And we know what happened to him.

In his letter, Bedford mentioned that the elimination of the FL* SkyWest flying is a positive development but likely would do little to address the "situation" Frontier faces in Milwaukee.

Given that Bedford has publicly stated Milwaukee has lost a significant amount of money, I don't think it is "flippant" to suggest more aggressive action is needed there to right the ship.

The real question the Board has to be asking is can a hub operation in Milwaukee work in a high fuel price environment where over 60% of flights are operated by high CASM regional jets. What specifically needs to be done to make Milwaukee at least marginally profitable?

This is the third major schedule change Frontier has undertaken to address the lack of profitability in Milwaukee. Last winter, they reduced capacity significantly in many markets vs. 2009, operated some routes less than daily, used larger aircraft with lower CASM, etc. all in an effort to stop the bleeding. It didn't work.

Obviously the environment in Milwaukee is much more complex and there are likely long-term strategic issues at play here as well. However, time is running out. Frontier can't keep throwing good money after bad in Milwaukee. If Southwest doesn't start making some changes (both from a scheduling and yield standpoint) Frontier will have to start making some very difficult decisions in the near term.

I think this is a key point in the discussion here. WN appears to be in a much better position to "wait it out" in Milwaukee. WN's financial future does not hinge on two hubs like DEN and MKE.

While WN's main priority isn't necessarily to put the squeeze on F9 in both DEN and MKE. They have bigger fish to fry on intergrating FL and getting their arms around ATL. But, in the process, an ancillary consequence might just be that F9 is forced to squeeze in both hub cities. Icing on the cake for WN.

It is interesting to see that the whole notion of getting rid of the WN/SkyWest partnership and the possible shifting of slot controlled flights from MKE to MDW or elsewhere appears to not be a top priority at all right now. The longer this drags on, the worse the results will be for all carriers at MKE. Of course, the longer this all drags on, the better it is for the flying public at MKE. I'm still astounded that the huge passenger growth at MKE has been sustained. It's gotta drop off a bit this fall.

This year, I concentrated most of my flying with Frontier in hopes of making Elite by the end of the year. I'm halfway there, but this article sent chills down my spine. Even if I did make Elite this year, odds are Frontier will be in a radically different form in 2012, making the Elite benefits a huge question mark. So, it's off to United. I just pulled out of a F9/AirTran DEN-MKW-BOS roundtrip where I had to connect and booked a DEN-BOS nonstop round trip on United. I know that I won't be able to make Premier this year, but I also know that they will be around next year. As for Frontier, I enjoyed the stretch seating upgrade option, the mostly friendly crews and counter agents (except for that one DEN-ABQ run where the FA was a real -itch) and I even put up with the variable service levels once outside of their DEN hub (LAX and SFO operations leave a lot to be desired.) I hate Southwest enough that it really has to be a last resort before I will hop into Cattle Class. I had really hoped that Frontier would make it, but now it looks like the sun may be ready to set. I feel sorry for the thousands of F9 employees here in the Denver area, but we all live and die by the talents and decisions of our company leadership. In their case, some poor choices were made (or not made) in a very competitive market that were compounded by harsh economic factors. You gave it a good go Frontier!

My use of the word “flippant” wasn’t to suggest that Milwaukee should be immune to cuts, and to be frank it was aimed at some participants on the airliners.net board (where I also posted this) who tend to be dismissive. The point was to as specifically, what additional flying should be cut of what remains at Milwaukee.

There are other reasons why I’m not sure exactly what of Milwaukee really to further cut:

(1) Frontier has already cut many of the biggest money-losers in Milwaukee. And not everything at Milwaukee is an overall loser.

(2) The non-RJ operation is at about 30 or so flights per day, and that will fall a bit further after labor day. There’s not all that much to cut.

(3) The RJ operation – which would seem an obvious source of cuts with $100bbl oil – does not appear to be on the block. (More on that below.)

So that’s why I ask what to cut further at Milwaukee, and why I went through the list of every segment of the operation. I don’t think it is especially clear or obvious.

