Speculation...what will MKE look like in a year?

Old Apr 15, 10, 7:55 am
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Speculation...what will MKE look like in a year?

Now that Frontier is becoming a truly national airline, what do you think Republic will do with the hub in MKE in the coming year?

Since we all like to speculate, I thought it would be fun to make predictions about what may or may not happen with the Midwest hub. I'm short on time this morning but wanted to get this thread going. My thoughts will be posted later today.
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Old Apr 15, 10, 11:36 am
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Following are the current ratios (short-term assets/short term liabilities) of relevant airlines. Current ratios, especially in the airline industry where inventory is low, provide a good snapshot of a company's operating position.

FL: 1.04
B6: 1.31
RAH: .79
WN: 1.25
UA: .23

Considering rising fuel prices, labor costs that will inevitably rise with addition of the Airbus to the pilot payscale, increased competition, and liquidity for the "unforeseen," I don't know how RAH can compete with FL and WN in such fierce markets. Of the three major players in MKE, RAH is in the weakest liquidity position. RAH is number two in Denver where, while UA seems the least favorite carrier, they don't have the FF incentives or route network (Star Alliance/international service) offered by UA. Expansion by WN in DEN would seemingly hurt RAH more than UA as RAH and WN are more directly in competition for the low-fare domestic traveler.

IMO, RAH will have to focus their resources on one hub as they may have fewer resources in the future to maintain marginally profitable flying. DEN will be that hub.

Bedford said it himself: MKE cannot sustain three hub operations. RAH will have to score a tremendous marketing victory if they expect to draw traffic away from FL, who has not only established itself as MKE's new hometown airline, but has competitive fares and is seemingly more healthy in terms of fuel and wages.

Frontier will keep some routes in MKE, but I think the possibility of enhanced operations in DEN, especially to the east coast, means Bedford attempts to shift MKE-LGA, MKE-DCA to DEN. As Knope pointed out, MKE travelers want low prices and non-stop service. YX survived for so long because it generally kept a monopoly (however, I think brand loyalty plays a much bigger role than credited), on non-stop service. RAH won't have that advantage in maintaining profitable MKE service.

I expect no reduction in MKE-LAS, however.

Last edited by Pigeye01; Apr 15, 10 at 1:33 pm
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Old Apr 15, 10, 2:35 pm
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Originally Posted by Pigeye01 View Post
IMO, RAH will have to focus their resources on one hub as they may have fewer resources in the future to maintain marginally profitable flying. DEN will be that hub.

Bedford said it himself: MKE cannot sustain three hub operations. RAH will have to score a tremendous marketing victory if they expect to draw traffic away from FL, who has not only established itself as MKE's new hometown airline, but has competitive fares and is seemingly more healthy in terms of fuel and wages.
I agree that DEN will be the hub and not MKE.
One thing that always left me perplexed is the IND market. They really have no major airline as a hub there since ATA folded, RAH is located there, is there a possibility that YX/F9 will downsize here but expand there??? They have a large enough population base to sustain it and I am sure people there would greatly enjoy non stop service. Just a thought.
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Old Apr 15, 10, 2:36 pm
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Originally Posted by Pigeye01 View Post
RAH is number two in Denver where, while UA seems the least favorite carrier, they don't have the FF incentives or route network (Star Alliance/international service) offered by UA. Expansion by WN in DEN would seemingly hurt RAH more than UA as RAH and WN are more directly in competition for the low-fare domestic traveler.
Several aviation consulting firms have done studies on the situation in Denver and it is United that has suffered the most damage. They have experienced significant market share and yield erosion in what was once their most profitable hub. These same analyses show that Southwest's DEN operations are gushing red ink.

We haven't seen any specific figures since they were purchased by Republic, but we do know that Frontier was profitable in Denver last year (even if you exclude bankruptcy related charges).

Southwest continues to keep the pressure on by adding more flights. Yet, Bedford stated recently that the revenue environment for Frontier has stabilized in Denver with a slight up-tick noted in March.

