Executives lament possible Midwest Airlines acquisition
The Business Journal of Milwaukee - December 15, 2006
by Business Journal staff
Milwaukee-area business executives who travel frequently were adamant that Midwest Airlines should remain independent in the face of an acquisition offer by AirTran Holdings Inc.
"Anytime a smaller company is taken over by a bigger company, it seems to lose its local charm," said Ken Klein, an account executive with Cardinal Health, Wauwatosa, who flies with Midwest Airlines to Minneapolis at least twice a month. "I just hope the shareholders are smart enough to realize that Midwest should stay in Milwaukee."
Jim Brindley, president of Health Payment Systems, Milwaukee, flies on Midwest Airlines regularly to Washington, D.C., and other destinations. He travels Midwest out of a sense of duty to local companies, but said Health Payment Systems is willing to pay extra for better service and amenities, which he said control by AirTran Airways would jeopardize.
"It's pretty clear to me that if (a takeover) were to happen, there would be a significant change in culture," Brindley said. "It sounds like they're one of these value-driven, do-it-on-the-cheap, 'here's your bag of pretzels' cattle cars."
Other business travelers said their key concern is whether a merged airline would maintain Midwest's high level of service, including its two-across leather seating, chocolate chip cookies and Midwest Club for executives.
"Right now I'm willing to pay a little more to fly Midwest because of the quality of the service," said Barbara Boxer, a partner at Milwaukee law firm Reinhart, Boerner Van Dueren S.C. "I would not be willing to pay more for AirTran's service."
Boxer flies at least 30 times a year, and uses Midwest for the majority of her business travel, she said.
"I would be very disappointed with that type of merger," she said. "I think if AirTran makes Midwest like AirTran, Midwest loses it's competitive advantage and no longer is a hometown airline, which matters to the city."
Hometown advantage
Grant Killoran, a health care attorney at Michael Best & Friedrich L.L.P., said Milwaukee-area businesses derive value from Midwest Airlines because of the number of direct flights the airline offers.
"Besides the obvious potential for relocating, there's the elimination of direct flights for business destinations as well as losing the business-friendly seating," Killoran said. "Unlike many airlines, Midwest allows you enough space to conduct business from your seat."
Midwest's supply of direct flights to the East Coast make cross-country business relatively easy from Milwaukee, Killoran said.
"When Northwest moved its hub away from (Milwaukee), we lost some direct flights, and you had to go through other hubs," Killoran said. "That could easily be another two hours, and depending on which way you're flying, with or against the clock, that could have a sizable impact on the business day."
Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce, said he had "strong concerns whether the quality of service we've gotten used to with our hometown airline would be met."
"A lot of the economic drivers in our community rely on good air service, and Milwaukee currently has air service in excess of its peers," he said.
But, John Potter, a portfolio manager at Cortina Asset Management in Milwaukee, said for most business travelers, convenience, flight availability and price are key drivers in deciding what airline to travel, not the name on the airplane. Potter makes about 25 to 30 round trips a year, about 10 of which are on Midwest Airlines, he said.
"I'd be hard pressed to see something negative here," he said. "I'm much more concerned when I see Midwest cutting routes and I go down from two carriers to one."
Community impact
Having Midwest Airlines based in the Milwaukee area is important to the region's national image, said Julia Taylor, president of The Greater Milwaukee Committee.
"The brand for this region, that blue brand is a very important part of our regional identity," she said. "It's unusual for a city our size to have an airline that has that type of hub here. It's a very important business attraction, particularly for our global companies."
Jim Roemer, associate managing director of The PrivateBank, Milwaukee, compared the proposed acquisition to the Sears, Roebuck & Co. takeover of Lands' End a few years ago.
"Sears did nothing for Lands' End and it doesn't sound like AirTran will do much for Midwest Airlines," he said.
If Midwest Airlines is merged into another company and the area loses another corporate headquarters, Roemer said there is a corresponding loss of charitable donations and civic-minded corporate behavior.
Several community leaders said Midwest Airlines is one of the more active Milwaukee-area companies in the community. Taylor praised Midwest's management for its commitment to the region and business savvy.
"When a lot of airlines chose to go bankrupt, they took on the role of managing their assets, reducing debt and becoming profitable," she said. "They've done it the hard way, and it speaks volumes about the quality of the company and its management."
AirTran: A brief summary
AirTran Airways describes itself as a low-fare airline designed for business travelers.
The Orlando, Fla., airline provides 700 flights a day to 50 destinations. It's hub is at Hartsfield-Jackson Atlanta International Airport, where AirTran is the second-largest carrier.
The company was established in 1993, but it first gained national attention in 1997 when it merged with ValuJet, which suffered financially after a ValuJet DC-9 carrying 109 people crashed in the Florida Everglades.
The current AirTran management team, led by Joseph Leonard, took over in 1999. At the time, the company had about $10 million in cash-on-hand, which is "about a snowstorm away from going out of business," said Kevin Healy, AirTran's vice president of planning and sales.
Since then, the airline has built its fleet and its destinations. AirTran survived the passenger downturn after the 9-11 terrorist attacks in part by winning voluntary wage cuts from its three major unions, Healy said.
Revenue has increased at a healthy clip the past three years, but operating income and cash flow have decreased.
During the third quarter ending Sept. 30, AirTran reported a net loss of $4.3 million compared with a net income of $1 million a year earlier. The airline's management said the loss was due in large part to revenue not growing enough to cover increased jet fuel prices. AirTran also experienced a slowdown in demand following the changes in airline security protocols in London after terrorist activity was thwarted there.
The company's stock hit its 52-week low in September of $9.06 but had rebounded in the weeks leading up to the disclosure of AirTran's bid for Midwest Air Group.
Its stock closed on Dec. 13 at $12.82 per share.
-- Rich Kirchen
