Rottweiller
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Appleton - When Geoffrey Crowley became president and chief executive officer of Air Wisconsin, the airline had about a dozen cities on its route map, including Appleton, Oshkosh, Madison and Milwaukee.
Fast forward 10 years: Air Wisconsin now serves 58 cities in 26 states and two Canadian provinces. It is the largest privately held airline in the United States, according to the Regional Airline Association, and its monthly revenue passenger miles have surpassed Midwest Airlines.
For the first nine months of 2003, Air Wisconsin carried 1.1 million more passengers compared with the same period a year earlier. The airline's fleet has increased from 17 planes only six years ago to 72 jets, with about 15 more on order for 2004.
This is the most significant growth ever for Air Wisconsin, which was started in 1965 to fly passengers between Appleton and Chicago.
Crowley came aboard in '93
Crowley joined the company in late 1993 after having been a Northwest Airlines vice president responsible for strategic alliances with other airlines. He is one of Air Wisconsin's six individual owners.
"We are comfortable," he said in an interview last week at the company's headquarters at Outagamie County Airport. "But we take nothing for granted because the world can turn on us tomorrow."
In fact, much of the world has turned on Air Wisconsin as the result of its main business partner, United Airlines, becoming mired in Chapter 11 bankruptcy.
Air Wisconsin operates about 90% of its flights as United Express - service that feeds United hubs in Chicago, Denver and Washington, D.C.
It was United that enabled the Appleton carrier to post a 12% revenue increase in 2001 when other airlines collectively lost $7.7 billion in sales.
But this year it was United that said it wanted to cut roughly $170 million a year from contracts with three United Express partners: Air Wisconsin, Atlantic Coast Airlines and Skywest.
"You can imagine the dilemma we face," Crowley wrote in an April e-mail to employees. "We are bidding on business we already have. We are being asked to work within an entirely unreasonable time frame, and are forced to ask our labor groups to do the same."
The economics have changed
On Oct. 1, United and Air Wisconsin launched an 11-year agreement that allowed Air Wisconsin to continue flying as United Express. Details of the contract were not disclosed, although Crowley said his company was forced to accept significant cuts in the revenue it receives from United.
"We will not make as much money as we have made in the past," he said. "The new contract is a recognition that the economics of the airline industry have changed."
Contracts between major airlines and regional carriers vary. But generally the regionals are paid a set fee for each flight they make regardless of whether the plane is packed with passengers or has rows of empty seats.
The majors get the revenue from the flights and take the risks along with the rewards. It is a system that, in good times, has served both major and regional airlines well.
Under bankruptcy protection, United has the right to alter or even reject its contract with Air Wisconsin. That could raise the stress level at the Appleton carrier as it continues to take delivery of new airplanes for expanded routes.
But the fact that Air Wisconsin has an agreement with United provides some comfort, Crowley said. "We hope that we don't have to go back and renegotiate bits and pieces of it."
Regionals grow, majors struggle
Most regional airlines are experiencing strong growth even as their major airline partners struggle. One in every seven U.S. domestic airline passengers flies in a regionally operated airplane, although many people aren't aware of it.
Regionals are paid to operate flights that would not be profitable for large jet aircraft with higher-paid crews. The regionals' smaller planes are well-suited for hundreds of markets that feed the airline industry's hub cities.
"Regionals have had it very good," said Brian Streeval, an airline industry analyst with the Boyd Group, an aviation research firm in Evergreen, Colo. "Their fee-for-departure system has worked out really well for them."
The 50-seat regional jets are popular because they can fly long distances at faster speeds than similar-sized turboprop airplanes.
"The advent of the regional jet changed the airline industry," Crowley said. "All of a sudden, these jets became a huge advantage for the network carriers" that were competing with discount airlines such as Southwest and Jet Blue.
Regional airlines are now an essential part of the U.S. air transport system. Their airplanes sometimes fly mainline routes during times of the day that can't support bigger planes.
"We believe the regional jet boom still has legs," Robert Ashcroft, an airline industry analyst with UBS Investment Research wrote in a recent report.
Contracts protect regional profit margins even as major airlines suffer, Ashcroft wrote. But the era of double-digit operating margins for regionals largely seems over as the majors put the squeeze on their partners to lower their rates, according to Ashcroft.
"United's Chapter 11 signals the end of the dumb-money regional jet era," Ashcroft wrote. "The majors gave regional airlines lucrative and largely risk-free contracts. The stable, profitable growth that followed made regionals everybody's darlings but obscured the ugly truth: Profits didn't reflect a sustainable business model."
