Programs: Midwest Miles, Northwest World Perks, Alaska Air Mileage Plan, VX eleVAte, Airtran A+Reward
Posts: 1,039
Quote:
Originally Posted by BlueHorseShoe2000
Too bad some of the assumptions made by Boyd are flat-out wrong. For example:
"The decision - which is not without valid operational reasons - leaves the Midwest with very little long-haul capability to access the Western US from MKE. It also materially weakens YX at MKE competitively. Boeing 717s are great airplanes. But they're not capable of MKE-LAX or MKE-SFO service. Not having nonstop access to these key markets now makes Milwaukee wide open to competitive response. It also makes Midwest much less of a player at Milwaukee. And it means that Midwest will have no real choice - pending a new fleet mix - but to focus on Kansas City as an expansion point."
The elimination of the one daily non-stop flight to LAX and seasonal service to SEA and SFO will not materially weaken Midwest in the least. As knope has pointed out very well, those are leisure markets with junk yields. Losing those flights will not be a major blow to Midwest. As of right now, Midwest will still serve all of those markets via MCI. The higher yield business traffic and loyal Midwest passengers will continue to use those flights to get to the West Coast (especially if they're one-stop, same plane service).
It's interesting that Boyd talks about the huge loss Midwest and Milwaukee will suffer as a result of these cuts, but then immediately contradicts himself by saying the following:
"There's the belief that LCCs will benefit from all of the "gaps" as major carriers reduce capacity. It's veneer nonsense, because what's being cut is capacity, not major markets. Besides, the traffic demand being spilled off isn't economic to carry any longer, and much of that may vaporize in any case as $4 gasoline starts to take its toll on the household budget."
If the routes being cut are not profitable for any airline to operate, why does Boyd care if Midwest axes some of the low yield leisure flying?
Then there's this:
"Furthermore, the remaining fleet mix - 50-seat CRJs feeding traffic back and forth with 99-seat 717s, is not a recipe for low system ASM costs."
Much of the CRJ flying is point-to-point flying, carries a higher portion of O&D traffic than most legacy carriers receive, and generates significantly higher yields. I guess Boyd didn't take the time to analyze those routes.
Actually, iahphx, you haven't told us anything. Conditions have deteriorated significantly since last August. Every airline, including AirTran, is suffering at the moment. The AirTran cheerleaders conveniently forget how flawed AirTran's proposal was for Milwaukee. Nearly 40% of the flights were going to be operated with regional jets. Those didn't work for AirTran when times were good. Imagine how bad the economics would be for AirTran today. I'm sorry, but to suggest that AirTran wouldn't have been slashing service in MKE is absurd in the extreme. Every airline is cutting back these days. AirTran has announced capacity reductions as well. There's no reason to believe that MKE would have been spared. There's a real possibility MKE would have been much worse come this fall had AirTran succeeded.
Very texty Blue even for you
I see that you did not agree with this article. I can agree with some of your points. I would agree with your comment that Airtran would most likely be cutting flights.
I am not sure on how fuel efficient CRJ's are so I cannot comment on that point.
I would also agree with you that Midwest did not have much of a MKE to west coast presence for these cuts to matter much.
However these changes do leave midwest open to competition on routes to the west coast that they cannot defend which is not good.
Also, Midwest only has 25 717 and my guess is that they will have to make cuts in other places as well in order to add more flights to the west coast.
I am not sure who posted this but if Midwest makes cuts in business markets we will know how much trouble they are in. Right now it is too early to tell
Programs: Delta Gold Medallion,AA,USairways,Midwest Airlines, National Emerald Club
Posts: 1,437
Quote:
Originally Posted by YX802
What Tim said and what Seabury APG recommends may be two different things.
This is spot on. Why does management retain consultancy? 1) to get expert advice, or 2) to give oneself cover( my experts told me to do this), or both.
The Midwest business model is broken. No airline stays in business catering to the business traveler. While having enjoyed the 88 seat 717s tremendously, this model is not sustainable. The question is do the 99 seat 717s go far enough?