As for having no frequent flier hook-up, I can assure you that Republic is actively working on this and hopes to make an announcement in the not too distant future. It involves one of the big alliances but if that should fall through there are other options on the table. Frontier customers will have access to a global route network soon enough.

Bedford said it himself: MKE cannot sustain three hub operations. RAH will have to score a tremendous marketing victory if they expect to draw traffic away from FL, who has not only established itself as MKE's new hometown airline, but has competitive fares and is seemingly more healthy in terms of fuel and wages.
Milwaukee does not have three hub operations. Frontier has a large hub in Milwaukee. AirTran has a mini-hub currently but may add more flights in the future if conditions warrant the increase. Who's the third carrier hubbing at Mitchell? If you're going to say Southwest, a 12 flight operation with few, if any, connecting opportunities hardly constitutes a hub. Besides, Southwest has already blinked and will be cutting two flights from its MKE schedule later this summer.

If you take a close look at the traffic statistics released by the DOT, it shows that Frontier and AirTran serve somewhat different traffic patterns in MKE. Frontier tends to have a lot more O&D traffic on many of its routes. This tends to result in higher yields. AirTran, on the other hand, routes significant amounts of connecting traffic through the airport at much higher levels that Midwest ever had.

Of course, this can and probably will change somewhat as time goes on. We'll just have to wait and see how things play out.

Bedford is still predicting that the branded operations will be profitable by Q3 2010. They lost several million dollars last quarter, but I believe that was all attributable to Midwest. As the restructuring of the Milwaukee operations is completed, I suspect that Frontier will find itself in a pretty good position to compete with the likes of AirTran and Southwest.

As for fuel, I believe that Republic started to hedge last year but I'll have to go back to the last earnings call to get the specific details.

Frontier will keep some routes in MKE, but I think the possibility of enhanced operations in DEN, especially to the east coast, means Bedford attempts to shift MKE-LGA, MKE-DCA to DEN.
LGA and DCA are two core routes from Frontier's Milwaukee hub. They won't be going anywhere anytime soon. Frequency and capacity may be adjusted slightly, but Frontier will still offer could coverage.

You act like Frontier is hemorrhaging passengers and AirTran is cleaning-up. That's not the case.

Market share percentages have changes, but the airport is also seeing a huge increase in passenger volumes. While Frontier's market share has fallen, they are flying a lot more passengers year-over-year as well.

If Republic can make the MKE hub profitable (which they still project) than Frontier will be fine.

It may just be that Frontier and AirTran will find a way to co-exist together in Milwaukee.

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Old Apr 15, 10, 2:40 pm
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Originally Posted by MKE 1K View Post
I agree that DEN will be the hub and not MKE.
Hilarious. It's only been one day since the brand announcement and we're already talking about the reduction or closure of the MKE hub.

There's nothing wrong with Frontier operating two hubs in different parts of the country
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Old Apr 15, 10, 2:55 pm
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Originally Posted by BlueHorseShoe2000 View Post
Hilarious. It's only been one day since the brand announcement and we're already talking about the reduction or closure of the MKE hub.

There's nothing wrong with Frontier operating two hubs in different parts of the country
I think having at least two hubs is critical for the company's long-term success.

Two hubs allows Frontier to have a bette reach in more regions and provides more flexibility for travelers.

From a corporate standpoint, two hubs provides some market diversification that simply cannot be achieved with just one hub. After all, that's the reason that AirTran is expanding in MKE and BWI while modestly pulling down ATL.

I think another focus city or two will help diversify F9 even more.

So, bring on the hubs
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Old Apr 15, 10, 3:48 pm
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Originally Posted by BlueHorseShoe2000 View Post
Hilarious. It's only been one day since the brand announcement and we're already talking about the reduction or closure of the MKE hub.

There's nothing wrong with Frontier operating two hubs in different parts of the country
No, there isn't anything wrong with operating two hubs. I think it's a great idea. However, Airtran didn't move into MKE until they had sufficient resources to make it successful. They learned from their BWI experience. Look what happened to Midway in PHL, then again in RDU. More recently, YX in OMA and IND... Airlines that can't sustain operations, despite good load factors, dehub. Delta in Dallas is another example.

