Southwest Airlines Co.'s (NYSE:LUV) plans announced Wednesday to
begin service in Milwaukee appear targeted at slowing the growth of rival discounter AirTran Airways Inc. (NYSE:AAI) in the market. But the real loser in the coming fare war seems likely to be TPG-owned Midwest Air Group Inc., the one-time dominant force in the market that has fallen upon hard times in recent years.
Midwest first hit turbulence in late 2006, when AirTran went public with an offer to buy the company. A bitter proxy fight followed, with AirTran losing out to a rival bid from white knight TPG and backed by Northwest Airlines Corp. But AirTran went on to increase its own flights out of Milwaukee, and that plus and the economic downturn put Midwest deep in the red. In September 2008 Midwest announced plans to outsource a large part of its flying to Republic Airways as part of a dramatic shrinking of its business.
Midwest remains locked in a battle with its unions over the Republic deal, and it has been losing share in Milwaukee to AirTran. Republic in its 10Q filing earlier this month
said Midwest had delayed payments totaling $3.3 million due to it, saying it was monitoring Midwest's financial condition and working with management and Midwest's financial advisers.
The addition of Southwest, even in a limited capacity, figures to further drive down margins and could drive a fare war between Southwest, AirTran, Midwest and Northwest acquirer Delta Air Lines Inc. (NYSE:DAL). It seems unlikely that all four will survive a war, with Midwest the most obvious potential casualty.
Whatever the outcome, the Southwest move appears targeted at AirTran and not Midwest. Though Southwest has slowed its overall growth, it has in recent years targeted specific cities where other discounters are strong, namely Frontier Airlines in Denver and JetBlue Airways Inc. (NASDAQ:JBLU) in Boston. Southwest recently launched service between Baltimore and Boston, one of the first non-Florida routes where it and AirTran go head to head.
AirTran has a reputation for (wisely) backing away from a fight with Southwest, but Milwaukee might be different. The Orlando, Fla.-based discounter envisioned Milwaukee as its long-sought Midwestern hub, an escape from the bitter battles it fights against Delta in Atlanta, where the two carriers have their primary hubs. A Southwest build-up could lead AirTran to approach TPG about renewing its interest in Midwest, potentially seeing new value in buying up that company's list of loyal fliers.
AirTran has spent considerable resources building a foundation in Milwaukee. This might be the market where the company finally sticks around for the fight. -
Lou Whiteman
Lou Whiteman is a senior writer covering the automotive, transportation and industrial sectors. Follow him on Twitter @louwhiteman
Join Corporate Dealmaker's LinkedIn forum
Juergen Lasowski
And the winners are...
No. The answer is no. Absolutely not.