The legacies have difficulty competing against the LCCs for the liesure market , that is evident. Delta's and other legacies retreat from MCO and other Florida markets, legacy retreat from LAS, and Midwest's parking of its MD-80s(to be sure high fuel cost is a big consideration), but the unwritten subtext is that the legacies (including Midwest) are not competitive in the liesure markets against the LCCs.
So where does Midwest go from here? Standby, Seabury will tell us.
Location: NYC (CT suburbs), Gulf Stream, FL, and Seattle
Programs: CO Infinite Plat, AirTran Elite, AS MVPG, Delta GM, US PLat.
Posts: 2,918
Knope2001, thanks for setting me straight. Here, I thought TPG was a leveraged buyout firm, but that can't be, since they paid all cash. I guess they muist have raised the equity for this deal from some folks who didn't want a return, and had run out of storage space for the cash they didn't need. Then again, what's the difference. There probably isn't any debt. Why would an airline need working capital. Oh, and how foolish of me to think that NW, dumping routes like Indy to Denver, and codesharing with Midwest, over MKE, with at least half the legs flown by YX, doesn't constitute YX being used as a surrogate. Of course, with Midwest evidently finding that extra capacity by dumping routes like MKE-SEA, they are also simplifying the decison making process, especially for connecting passengers. As a customer flying from Boston,, NYC, Washington, etc. one no longer has to wrestle with a decision like, for the same price, making a choice between YX, with roomier seats, newer planes, nice onboard stafff, and a hub with gates close together, or NW with..uh....er..well, mature F/A's and planes that must be OK if they're still flying after a quarter of a century. Oh, and doubtless they have plenty of cash. Laying off alll those people was to giive them more quality time with their families. I should have checked with you first.
How was Midwest idiotic in rejecting Air Tran's bid? They got a higher price elsewhere with less risk (all cash vs. some cash + some stock).
Now Milwaukee may not have been best served by arguing to keep YX independent, which I think was the crux of Boyd's point.
That's the key. The board acted unanimously, and Hoeksema is only 1 vote. Together, they ALL voted in the best interest of the company and its shareholders. Remember, the board is elected by the shareholders and are "required" to act in their best interest. I don't think anyone, Mike Boyd included, could argue that this was not in the best interest of the shareholders. I think most would also have to agree, however reluctantly, that this was also in the best interest of the company and its employees.
What would have been in the best interest of MKE is possibly an entirely different story. Only time will tell if the current situation will be bad for MKE. And anything else is PURE SPECULATION and conjecture. No one can say that FL would be doing any better for MKE today or a year from now...that's simply not possible. One can argue that MKE may have been better off with the merger, but that's pretty difficult to conclude.
I don't think anyone, Mike Boyd included, could argue that this was not in the best interest of the shareholders. I think most would also have to agree, however reluctantly, that this was also in the best interest of the company and its employees.
I have come to my own conclusion like others in this forum that Mike Boyd just loves to see his name in print all over the internet. I bet he googles his name everyday just to see who is talking about him. I would like to ask one question to this bozo. Why is it that the people and politicians of Milwaukee are at fault that this deal with AirTran was not successful? Regardless of what we thought, if AirTran's offer was superior to all other offers on the table, then AirTran would be the owner of Midwest Airlines. My guess is that it was equally split for the people in Milwaukee between "For", "Against" and "Who Cares" if Midwest was merged with AirTran. Rant over!
Last edited by flyYX; Jun 24, 08 at 1:44 pm.
Reason: Typo
Knope2001, thanks for setting me straight. Here, I thought TPG was a leveraged buyout firm, but that can't be, since they paid all cash.
TPG is a private equity firm, it's well documented they did of course pay all cash ... of course, TPG's share probably came from one of the private equity funds they manage ...
Quote:
I guess they muist have raised the equity for this deal from some folks who didn't want a return
Yeah, the single largest backer of the deal many would argue had no interest in getting a return on their investment directly, only in gaining control of a competitor.
Oh, and how foolish of me to think that NW, dumping routes like Indy to Denver, and codesharing with Midwest, over MKE, with at least half the legs flown by YX, doesn't constitute YX being used as a surrogate.