I predict that with the YX name gone, WN will grow in MKE. Obviously, there is money to be made here. Both WN and FL smelled blood in the water when YX began their final descent. With RAH going unquestionably mainline, I think we'll see a real war in MKE. RAH will lose. Just my opinion.
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Old Apr 15, 10, 4:43 pm
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Originally Posted by Pigeye01 View Post
I predict that with the YX name gone, WN will grow in MKE. Obviously, there is money to be made here. Both WN and FL smelled blood in the water when YX began their final descent. With RAH going unquestionably mainline, I think we'll see a real war in MKE. RAH will lose. Just my opinion.
WN may have the money but they don't have the planes to launch a giant increase of service in MKE. WN has shown no indication that MKE will be anything more than another dot on their route map.

There will be competition between FL and F9 at MKE, but there is no supporting evidence to show that they cannot both coexist at MKE. So far, F9 has the foothold for O&D traffic, and as long as they can entrench themselves there they will do fine. FL should also be able to perform well and they have a lot of connecting passengers. If anything, AA and United @ ORD will be the real losers, at least for O&D traffic.
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Old Apr 15, 10, 5:47 pm
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Originally Posted by Pigeye01 View Post
However, Airtran didn't move into MKE until they had sufficient resources to make it successful. They learned from their BWI experience. More recently, YX in OMA and IND... Airlines that can't sustain operations, despite good load factors, dehub.
It wasn't a lack of resources that prevented AirTran from going full force into MKE earlier.

If you recall, AirTran set-up the east-west hub in Milwaukee during the summer of 2008. In addition to routes already in place, AirTran added BOS, LGA, DCA, SEA, SFO, LAX, and SAN. Loads were generally good to heavy. Yet, by their own admission AirTran lost millions on this flying and had planned to scale back significantly in the fall (going from 22 flights per to 9).

The landscape in MKE changed dramatically when Midwest slashed service and re-focused its operations on business markets. This left a large amount of traffic on the table and AirTran stepped in to start filling the void.

As for Midwest, the expansions in OMA and IND failed for different reasons, but lack of lift was not one of them.

Midwest began OMA operations in May 1994 with a great deal of fan fare. Despite all of the positive publicity, the party quickly ended when Southwest came to town and depressed yields. This limited the amount of expansion Midwest could undertake. They did add LAS, SAN, MCI, and MCO at various points but all of those routes were short lived. The LAX flights had on-going profitability problems and was the first route pulled after 9/11.

The train wreck in IND was more complicated. Midwest's entire strategy revolved around establishing service to BOS, LGA, DCA, and building from there. In order to drum up support for slots, they pledged to run direct flights from DSM and SkyWay feeder flights from several smaller communities.

So what went wrong? First, Midwest announced several routes (BOS and LGA) months in advance. This gave the competition plenty of time to respond. Second, Midwest received slots at DCA to serve DSM and not IND. A critical link was missing. Third, 2000 was when the slot restrictions were lifted at LGA. This created massive congestion and unbearable delays. Instead of making a good first impression, customers were experiencing delays as long as 6 hours at a time. Finally, the regional jets were starting to come onto the aviation scene that year and were successfully used against Midwest. Normally, Midwest would challenge a competitor flying a much larger aircraft (they did this in MKE and MCI). They had a lot less seats to fill and therefore didn't have to trash yields to fill them. In IND, Midwest found itself with the bigger planes and a need to fill seats. Plus, the competition could offer more frequent flights using smaller aircraft. Any competitive advantage Midwest had disappeared.

