In addition to AirTran’s new service to Dallas-Fort Worth and Washington National which launch on 06-Apr-2010, SkyWest will fly to heavy Business markets including Pittsburgh, St. Louis, Akron/Canton, Ohio, Indianapolis (RJET’s hometown), Des Moines, Iowa, and Omaha, Neb. The SkyWest service additions will be completed in February when it will offer 18 daily nonstops.

Perhaps the biggest splash made last year was by Southwest which announced it was adding Milwaukee and Wisconsin as its 68th city and 35th state. However, Southwest already has a Midwest hub at Midway so it is unlikely to build the point up to AirTran or Midwest levels. On 01-Nov-2009, the Dallas-based carrier added 12 daily flights to six destinations including three each to Baltimore/Washington and Kansas City (Midwest Airlines’ other hub), two each to Orlando and Las Vegas and one each to Phoenix and Tampa Bay.


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