Go to nwa.com and try to to book IND-DEN via Milwaukee and you'll see there is no such thing. That is an all-YX intinerary and is not sold as NW*.
Absolutely no Midwest capacity is being allocated to Indianpolis above what Midwest Connect has already been flying between MKE and IND. And as a matter of fact, MKE-IND is one of two MKE connect markets being cut from 4x to 3x next month.
I don't know where you keep getting the idea that Midwest is shiring capacity to Indianapolis to do Northwest's bidding. Please, share a source if you have something here.
Quote:
Originally Posted by deelmakur
Of course, with Midwest evidently finding that extra capacity by dumping routes like MKE-SEA, they are also simplifying the decison making process, especially for connecting passengers. As a customer flying from Boston,, NYC, Washington, etc. one no longer has to wrestle with a decision like, for the same price, making a choice between YX, with roomier seats, newer planes, nice onboard stafff, and a hub with gates close together, or NW with..uh....er..well, mature F/A's and planes that must be OK if they're still flying after a quarter of a century.
Apparently you're not aware that Midwest carries very little long-haul connecting traffic, and the elimination of west coast nonstops from Milwaukee won't change that much. However Midwest will still be able to offer customers a 1-stop connection with roomy seats, newer planes, nice onboard staff, and a hub with gates cose toghther. It's called Kansas City.
Quote:
Originally Posted by deelmakur
Oh, and doubtless they have plenty of cash. Laying off alll those people was to giive them more quality time with their families. I should have checked with you first.
No need to check with me first. It's an open message board and you can post as you wish. However you can expect you postitions to be challenged, especially if they don't seem to be well supported by facts.
Also, Midwest only has 25 717 and my guess is that they will have to make cuts in other places as well in order to add more flights to the west coast.
I am not sure who posted this but if Midwest makes cuts in business markets we will know how much trouble they are in. Right now it is too early to tell
There is a decent amount of slack in the 717 schedule which Midwest *may* use to offset some of the M80 flying. That includes the parked aircraft which came in the May schedule cuts. If Midwest restores the 717 fleet to 24 lines of flying and increases utilization a bit, they can continue all their nonstop markets except MKE-west coat, keep nearly all their business markets at current frequency, and even add a bit of MCI-west coast flying to handle some of the MKE spillover. There would be a couple of small trims (a few markets losing one flight, and just a couple 717 trips downgraded to CRJ) but it could be done.
Of course we don't yet know their new schedule plans, and based on the normally-weak fall season coming, the recession, and the added capacity coming to the 717's with "Midwest Class", they might not be as immediately aggressive in using 717's to the maximum to backfill. I think that the whole industry is kind of holding its breath to see what demand will be like once the kids go back to school.
As for the business markets, I do think we'll see a reduction here and there based on lower overall demand this fall and winter. But I'd be surprised to see any *widespread* cutting of business markets beyond perhaps a few Connect markets that just didn't justify the upgrade to CRJ.
Here's an internal employee communication distributed widely at YX. It gives us some expanded information on what's up:
Update:
To: All Midwest and Skyway Employees
Date: June 24, 2008
From: T.E. Hoeksema
Subject: Follow-Up to Friday's Meetings
I want to thank everyone who took the time on Friday to come to one of the employee meetings or view what we had to say about our situation. I hope the critical nature of our situation is clear. I hope also that in the midst of this news you will remain, as I do, confident in the resiliency and future of Midwest Airlines.
There are two basic but critical linchpins to the plan that I want to make sure you understand:
First, everyone who is a stakeholder in our airline must come to the table and make contributions to this plan. As I said on Friday, there is no 90 percent solution.
The second is how it needs to come together, because if we cannot resolve each piece that is part of the plan in the proper sequence of events, it will not work.
We will be able to obtain additional financing from TPG to secure this plan, but only if the plan -- a full and permanent solution -- comes into place. Additionally, several of our larger business partners (Boeing, SkyWest, Rolls-Royce) are willing to discuss serious concessions, but only if what we are asking of our employees, including our labor unions, is agreed to. We have begun that process by meeting over the last two weeks with the Airline Pilots Association and the Association of Flight Attendants, asking each for significant, but fair and equitable, concessions. Non-represented employees will make significant, but fair and equitable, sacrifices as well.