As time went on, Midwest moved more and more planes to MCI to increase operations there.
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Old Apr 15, 10, 6:48 pm
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At this point in time for me the future of MKE in a year's time is rather cloudy. I believe AirTran will keep up the pressure in MKE since they are on a more level playing field as Midwest's presence gets less and less while Frontier expands their footprint here. I believe Frontier will and has to advertise heavy in the Milwaukee market to educate the general flying public. A new Frontier code share partner will be announce soon and I think it will be with AA. Southwest will probably stay around the same level that they are at today... I expect them to make more adjustments and maybe try a new route (MKE-DEN??) but I think they are in MKE to stay. Which is a good thing if you ask me. I expect some more gate shuffling too since MKE needs to better utilize the gates they have. We are 6 years into the 20 year airport master plan, so some projects on that wishlist might heat up for discussion within the next year.
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Old Apr 15, 10, 8:08 pm
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Originally Posted by BlueHorseShoe2000 View Post
It wasn't a lack of resources that prevented AirTran from going full force into MKE earlier.

If you recall, AirTran set-up the east-west hub in Milwaukee during the summer of 2008. In addition to routes already in place, AirTran added BOS, LGA, DCA, SEA, SFO, LAX, and SAN. Loads were generally good to heavy. Yet, by their own admission AirTran lost millions on this flying and had planned to scale back significantly in the fall (going from 22 flights per to 9).

The landscape in MKE changed dramatically when Midwest slashed service and re-focused its operations on business markets. This left a large amount of traffic on the table and AirTran stepped in to start filling the void.

As for Midwest, the expansions in OMA and IND failed for different reasons, but lack of lift was not one of them.

Midwest began OMA operations in May 1994 with a great deal of fan fare. Despite all of the positive publicity, the party quickly ended when Southwest came to town and depressed yields. This limited the amount of expansion Midwest could undertake. They did add LAS, SAN, MCI, and MCO at various points but all of those routes were short lived. The LAX flights had on-going profitability problems and was the first route pulled after 9/11.

The train wreck in IND was more complicated. Midwest's entire strategy revolved around establishing service to BOS, LGA, DCA, and building from there. In order to drum up support for slots, they pledged to run direct flights from DSM and SkyWay feeder flights from several smaller communities.

So what went wrong? First, Midwest announced several routes (BOS and LGA) months in advance. This gave the competition plenty of time to respond. Second, Midwest received slots at DCA to serve DSM and not IND. A critical link was missing. Third, 2000 was when the slot restrictions were lifted at LGA. This created massive congestion and unbearable delays. Instead of making a good first impression, customers were experiencing delays as long as 6 hours at a time. Finally, the regional jets were starting to come onto the aviation scene that year and were successfully used against Midwest. Normally, Midwest would challenge a competitor flying a much larger aircraft (they did this in MKE and MCI). They had a lot less seats to fill and therefore didn't have to trash yields to fill them. In IND, Midwest found itself with the bigger planes and a need to fill seats. Plus, the competition could offer more frequent flights using smaller aircraft. Any competitive advantage Midwest had disappeared.

As time went on, Midwest moved more and more planes to MCI to increase operations there.
Lift isn't one of RAH's challenges. The rest of your post, however, describes some of the same types of challenges I expect RAH to face, biggest of which will be labor. Now that they're mainline, employees will want mainline wages. Watch out, or Bedford will "pull a Bedford" on his current employee group.
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Old Apr 15, 10, 8:28 pm
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Originally Posted by Pigeye01 View Post
Lift isn't one of RAH's challenges.
The aircraft of the branded operation is actually stretched pretty thin this summer

Originally Posted by Pigeye01 View Post
The rest of your post, however, describes some of the same types of challenges I expect RAH to face.
The history Blue gave of Midwest's problems in Omaha and Indianapolis don't seem to fit the current situation much at all.

(1) Omaha was a high-fare market where the introduction of a low-fare carrier depressed yields and made their high costs difficult.

(2) Indianapolis was doomed by not being able to serve the key markets they wanted to, and by air traffic control delay disasters that particular summer.

(3) Both OMA and IND saw Midwest facing serious RJ competition for the first time, meaning the competition for the first time could offer sustainable, higher frequency flights versus Midwest's larger planes.

#1 is very different now because MKE is well saturated with low-fare carriers and their cost structure is quite competitive with those LCCs, much different then 15 years ago.

