Will Midwest Airlines be able to weather the storm?
Midwest Airlines is betting that the reputation it has built over the past 19 years will keep business travelers flying the Milwaukee airline despite its recent moves to cut some of its lucrative services and start a separate low-fare airline.
"They people that fly Midwest are loyal, more so than with any other airline in the country," said Phyllis Schumann, senior editor for travel for Runzheimer International, the management consulting firm based in the Racine County village of Rochester. "But they are looking for options for survival. They needed to do something. But I don’t think their intent is for the level of service to be less."
Midwest has made several moves in recent weeks to try and prop up its financial picture. All of the moves are attempts to stave off bankruptcy in a time when all airlines across the country are struggling financially. The airline is also very aware that it doesn’t want the changes to scare away its existing customers.
"This is very serious, and we are taking the steps we believe are necessary," said Carol Skornicka, Midwest’s senior vice president and legal counsel. "It is going to take a lot of work, but we are confident we can improve our financial situation."
Those steps include starting the yet-to-be-named low-fare airline, attempting to suspend lease and debt payments on a majority of its airplanes, cutting meal services, implementing pay cuts and furloughing as many as 430 employees, about 13% of its work force. Midwest Express Holdings chairman and chief executive officer Timothy Hoeksema said the airline needed to guard against a further decline in the company’s cash position in the face of record-high fuel prices, the threat of war and a poor economic climate.
The new low-fare carrier will be launched between July and the end of September with five of the company’s airplanes, which carry about 145 passengers each. It will offer flights to vacation destinations at low fares that leisure travelers expect.
Skornicka said the company is working to ensure the message it is sending with new airline does not drive away the business customers that have made the airline popular. Some travel industry analysts have been critical of the decision, with one saying it was like trying to run a fine-dining restaurant and a McDonald’s at the same time.
"It is going to be a challenge for us to make sure customer expectations are managed, because the business traveler has been our bread-and-butter for the past 19 years," Skornicka said. "Both airlines will not be flying the same routes. You will know that if you are going to New York or Washington, D.C., you will be flying our premium product. We want to have a close enough connection between the two airlines, but not close enough to confuse people."
Midwest, which is based at Mitchell International Airport, serves more than half of the 50 largest metropolitan areas and is the dominant air carrier in Milwaukee.
Peter Beitzel, vice president of business development for the Metropolitan Milwaukee Association of Commerce (MMAC), said it is unlikely business customers in Milwaukee will be confused because of their familiarity with Midwest, but that may not be the case in other areas of the country.
"They are going to have to make sure not to mix markets," he said. "How they manage and market the new airline will be very important."
Schumann said she did not believe the decision to eliminate meals would impact business travelers. Instead, it will depend on whether the airline can make its fares competitive with other major airlines.
"It is really driven by fares," she said. "The meals were one of the nice perks, but most business travelers frequently get a meal at an airport."
Skornicka said Midwest was confident it would be successful with a low-fare carrier because it was going to using its existing infrastructure and was not starting a new airline from scratch. She said the company had done six months of research before making the decision and was confident it would be successful.
An alternate decision would have been to stop serving markets where the low-fare airlines, such as Southwest Airlines and JetBlue, dominate because Midwest could not compete on fares, she said.
"We decided we didn’t want to get left in the dust," she said. "We want to play in the same arena and offer a product that can compete. Our upfront investment is going to be very modest. We are going to use the same people and the same aircraft we already have. And we planned to offer the same quality of care and customer services that we are known for. It’s about execution because we believe we have the best employees in the industry. We know in the end, our future lies in how we execute our customer service."
Business travel has plummeted since the terrorist attacks on Sept. 11, 2001, with no signs of it picking up the near future. Schumann said many businessmen have cut back dramatically on travel and are searching for lower fares when they do travel.
"People traveling on business have become much more value conscious," Skornicka said. "They are as cost conscious as leisure travelers are."
And with the uncertainty of war in Iraq, business travel, and travel in general, is actually projected to decrease again.
"Right now, it is a questionable market for everyone because of the potential for war," Schumann said. "If in fact we do go to war and it is long, it will be the demise of a few airlines."
Added Skornicka, "During the first Gulf War, several airlines were almost forced to shut down. If there is going to be an engagement in the Middle East, we need to get it over with. A prolonged war would be absolutely devastating to the entire industry."
Midwest does not want to be one of those airlines, which is why it has taken the steps it has, Skornicka said. She pointed to the recent delivery of the first of 25 new Boeing 717-200s airplanes and its plans to acquire 50 new regional jets for its connector airline, Skyway Airlines, over the next several years.
Skyway is replacing some of its fleet with the 36-seat Brazillian Embraer, aimed at helping the airline grow in the future. The airline serves many smaller Wisconsin cities as a commuter airline to Milwaukee’s Mitchell International Airport.
"Skyway has been suffering too, but not to the extent of other airlines," Skornicka said. "There was an explosion of interest in regional jets in the late 1990s because they offered flexibility and were economic. That continues to be true."
Skornicka even said Midwest was exploring the possibility of "replicating the Skyway model" in other parts of the country.
Beitzel said Midwest’s continued existence was vitally important to the Milwaukee area. He said Mitchell International Airport was the area’s most important infrastructure and Midwest was its number one airline carrier.
"If you took them out of the picture, it would leave a gapping hole," he said. "We would have to scramble to make that up. But in the short-term it would be very problematic for the Milwaukee area."
For that reason, Beitzel said it was likely MMAC officials were going to encourage its members to use the airlines in the coming months through an organized effort.
"The situation right now for Midwest is survival and it is important that as a business community, we back them," he said. "Their survival is very important to this community."
March 21, 2003 Small Business Times, Milwaukee