The plan has several basic components: fleet, network/routes, labor costs and fuel costs/initiatives. The decision about the MD-80s is the most significant action in terms of changes to our fleet.
On Friday I committed to sharing additional details with you this week. I hope that the attached Q&A is helpful in adding context to our discussion. We will communicate additional information on actions that are part of this plan to you candidly and as quickly as we can, as our decisions are finalized.
Thank you.
Question and Answers
Restructuring Plan
June 24, 2008
Overall Restructuring and Action Steps
Q: What are the other actions we'll be taking as part of this restructuring?
A: Our plan is comprehensive, involving actions such as the MD-80 announcement we made Friday as well as assistance from our vendors, suppliers, labor unions and each employee group. The analysis and plan that Seabury is assisting us with has left no stone unturned with our overall operations and will contemplate fleet, route and schedule changes, as well the size of our employee base.
Q: Why couldn't the company tell us on Friday exactly what's happening?
A: The action steps and a profit and loss financial analysis are still being finalized this week. As final decisions are made, we commit to communicating them to you quickly and with transparency, so you can see how the plan must work together in its various parts.
Q: What is the timeframe for this restructuring?
A: Within the next 30 days.
Q: Why does this need to happen so quickly?
A: To make sure we have the cash level necessary to operate.
Q: Wasn't the last round of reductions enough?
A: Unfortunately not. Oil prices shot up $15-20 per barrel since then. Each dollar increase represents additional fuel costs of $3.3 million annualized.
Q: Couldn't management have seen this coming?
A: The environment is so unpredictable and fluid that really no one could have. Most airlines built their 2008 budgets on oil in the range of $80-90 per barrel. It now stands at $130-135 per barrel, and no accurate trend line or reliable guarantee of future pricing exists.
Q: What is the long-term vision for Midwest as part of this plan?
A: Leaner, stronger and in a position to be profitable with oil in the range of the mid $130s per barrel, yet with us remaining true to our mission -- a business-focused airline driven by superior customer service and holding true to the values we have lived by since 1984.
Financial
Q: Are we headed toward bankruptcy?
A: We believe this plan will allow us to avoid bankruptcy. We are voluntarily restructuring – and in doing so controlling our own destiny instead of giving that power to a bankruptcy judge. Although we can't rule out a filing under federal Chapter 11 statutes, it would be a longer and costlier process with less predictable outcomes.
Q: What is the role of TPG in this restructuring?
A: Our ownership is extremely supportive of this plan. Our board is being continuously updated on our progress. Some employees may be wondering why TPG can't just inject some additional financing to help us through this. They have agreed to provide additional support in the interim, but they need to see a workable plan so their investment makes sense. Remember, they acquired us to be a profitable venture so their investment pays back as well. That's a fair agreement.
Q: What if one of the pieces of this plan doesn't come in to place?
A: Then it risks failure -- particularly the components that require quick, significant cash relief.
Q: What if oil prices rise above the mid-$130s per barrel?
A: All airlines are in turmoil now with oil prices where they stand. If oil hits $150 a barrel or higher, then the entire industry will be forced into a position where operating would be extremely difficult. This is our best estimate of oil and other costs moving forward. We're identifying a figure at which we can operate, hopefully at a profit, instead of playing a lot of "what if" games and not moving ahead. Doing that would seriously imperil our future. The time to act, with the information we have, is now.
Fleet and Routes
Q: Why are the MD-80s being taken out of service?
A: They are fuel-inefficient and used to serve long-haul, leisure markets, which will be the sector of our industry most affected by the soft economy. With energy costs affecting most Americans in their everyday lives, leisure air travel is most likely to be one of the first options taken out of a family's budget.
Q: Will we still be implementing seating choice/one-cabin on the Boeing 717s?
A: Yes. We believe that this is still a good strategic option for us, so we'll continue our plan to have it up and running in fall.