The fees that United and other major airlines paid had to come down, according to Ashcroft.
"Some majors didn't even know what they were overpaying," he said.
Regional airlines still hold many advantages, including lower wage scales that let them fly fewer passengers per flight profitably.
Costs being controlled
That Air Wisconsin flies routes for AirTran, a discount airline, speaks volumes about its ability to control costs, according to some analysts. Most discount airlines have not taken regional partners.
AirTran represents about 10% of Air Wisconsin's business. Discussions are under way to increase that amount with the addition of more planes, Crowley said.
Air Wisconsin was smart to add AirTran as its second partner, so that it's not entirely dependent on United, Streeval said. "It remains to be seen whether United can get out of bankruptcy," he added.
Air Wisconsin might have more opportunities if another United Express carrier, Atlantic Coast Airlines, pulls out of the United system.
Atlantic Coast announced plans to operate under its own name, as an independent airline, after months of contract talks with United failed to produce a new agreement.
Atlantic Coast's move is risky, Streeval said, as the big regional airlines have not operated without partners such as United for many years.
"A lot of people are very skeptical of ACA's business plan, especially since there's a glut of regional jets," Streeval said.
Mesa Air Group has offered to buy Atlantic Coast for $512 million in stock. Mesa also is part of the United Express system.
Anticipating the possible departure of Atlantic Coast, United has assigned more East Coast routes to Air Wisconsin.
"We fly any place United wants," Crowley said, adding that Air Wisconsin's route maps sometimes change monthly and the company is making fewer flights from United's Denver hub.
Air Wisconsin would like to add a third major airline to its roster but will not break ties with United, Crowley says.
"We think United is viable in the long term," he said. "They are always going to be our biggest partner. . . . We would like to have AirTran as 20 percent of our business. But one of the things we respect about AirTran is they have a plan that works."
Should United fail, there would still be markets that Air Wisconsin could serve by joining forces with another major partner.
It has been many years since Air Wisconsin has flown under its own banner.
"We have pretty small egos in that regard," Crowley said, adding that he sees advantages to working behind the scenes of major airlines.
"It's hard for the majors to do anything quickly. . . . But we are like a rowboat. We just move the oars a little bit, and the boat turns. It's one of the reasons I like this side of the business."
From the Oct. 12, 2003 editions of the Milwaukee Journal Sentinel
Fast forward 10 years: Air Wisconsin now serves 58 cities in 26 states and two Canadian provinces. It is the largest privately held airline in the United States, according to the Regional Airline Association, and its monthly revenue passenger miles have surpassed Midwest Airlines.
For the first nine months of 2003, Air Wisconsin carried 1.1 million more passengers compared with the same period a year earlier. The airline's fleet has increased from 17 planes only six years ago to 72 jets, with about 15 more on order for 2004.
This is the most significant growth ever for Air Wisconsin, which was started in 1965 to fly passengers between Appleton and Chicago.
Crowley came aboard in '93
Crowley joined the company in late 1993 after having been a Northwest Airlines vice president responsible for strategic alliances with other airlines. He is one of Air Wisconsin's six individual owners.
"We are comfortable," he said in an interview last week at the company's headquarters at Outagamie County Airport. "But we take nothing for granted because the world can turn on us tomorrow."
In fact, much of the world has turned on Air Wisconsin as the result of its main business partner, United Airlines, becoming mired in Chapter 11 bankruptcy.
Air Wisconsin operates about 90% of its flights as United Express - service that feeds United hubs in Chicago, Denver and Washington, D.C.
It was United that enabled the Appleton carrier to post a 12% revenue increase in 2001 when other airlines collectively lost $7.7 billion in sales.
But this year it was United that said it wanted to cut roughly $170 million a year from contracts with three United Express partners: Air Wisconsin, Atlantic Coast Airlines and Skywest.
"You can imagine the dilemma we face," Crowley wrote in an April e-mail to employees. "We are bidding on business we already have. We are being asked to work within an entirely unreasonable time frame, and are forced to ask our labor groups to do the same."
The economics have changed
On Oct. 1, United and Air Wisconsin launched an 11-year agreement that allowed Air Wisconsin to continue flying as United Express. Details of the contract were not disclosed, although Crowley said his company was forced to accept significant cuts in the revenue it receives from United.
"We will not make as much money as we have made in the past," he said. "The new contract is a recognition that the economics of the airline industry have changed."
Contracts between major airlines and regional carriers vary. But generally the regionals are paid a set fee for each flight they make regardless of whether the plane is packed with passengers or has rows of empty seats.
