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Chicago Midway to become an LCC hub, as Southwest, WestJet team up

15-Jul-2008
Southwest CEO, Gary Kelly
Southwest CEO, Gary Kelly
  • Midway expected to be a key international transfer point;
  • Midway is currently Southwest's second-largest base;
  • Southwest controls 87% of total weekly seats;
  • Traffic growth expected to weaken in 2008, though long-term prospects are bright;
  • Final bids for Midway lease due 3Q08 – bidding expected to be intense.

The City of Chicago’s privatisation of Midway Airport received a boost last week with the announcement of the first major foray by US LCC grand-daddy, Southwest Airlines, into international markets. It will do so with the help of Canadian LCC, WestJet, in a comprehensive codeshare alliance covering both carriers’ networks that will be finalised by late 2009.

Southwest and WestJet are the two shining stars in the gloomy North American aviation sky – they have healthy balance sheets and continue to expand and take market share away from their beleaguered full service rivals.

Midway is expected to be a key transfer point for passengers traveling between Canada and the US initially. But Southwest also has plans to add services to Mexico, Hawaii, the Caribbean in the next two years, and eventually expand to Asia and Europe.

CEO, Gary Kelly, stated last week, the WestJet deal will create a "hub-like effect, without us having all the trappings and inefficiencies of a hub-spoke system”. He added, “you could have many more destinations being added to Midway by one or two codeshare partners”.

Chicago's Midway is currently Southwest's second-largest base, but it could become its biggest operating centre under the codeshare arrangement. Southwest already dominates the airport, with 87% of total weekly seats.

Chicago Midway International Airport capacity share (seats): week commencing 14-Jul-08
.
Source: Centre for Asia Pacific Aviation & ACI

Traffic at Midway has been weaker this year, with only two months of year-on-year gains in the first five months of 2008.

Chicago Midway International Airport total passenger numbers and passenger number growth: Jun-07 to May-08
.

Source: Centre for Asia Pacific Aviation & ACI

The outlook is for further traffic weakness this year, but the presence of Southwest means Midway is unlikely to experience the deep service reductions of other major airports across the country under the planned post-Summer pullbacks by US carriers.

Midway’s longer-term outlook is bright, reinforced by the alliance between North America’s two strongest carriers. This should be reflected in bidding for the long-term lease of Midway. The rare US privatisation opportunity has already attracted a world-class list of potential investors. The following bidders presented their technical and financial qualifications when the RFP period ended on 31-Mar-08:

  • Abertis Infraestructuras SA (Barcelona, Spain), Babcock & Brown Group (Sydney, Australia), GE Commercial Aviation Services (Stamford, USA);
  • AirportsAmerica Group, consisting of Carlyle Infrastructure Partners LP (Washington, DC);
  • Chicago Crossroads Consortium, consisting of Macquarie Capital Group Limited (Sydney, Australia), Macquarie Airports (Sydney, Australia), Macquarie Infrastructure Partners (New York, USA), Macquarie Infrastructure Partners II (New York, USA);
  • Chicago First Consortium, consisting of HOCHTIEF AirPort GmbH (Essen, Germany), GS Global Infrastructure Partners I, LP (New York, USA), HOCHTIEF AirPort Capital GmbH & Co (Essen, Germany);
  • Midway Investment and Development Corporation, consisting of YVR Airport Services Ltd. (Vancouver, Canada), Citi Infrastructure Investors (New York, USA), John Hancock Life Insurance Co. (Boston, USA);
  • Morgan Stanley Infrastructure Partners (New York, USA), Aeroports de Paris Management (Paris, France), HMSHost Corporation (Bethesda, USA).

Final bids will be received in 3Q08, with the closing expected in 4Q08. Bidding will be intense.


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