Q: Is Midwest Connect affected?
A: Yes. As the mainline network is adjusted, we will not require as many connecting flights. We're in discussions with SkyWest and will have details on this in the near future as well.
Q: What is the impact on charters?
A: We're discussing the use of Boeing 717s with our charter customers. There might be some seating reconfiguration of the planes as part of these discussions. The good news for charter customers is that they generally pay for fuel as part of their agreements with us, so a 717 will consume less fuel and be more cost-effective for their operation.
Q: When will we be taking the MD-80s out of service?
A: Fall, without a date certain.
Q: Will we hold on to them in hopes that we can return them to service?
A: No. We'll work to sell them (we own five outright) and work with lessors to return them. Unfortunately, there's not an active market for these planes so their value is depressed, particularly as other airlines look to dispose of their MD-80 fleets as well.
Q: Are we looking at other aircraft types for long-haul flights?
A: We may look at other fleet options for direct flights from Milwaukee or continue to serve the west coast markets via Kansas City with Boeing 717s. We're in the process of nailing down the schedule and these decisions.
Q: Are we concerned that competitors may step in if we change our long-haul flying?
A: Competitive activity is always top of mind, so we'll make sure that we address this in a way that makes economic sense for us. That said, most of our competitors are doing exactly what we're doing by removing unprofitable capacity and lines of flying. With today's fuel costs, long-haul, leisure flying doesn't make economic sense for any airline, even those with highly fuel-efficient planes.
Q: Will we become a low-cost carrier or a regional airline?
A: We have always defied conventional definition, so we don't take stock in these types of descriptors. We will have a low cost structure to compete in this new energy economy. Midwest Airlines and Midwest Connect will continue to operate in partnership to offer quality service to business destinations.
Employment, Compensation and Benefits
Q: Will more people be losing jobs?
A: Yes. Unfortunately, there's no way to achieve the depth of restructuring we need without additional furloughs and position eliminations. At this point, we don't know the total number of employees or who will be affected, but we are working as quickly as possible to answer these questions so employees know where they stand. We know how much money must come from the organization and its work groups to make this plan work, and are translating these figures into what they mean from an employment standpoint.
Q: When will we know?
A: Our goal is within the next two weeks.
Q: How will determinations be made on which jobs are going away?
A: Determinations will be based on the size and scope of the airline and the number of employees that we need to operate in this environment. Every group will be affected.
Q: What are we asking for from each union?
A: We are asking each group -- pilots and flight attendants -- for significant contributions. The request made of each group is fair and equitable. Fair and equitable means applying the same standard to each work group and setting everyone's compensation to the market. That means benchmarking against airlines of similar size that fly similar size aircraft.
Q: What if the unions do not accept concessions?
A: Then our plan will not work. Over this past weekend, we presented the Airline Pilots Association (ALPA) and the Association of Flight Attendants (AFA) specific requests for concessions and productivity improvements, as well as detailed financial information on our current situation. We told them that we needed a commitment to begin negotiations this week, so we will know soon.
Q: Will there be pay or benefit cuts?
A: Yes. Every employee will be asked to sacrifice once again, by making fair and equitable contributions.
Q: Will officers be taking a reduction?
A: Yes, officer contributions will be based on market factors and equitable to what other groups are being asked to do. This reduction will be part of the overall employment plan we will be communicating in the near future.
Q: I'm concerned that Midwest is becoming a strictly numbers-driven, not people-driven, organization. Is this true?
A: These are difficult times, the most challenging in our history. The decisions are hard and we will do our best to adhere to the values we established 24 years ago and the nature of our company as a team-based, customer-focused airline that is known as a special place to work. Our goal is to retain those characteristics while finding a way to be profitable in the current energy environment. This will not be easy. We welcome advice and counsel from employees through this course of action.
Will there be route/schedule/station changes in 30 days or is that the timeline for changes to be announced? I saw the mention of the MD-80 date being "fall" but does the "30 days" mean they might do changes to the 717/CRJ flying effective in 30 days? I have a mid-Aug. trip booked OMA to BNA..was wondering..
30 days?