At the 30,000 foot level, of course one would tend to point to the RJ operation as a big source of the red ink. Fuel is high, and RJ’s are comparably rather fuel-inefficient. But they don’t seem to be targeting large RJ cuts. And there are some things which suggest that the RJ operation isn’t as big a financial drain as conventional wisdom assumes.

--The cost of F9* operation to Republic is a notch less than typical because most major airlines pay a guaranteed profit to the regional operator off the top, making it harder for them to break even with 50-seat RJ’s. That’s not an issue for Republic.

--Local yields in several RJ markets are remarkably high, and can offset the higher cost-per-seat-mile of the RJ. Here are some MKE average Q3 2010 one-way fares (all carriers)

Newark $238, versus $115 to LaGuardia
Cleveland $237, versus $104 to Pittsburgh

Obviously the larger aircraft flying LGA are a lot cheaper per seat then the RJ’s flying to Newark. But is the cost more than double? Nowhere near that.

The illustration of Cleveland versus Pittsburgh shows how much difference there is within the segment, and why I think it is misguided to lump all RJ flying into a single category (as some pundits do) and dismissively label it as bad. This also illustrates how significantly the removal of FL* service can be. Of course higher fares will lead to traffic volume decrease, but the current situation has been losing money on every passenger but making it up in volume, as the clich� goes. Having Skywest out of the market and no longer charging $96 and change (the actual average MKE-PIT fare for Skywest) will cut losses for Frontier. Not just PIT, but the other four competitive FL* markets, too.

--Although there is understandable suspicion (justified or not) that the branded operation essentially is the dumping ground for surplus RJ’s, it’s worth noting that they are not afraid to park at least some excess RJ’s because they already do just that, and the end of MKE-RDU parks another RJ. Yet they are apparently choosing to continue to keep significant RJ numbers in the F9* operation.

Given these things, and combining them with pretty clear indication that the F9* operation is not being shut down, my conclusion is that it’s not the RJ operation, as a whole, which is the main source of drag in Milwaukee. I’m certainly not saying that F9* is exactly a profit center, and clearly some routes do a lot worse than others. But if it’s not primarily the RJ’s, then it’s the Airbus/Ejet system where the substantial losses are.

So....if we look at the Airbus/EJet system since Republic bought Midwest and Frontier, there are several places where they probably have racked up real losses

East Coast: The east coast business markets were very heavy with the E170, and while they ran relatively full, the yields were probably money-losers even at 100% loads on the E170. Then they switched to A319 to match or even surpass AirTran’s CASM advantage, but did so just in time for the traffic-weak winter, losing money with efficient but half-empty planes.

West Coast: The west coast has industry-bottom fares, and I don’t doubt everybody loses money much of the time.

Florida: Florida was seceded to AirTran back in 2008, and while Frontier does fine in the peak travel season, they flew far too many empty seats until early February (outside of the holiday periods.) Some of that was due to total overcapacity to western Florida, and some of that was likely due to the switch to PIE. AirTran and especially Southwest probably didn’t do as well as they would have liked in that period either, but Frontier definitely didn’t do the types of loads they needed in the early season.

Other: The cost disadvantage of the E170 to Kansas City, Dallas, and notoriously Tampa, pitted them against AirTran and Southwest costs advantages as well. Yields were perhaps not as cut-throat as they were to the east coast, but considering that AirTran pulled Dallas, and that Southwest reduced Kansas City and seasonally-pulled Tampa, Frontier probably did even worse with notably higher costs.

I’m not saying that all of these Airbus/Ejet segments never had periods of profit – some undoubtedly did. But I think those are the bulk of the MKE losses. And if you think about how often BB has pounded home that the E170 is not the right aircraft for the branded operation...think where the E170 as mostly flown. Though it has been used here and there out of Denver (including a nubmer of non-LCC markets like COS, ICT and BIL) the E170 has until recently been a mainstay in Milwaukee. It's in Milwaukee, primarily against FL and WN, where the ecnoomic disadvantage of the E170 has been most apparent and costly.


