The current year-over-year decline in revenue per available seat mile for Midwest and Midwest Connect are quite expected and not the sign of catastrophy. Why? Because of the signficant shift of flying fromm shorter haul to longer haul. Longer-haul flying has lower revenue...and lower costs.
The increase in average trip in August sounds relatively small at +8.3%. In fact that represents a significant shift. Here are the details, and how they affected revenue.
Here are the markets where Midwest mainline did less weekday flying in August, 2007 than in August, 2006, including the yield in cents per mile:
orig … dest … miles … seats … yield
MCI … PIT ….. 777 …. -88 … 19.38
MKE … EWR … 739 … -352 … 25.68
MCI … SAT …. 708 … -186 … 22.20
MKE … PHL …. 690 … -176 … 22.51
MKE … ATL …. 671 …. -88 … 19.63
MKE … MSP … 297 … -264 … 61.15
Weighted average of this reduced flying:
623 miles
27.38 cents per mile yield
Here are the markets where 2007 saw more August flying than 2006, again with stage length, seats and yield
orig … dest … miles … seats … yield
MKE … LAX … 1748 … 143 … 10.54
MKE … SEA … 1696 … 143 … 11.92
MCI … SEA … 1525 ….. 88 … 12.96
MCI … SFO … 1498 ….. 88 … 12.23
OMA .. LAX … 1329 ….. 88 … 13.65
MCI … BOS … 1255 ….. 88 … 14.49
MKE … FLL …. 1243 ….. 88 … 11.61
MCI … RSW … 1155 ….. 88 … 12.04
MCI … LGA …. 1094 ….. 88 … 19.18
MKE … TPA … 1075 ….. 88 … 12.72
MCI … MCO … 1075 ….. 88 … 13.12
MKE … MCO … 1069 … 143 … 15.21
MKE … DEN ….. 895 …... 30 … 16.63
MKE … MCI ….. 436 …... 88 … 46.80
Weighted average of this added flying year-over-year:
1269 miles
13.81 cents per mile yield
For a comparably small airline like Midwest, these changes are rather significant. The removed 2006 flying represted 10% of the ASM's in August 2006. The added 2007 flying represents nearly 21% of the ASM's in August 2007.
These numbers are for illustration and won't pefectly foot out to actual 2007 stats because they are weekday-only stats, they are 2006 actual local fares, and they don't account for difference in traffic composition (local vs conx). But they pretty clearly illustrate how much the structural change of Midwest's route system impacts yield. And it makes year-over-year comparisons problematic.
Midwest's route system structural changes have some predictable effects:
All else equal, this change should produce a notable drop in yield year-over year. That's simply from the added long-haul flying and reduction in shorter-haul flying. And they did see just that.
All else equal, Midwest should generally see an increased load factor since their long-haul flying runs above-average load factors. And they did see just that.
All else equal, Midwest should see a corresponding decrease in direct operating cost due to the lower cost-per-mile of long-haul flying. We won't be able to see if this came about until quarterly financials come out.
I doubt there's any other airline which saw nearly this much increase in their length of haul year-over-year, and if they did it likely wouuld have lowered their yield as well.
Revenue per available seat mile is simply yield combined with load factor. Most everybody's load factor is up year-over-year, more than enough to mask changes in yield (good or bad). But Midwest's yield was down enough -- at least in part due to the increased long-haul flying -- that RASM was lower than last year.
The same structural change in Midwest's flying that reduced yield and thus RASM had a similarly positive effect on cost. To lament a structurally-induced drop in RASM witnout recognizing that same structural change also benefits cost is missing half the story.
We can't know specifically how much Midwest's route structure change affected the decreased yield, versus how much is due to improving or weakening fares. But I think comparing May to August tells us something:
Midwest revised their earnings outlook and warned of a weakened fare environment in May. Here are May's stats, including year-over-year change:
May
Yield 11.97 (-8.7%)
RASM 11.09 (-6.7%)
Note that much of the Midwest network structural change I talked about earlier had not yet happened in May. So the pressure on yield and RASM in May was less affected by increase in haul. At about the same time as Midwest's warning of a weaker fare environment, a number of other carriers including Continental, JetBlue, Northwest, and USAirways reported weakness.
Compare May to August, with the full effect of added long-haul flying described above, in place:
August
Yield 11.99 (-7.6%)
RASM 11.29 (-2.9%)
Many of Midwest's route structure changes took place between 6/1 and 8/1, so if the spring weakness continued, actual numbers and year-over-year comparison should have looked a good deal worse in August than May. Yet it was a notch better. And so I suspect the fare environment has improved for Midwest this summer just as it has for Continental, JetBlue, Northwest, USAirways, and others. Midwest's change in route structure masks theres.
I won't go into any great detail on Midwest Connect, but their year-over-year comparisons are virtually meaningless. With RPM's up 158% year over year, length of haul up 36%, and nearly as many CRJ's as FRJ+BE1, it is a different airline. The large drop in yield and RASM refelcts this. There will definitely be a large drop in cost as well from longer hauls and large aircraft.
In neither case...Midwest nor Midwest Connect...do we know if the drop in cost will equal or exceed the drop in RASM that the structural changes have lead to. The net could indeed be worse...we don't know. But I think it is incorrect to compare Midwest's year-over-year RASM to other airlines without recognizing the big affect structureal changes in the Midwest and Midwest Connect route system, and how those also benefit the cost side.