The majors get the revenue from the flights and take the risks along with the rewards. It is a system that, in good times, has served both major and regional airlines well.
Under bankruptcy protection, United has the right to alter or even reject its contract with Air Wisconsin. That could raise the stress level at the Appleton carrier as it continues to take delivery of new airplanes for expanded routes.
But the fact that Air Wisconsin has an agreement with United provides some comfort, Crowley said. "We hope that we don't have to go back and renegotiate bits and pieces of it."
Regionals grow, majors struggle
Most regional airlines are experiencing strong growth even as their major airline partners struggle. One in every seven U.S. domestic airline passengers flies in a regionally operated airplane, although many people aren't aware of it.
Regionals are paid to operate flights that would not be profitable for large jet aircraft with higher-paid crews. The regionals' smaller planes are well-suited for hundreds of markets that feed the airline industry's hub cities.
"Regionals have had it very good," said Brian Streeval, an airline industry analyst with the Boyd Group, an aviation research firm in Evergreen, Colo. "Their fee-for-departure system has worked out really well for them."
The 50-seat regional jets are popular because they can fly long distances at faster speeds than similar-sized turboprop airplanes.
"The advent of the regional jet changed the airline industry," Crowley said. "All of a sudden, these jets became a huge advantage for the network carriers" that were competing with discount airlines such as Southwest and Jet Blue.
Regional airlines are now an essential part of the U.S. air transport system. Their airplanes sometimes fly mainline routes during times of the day that can't support bigger planes.
"We believe the regional jet boom still has legs," Robert Ashcroft, an airline industry analyst with UBS Investment Research wrote in a recent report.
Contracts protect regional profit margins even as major airlines suffer, Ashcroft wrote. But the era of double-digit operating margins for regionals largely seems over as the majors put the squeeze on their partners to lower their rates, according to Ashcroft.
"United's Chapter 11 signals the end of the dumb-money regional jet era," Ashcroft wrote. "The majors gave regional airlines lucrative and largely risk-free contracts. The stable, profitable growth that followed made regionals everybody's darlings but obscured the ugly truth: Profits didn't reflect a sustainable business model."
The fees that United and other major airlines paid had to come down, according to Ashcroft.
"Some majors didn't even know what they were overpaying," he said.
Regional airlines still hold many advantages, including lower wage scales that let them fly fewer passengers per flight profitably.
Costs being controlled
That Air Wisconsin flies routes for AirTran, a discount airline, speaks volumes about its ability to control costs, according to some analysts. Most discount airlines have not taken regional partners.
AirTran represents about 10% of Air Wisconsin's business. Discussions are under way to increase that amount with the addition of more planes, Crowley said.
Air Wisconsin was smart to add AirTran as its second partner, so that it's not entirely dependent on United, Streeval said. "It remains to be seen whether United can get out of bankruptcy," he added.
Air Wisconsin might have more opportunities if another United Express carrier, Atlantic Coast Airlines, pulls out of the United system.
Atlantic Coast announced plans to operate under its own name, as an independent airline, after months of contract talks with United failed to produce a new agreement.
Atlantic Coast's move is risky, Streeval said, as the big regional airlines have not operated without partners such as United for many years.
"A lot of people are very skeptical of ACA's business plan, especially since there's a glut of regional jets," Streeval said.
Mesa Air Group has offered to buy Atlantic Coast for $512 million in stock. Mesa also is part of the United Express system.
Anticipating the possible departure of Atlantic Coast, United has assigned more East Coast routes to Air Wisconsin.
"We fly any place United wants," Crowley said, adding that Air Wisconsin's route maps sometimes change monthly and the company is making fewer flights from United's Denver hub.
Air Wisconsin would like to add a third major airline to its roster but will not break ties with United, Crowley says.
"We think United is viable in the long term," he said. "They are always going to be our biggest partner. . . . We would like to have AirTran as 20 percent of our business. But one of the things we respect about AirTran is they have a plan that works."
Should United fail, there would still be markets that Air Wisconsin could serve by joining forces with another major partner.
It has been many years since Air Wisconsin has flown under its own banner.
"We have pretty small egos in that regard," Crowley said, adding that he sees advantages to working behind the scenes of major airlines.
"It's hard for the majors to do anything quickly. . . . But we are like a rowboat. We just move the oars a little bit, and the boat turns. It's one of the reasons I like this side of the business."
From the Oct. 12, 2003 editions of the Milwaukee Journal Sentinel