If there’s one more piece to suggest that it’s the Airbus/Ejet segment creating the bulk of the loss, take a look back at how much they’ve monkeyed with each part of the MKE system:

--The Airbus/EJet routes have seen many changes in frequency and in aircraft in the past 12-18 months. That of course includes the big schedule change in November which adjusted the banks, but also numerous changes in aircraft and other adjustments.

--The RJ routes have been rather stable in comparison. Last November’s change in banks lead to associated RJ changes, but that was driven by the Airbus/EJet schedule goals…they didn’t adjust the big markets to accommodate RJ needs. The only other notable RJ adjustments were some cuts in a few markets where Skywest killed yields.

It stands to reason that adjustments in frequency, timing and aircraft would be in segments where they are trying to fix a problem. And where has the repeated tinkering been? Not the RJs, but the Airbus/EJet markets.


Now let’s address those Airbus/Ejet segments.to see where they are headed.

East Coast: These business markets need Airbus in summer and E190 in the off season. Competitive CASM through the year, but lower capacity in winter to not suffer slaughter when the traffic slows. If FL/WN pulls back, this segment will improve dramatically, but even if they don’t, the changes already made are already making this segment perform much better than it had.

West Coast: The severe cuts in this segment will save millions.

Florida: The early season has been cut back sharply outside of the holiday periods, flights which last year often ran 40-55% full. More loss averted.

Other: The end of FL service to Dallas eases fare pressure (AA is not a low-fare carrier), and the transition from E170 to E190 to Kansas City will help better succeed with Southwest fare pressure in the market.


So in my opinion, the bulk of the losses in Milwaukee have not been from the RJ segment, but from the Airbus/EJet segment. And when one looks at the changes which are *already* in the works for Milwaukee will provide a great deal of improvement. And based on all of this, I am not expecting a great deal of additional Milwaukee cuts at this point.

One final item. The leaked content of Bedford’s presentation to the board the other day include targets for $120m in annual cost savings. The amount of that total expected from route and network changes is relatively small…about 20% of the total at $25m annually. That comes to about $2m/month, and that savings *includes* the benefits from the replacement of E170 / A318 / E135 by more efficient aircraft. Although I don’t know exactly how much of that $2m/month is anticipated to come from those fleet changes, the already-announced changes (which include changes in Milwaukee, as well as Denver and Kansas City) probably account for much or most of that savings. Had they instead proposed a plan where the large majority of savings was targeted to come from route/network changes, that would suggest a lot more changes were on the horizon.

Fair enough. I didn't see your posts on airliners.net until this morning but saw things were starting to get a little "heated" over there, lol.

Overall, it's hard for me to disagree with your analysis.

My concern about the RJ operation in Milwaukee is based on comments Bedford recently made about not being able to make money on any flight with the E170 or smaller aircraft in the current oil and revenue environment. That sounded pretty alarming given that neither situation is likely to change in the short-term (and high oil prices are likely going to be the new norm). With that said, sometimes what Bedford says is more of a generalization so it's entirely possible some flights are currently in the black and the real problems are elsewhere.

As far as what changes should further be made to the MKE hub, I'll offer the following thoughts:

1) Make connections for passengers originating in some of Frontier's Western network easier with better schedules/frequency. This is especially true for routes like BDL, EWR, PHL, PIT, etc. Essentially passengers not living in MKE or key feeder cities have only one flight per day to choose from. Having, say, three well-timed flights in each direction should increase the appeal of Frontier to a wider passenger base and allow them to get some decent connecting traffic which in turn will make the MKE hub stronger overall.

2) Florida. Frontier should switch PIE back to TPA and operate it with an E190 during non-peak periods (perhaps 5x per week during early fall). FLL should be a decent enough market to be flown daily from December-August. The route could also do well if it's operated on weekends during non-peak periods with flights timed well for cruise traffic. Alternatively, Frontier could investigate adding MIA service (it has the potential to be a good route from DEN and MCI as well and avoids direct competition with Southwest).

