The Midwest Airlines Tug-o-War’s Impact on Customers

AirTran, Mergers/Finance, Midwest Airlines, Northwest

I got a little geeky yesterday with all the talk of the Midwest takeover, but I didn’t actually bother talking about the impact on customers. Sorry about that. Yesterday afternoon, it got even more interesting as AirTran came back with a bid that’s a quarter higher than the TPG one. So, we have two competing bids. What’s best for you?

07_08_15 yxtugowar

The focal point here is clearly Milwaukee. That’s the home of Midwest and their largest base of operations. It is also what appeals to AirTran. If you live in Milwaukee, you’ve been fighting tooth-and-nail to keep Midwest independent so you can have your hometown airline. Now that the airline will likely be bought by someone, you might want to change your stance.

On one side, we have the TPG/Northwest bid. This is best for Northwest since it basically helps eliminate a competitor. Though they say that Northwest won’t have any management control, you can bet that’s a crock. That’s likes saying Richard Branson has no control over Virgin America.

So what’s best for Northwest here? A nice small airline that’s friendly to them and is just big enough to keep competitors out will do the trick. You probably won’t see much growth, and it’s more likely you’ll see it shrink over time. Frills will start to disappear as TPG tries to get its money out of the investment. The airline will not be the same. If you live in Milwaukee, the last thing you want is more dominance from Northwest. You want more choice. This is not the best outcome for customers.

If there is any winner in this deal other than Northwest, it’s CEO Tim Hoeksema. He clearly likes this deal because he gets to keep his job, even if it is at the expense of his employees. If the airline does try to get “more efficient” and doesn’t grow, that means layoffs are coming. Apparently that’s ok with Hoeksema as long as he keeps his job.

On the other side, we have the AirTran bid. In this offer, you’re just about guaranteed to get more flights as AirTran continues to try to establish a beachhead in the Midwest. After their bid to buy ATA and establish a Chicago hub failed, they’ve decided the next best thing is to move up the lakefront and go to Milwaukee. So, while the Midwest level of service will undoubtedly go downhill, there will at least be more flights to more places for less money. That seems like a better outcome to me.

And for current Midwest employees, that also means that their jobs would probably be more secure since AirTran will need people to run the growing operation. Well, almost all jobs would be more secure. CEO Hoeksema would lose his, and since he’s already shown he’s willing to screw his employees to save his own job, this will be a tough fight once again.

Of course, if Northwest/TPG succeeds, there’s nothing saying that AirTran won’t try to make a run at Milwaukee on its own anyway. I’d have to think that would not come out well for Midwest in the end. No matter what, it’s unlikely that Midwest will continue in its current form at this point.

Get Posts via Email When They Go Live or in a Weekly Digest

11 comments on “The Midwest Airlines Tug-o-War’s Impact on Customers

  1. How can you be so sure that Hoeksema is trying to screw employees to save his job? In his position he might see better opportunities with TPG than with Airtran. Regardless of Northwest’s involvement with TPG there might be better opportunities with a private investment firm. Remember that just because a company is bought up by a private equity group doesn’t mean that heads will roll and service will contract. These private equity groups want to make money and cutting profitable service is not the way to do that.

  2. You’re right, I can’t be sure. But I don’t see how else it can go down. If they’re really paying $16 a share for this airline, they’re expecting a lot. The current operation is not worth $16 a share, so they need to make changes to make it earn its keep. If they can find a way to make the airline earn its keep by growing it and keeping the product, I’d love to be proven wrong here. I just don’t see how it can happen.

  3. Cranky, while I usually agree with you, I think you’re a little too optimistic about AirTran’s ability to hold their own at MKE in the long term.

    They already proved in DFW that they don’t have a lot of staying power outside of ATL or MCO. An acquisition of Midwest by AirTran may provide employees some job security for the short term, but I’m not as convinced that would be the case for the long term.

    Assume for a moment that TPG & NWA lose out to Airtran. I won’t go as far as to say that NWA would take a scorched earth approach by not being the winning bider, but MKE isn’t a protected haven like LGB, and it isn’t a fortress hub like DFW. It wouldn’t take a whole lot of effort on their part (or any other legacy for that matter) to make life really ugly in MKE.

    And if that happens, AirTran will fold up their tent and cut there losses. And the former YX employees will lose the most.

  4. I may be on the optimistic side here. AirTran does like to go in and out of markets faster than the blink of an eye. But I think there is opportunity in Milwaukee for growth of a low fare/low frills airline so I’d expect to see Midwest do ok.

  5. Spot on assessment on this CF. Airtran will grow this market! The flack they get from pulling service from markets that are not working (i.e. DFW) is just smart business sense. Interesting how the local media have turned in favor of Airtran once they learned there is always a worse alternative. – Viva-Vegas

  6. We frequent fliers in Milwaukee mourn the death of our airline. There simply isn’t any good outcome. Yea, we will have to the cookies, but what about all 2×2 seating? That will go by the wayside when YX tries to improve it’s financial condition. What’s wrong with the financial condition? Not much considering how tense the bidding is for the airline. In any case, we will all lose. Either NW will gut the thing and replace it with a 25% cancellation rate and surly flight attendants, or they will replace the leather seats with Velveteen and make us all connect through an already overburdened and delay ridden Atlanta.

    There is no good answer. Oh well. Life is a series of changes. Too bad too.. it just got the “best domestic Airline” award for 2007. That will certainly change once it gets in the hands of NW or AT.

  7. So if you do the research on TPG, you’ll see that NW only has 18% in the deal. You make it sound like TPG is going to hand over NW when the dust settles! It took TPG 11 years to sell off their portion of America West, according to an article in the Houston press earlier this week. Where do you get idea that NW is assuming command of Midwest operations so soon?

  8. I think the real question is – what does TPG get out of this? They’re paying a pretty high price for an airline with little strategic value for them. Northwest holds the key here. There had to have been some behind the scenes talks with NW about this and NW has to have a lot more influence than their stake would imply.

    For more, head on over to see what Holly Hegeman says about it at planebuzz.com. Unfortunately, the site appears to be down right now, but I’m sure it’ll be up soon.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Do NOT follow this link or you will be banned from the site!