#2 is very different now because they have long-running frequent service to the key MKE markets, what they couldn't establish at IND. And there's nothing to think that there's an ATC delay disaster looming which will put them at a competitive disadvantage like hurt them in IND.

#3 is the opposite of what they're facing today. Instead of having RJ's infiltrate their markets (something which happened regularly over the past 10 years or so) they are facing a challenge by competitiors with large, low-cost aircraft.

Originally Posted by Pigeye01 View Post
biggest of which will be labor. Now that they're mainline, employees will want mainline wages.
Could be labor issues down the pike. However Frontier pilots aren't especially low paid, are they?
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Old Apr 15, 10, 11:19 pm
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Originally Posted by knope2001 View Post

#1 is very different now because MKE is well saturated with low-fare carriers and their cost structure is quite competitive with those LCCs, much different than 15 years ago.

Their cost structure is competitive as long as nothing changes. I expect fuel costs to rise; labor to an even greater extent. RAH dependence on contract flying is also concerning. Merger/bankruptcy, and those contracts will be lost, along with the income.

#2 is very different now because they have long-running frequent service to the key MKE markets, what they couldn't establish at IND. And there's nothing to think that there's an ATC delay disaster looming which will put them at a competitive disadvantage like hurt them in IND.

No, but an economic disaster will put them at a competitive disadvantage. Heck, $100/barrel fuel is right around the corner and is another disaster in the making. While excuses would be made for RAH's failure, we'd still see FL and WN colors on the MKE ramp.

#3 is the opposite of what they're facing today. Instead of having RJ's infiltrate their markets (something which happened regularly over the past 10 years or so) they are facing a challenge by competitors with large, low-cost aircraft.

RAH will face challenges besides aircraft type/efficiency. Culture, operations, fuel, training, loyalty program, and marketing costs are the first few that come to mind. BB has experience running a branded operation. However, I would argue it didn't go as planned with YX. Maybe he's learned a thing or two since then.

Could be labor issues down the pike. However Frontier pilots aren't especially low paid, are they?

No, Frontier pilots are paid well. And the rest of the RAH pilot group will demand to be on that same (or better) pay scale.
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Old Apr 16, 10, 7:44 am
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Wouldn't circumstances change for all carriers if oil prices surge, industry consolidation occurs, or some other type of economic calamity happens? Why would it just be Republic that suffers?

Obviously, Republic has a lot on its plate and it will be interesting to see how well they mange these challenges going forward.
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Old Apr 16, 10, 8:04 am
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Getting back to the topic at hand, here are some of my thoughts on what will happen in Milwaukee during the coming year.

I suspect that things will remain pretty status quo through the summer and into fall. Part of the reason is that the fleet is already stretched pretty thin so it would be difficult to add much more at the present time. Plus, a significant amount of capacity has been added back to Milwaukee and we'll have to wait and see how well the airlines do filling seats and what kind of yields they get. I do expect that Mitchell will continue to set passenger records this summer.

Bedford did say in one of his recent weekly messages to employees that if the summer schedule goes well that some new service will be added for the fall and winter, including international flying. For MKE, I suspect that this will include Mexico and possibly the Caribbean. If Frontier were to announce any warm weather resort flying, I suspect that they will team up with someone like Fun Jet to help fill seats through the sale of package deals. These flights would probably only operate a few times a week.

As for next summer, that's still a long ways off but if the economy has improved and the competitive situation in MKE has stabilized, I can see the following additions being added:

1) ANC. I believe this route is definitely viable during the summer months if it operates less than daily (maybe 5x per week) and is tied-in with a vacation partner.

2) BDL. Not sure why this hasn't come back yet.

3) IAH

4) SAT

5) ABQ

6) GSO. Republic could tap into a nice stream of local traffic plus route crews through the network.

If the One World relationship materializes, I wouldn't fall over in shock if American launched MKE-LHR service with 757s. They're looking at adding flights to places like BDL, DTW, and CHM with 757s. There's no reason to think MKE couldn't work, especially with feed from One World partners on both ends.
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