3) Increase frequency AND use larger aircraft in the key feeder markets of OMA, MSP, MSN, and GRR. MSP in particular is one market where Frontier could capture even a larger share of the local O&D market with a few better timed flights.

If they would undertake any of the above, I certainly don't expect to see any of the changes before next spring.

As I mentioned earlier in this thread, it appears as if Southwest is preparing to make some changes to the FL schedules around November 21st. That is the date they announced DFW service would end. It also seems likely that some of the DCA and LGA slots could be allocated elsewhere around that timeframe as well.

If there are no major changes to the competitive and revenue environment in MKE by next spring, then all bets are off.

As a subsidiary of Republic, MKE will eventually become "just another station" in the F9 system.

Republic's business model is the problem. There is not sufficient demand for Republic's product in MKE to make it profitable. Republic does not have sufficient economies of scale, a business-focused strategy, or a substantial FF program required to be a successful airline. While my contribution is anecdotal, it seems that Republic can't attract high yields because they don't offer what travelers willing to pay high yields want: business class, lots of frequency, and an international FF program. BB can tinker with timing, aircraft, etc., but no matter what he does, his product doesn't demand the revenue required to be profitable.

MKE cannot support two airlines. WN knows who they are in MKE: a leisure airline. With FL disappearing, I suspect most of the higher yield traffic will defect to DL or UA (if they haven't already). YX was successful as long as the economy was good. Combined with the NW partnership, they offered enough value to generate profit. Once the YX product became diluted (Signature/Saver implementation was a disaster), value evaporated, and they failed.

Soon enough, MKE will become what it was in the pre-YX days: a substantial DL (formerly NW) station, with non-stop service limited to high yield business destinations (LGA, DCA, etc.), or hub feed (eg. DL to ATL/DTW/MSP, US to PHL/PHX, etc.). WN will be MKE's leisure airline.

BB will replace Airbuses with E175s/190s. While individual aircraft CASM may be higher than the Airbuses, F9 crew costs are probably the loss-driver. Also, the money losing stations served by the E140 family have got to go. Look for many of the MKE-feeding stations to disappear (ATW, etc.).

I predict that F9 will eventually end up in a JetBlue/Virgin/Frontier 3-way deal. Consolidation is the path to survival.

With the current financial issues Republic seems to be currently having, is code sharing with another airline a possibility? From what I know it is an expensive process for all airlines involved. Would another airline want to invest in it if they think it would not last due to the financial issues? Does Republic want to shell out that much cash to support a code share if cash is tight?

RAH has place an order with Bombardier for 50 CS300's to replace the A320 series aircraft as the leases begin to expire in the next 4-5 years.

I wouldn't rule out Alaska Airlines either. They may want to move Eastward and fill in their route map someday.

And YX placed an order for E145s to not only replace the DO328s and 1900s, but pave the way for the E170+ family. That never happened.

I'll believe the C-Series plan is serious when the first revenue flight pushes back from the gate in F9 (or even Republic) colors.

Knope what does this do to your prediction of what FL/WN out of MKE will be like? Expand in a predatory, virtually sure kill manner ensuring a MKE future or still downsize?

or for that matter what about DEN?

F9 got into bankruptcy because of cashflow. 100% credit card holdback and dwindling unrestricted cash.

Right now F9/YX via RJET is at 95% holdback and dwindling reserves facing high fuel prices and a huge mountain of debt.

As a brand in hindsight they might have been better with F9 alone. They had the cash to do it but trying to merge F9 and YX probably was overreaching.

But in a self fullfilling light grabbing YX was a deal to put RJET planes to work for a win-win. And now that attempt risks all.

Best chance for RJET survival is another airline that runs similar Airbus metal buys not F9 but Airbus metal and gates. And since the players are limited it's a buyers market. Something which RJET can't refuse to look at.

Not likely since the codeshare would suffer the same holdback F9 has. Afraid they may be too far down the drain for any sort of hope unless someone finds a way to drop Jet A to $3 or less.