July 20, 2008

Midwest Air to Slash Flights: Retrenchment Returns Focus to Business Traveler; Breadth of Service Reverts to Level Last Seen in 2000

By Tom Daykin, Milwaukee Journal Sentinel

Jul. 20--Financially troubled Midwest Airlines releases its fall schedule today with service cuts, particularly to leisure destinations, that are the steepest in its 24-year history.

The changes take effect Sept. 8. Some customers who have purchased tickets for flights that are being canceled may be rescheduled on other flights; others will be entitled to refunds.

The new schedule reflects big cuts in service to Florida, the West Coast and other areas while retaining flights to what the airline considers core destinations for business travelers. It's a return to the strategy that the company was built upon, executives say.

The changes will roll back Midwest's Milwaukee-based service to levels that existed at the beginning of this decade. In 2000, before a recession and terrorist attacks caused a steep decline in air travel, Midwest offered nonstop flights from Milwaukee's Mitchell International Airport to 29 cities.

Come fall, there will be 90 daily departures to 28 cities, down from 118 departures to 38 cities, from Mitchell, where Midwest Airlines and its Midwest Connect regional affiliate are the dominant carriers.

Systemwide, the new schedule will leave Midwest Airlines/Midwest Connect with 102 daily departures. The air group now offers 138 daily departures.

The service cuts, which include some at the carrier's secondary hub in Kansas City, amount to a 30% to 40% service reduction, depending on whether the cuts are measured by passenger capacity or flight miles, said Randy Smith, vice president of sales and distribution.

Major cuts were expected

The company forewarned of the service reductions last month, when it announced it was phasing out a dozen MD-80 jets used for charter service as well as regular passenger service to leisure destinations and West Coast cities. The MD-80s, which make up roughly one-third of the Midwest Airlines fleet, use more fuel than the carrier's 25 Boeing 717 jets.

With the new schedule, two Boeing 717s are being dropped from the fleet.

Last week, the company said it was cutting 1,200 jobs, or around 40% of its 3,000-plus work force. Those losing their jobs include pilots, flight attendants, mechanics and ground crews.

Midwest Air is seeking steep pay cuts from its union flight crews and new terms from the company's creditors. The company has said it's trying to avoid filing for Chapter 11 bankruptcy protection. A Chapter 11 filing would give Midwest Air more power to negotiate new contracts with its vendors, lenders and union workers. But such a filing also would be very expensive.

Added inconvenience

Business travelers understand that the high price of jet fuel has made life difficult for Midwest and other airlines, said Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce.

But, added Sheehy, "it hurts anytime there's a cut in air service."

Switching from nonstop service to one-stop routes not only requires more travel time, Sheehy said, but also increases the chances of delays.

Midwest's new schedule keeps the main destinations for business travelers but greatly reduces trips to leisure destinations, said Smith and Greg Aretakis, vice president of planning and revenue management.

Record jet fuel costs have made it unprofitable for the airline to fly some routes, Smith and Aretakis said. So Oak Creek-based Midwest Air Group Inc., the corporate parent of Midwest Airlines and Midwest Connect, needs to "redesign the business," Aretakis said.

Focus on business travel

With the cuts, Midwest is returning to its original strategy of focusing on business travelers, Smith said.

"We have a strong base of corporate customers in Milwaukee and Kansas City," he said.

Midwest also is expanding its code share agreement with Northwest Airlines Corp., in which the airlines sell seats on each other's flights. Northwest owns a 47% stake in Midwest. The majority owner is TPG Capital of Fort Worth, Texas.

Midwest's decision to maintain service to New York, Washington, D.C., and other popular business destinations is welcome news to Milwaukee-area companies that have a lot of employees who travel, Sheehy said.

But the changes to the West Coast destinations and other cities will make flying less convenient for business travelers, he said. And the overall cuts will hurt the association's effort to encourage local businesses to expand, Sheehy said.

Indeed, when Milwaukee officials were making the case for MillerCoors LLC to put its headquarters here, the extensive service offered by Midwest was a big selling point, Sheehy said. MillerCoors, however, wanted a "neutral site," other than either Milwaukee or the Denver area, and last week announced it had selected Chicago for its headquarters. Chicago's selling points include O'Hare International Airport, the world's second busiest airport.

Milwaukee-based employees of MillerCoors, the joint venture created by combining Miller Brewing Co. and Coors Brewing Co., will continue to use Midwest as long as its routes and fares work for the company, said MillerCoors spokesman Pete Marino.

"It's a great airline," he said.

Clients tolerant for now

It's understandable that Midwest has to make some major cuts, said Michael Power, Manpower Inc.'s director of human resources for North American operations.

But the reduced service will make it more difficult for Manpower managers to fly in and out of Mitchell International from the company's branch operations around the United States, Power said.

He said the company will use Northwest Airlines more often by connecting through Minneapolis, and will use other airlines that connect through O'Hare International. That will likely bring more headaches, he said. But Manpower may have little choice.

"You don't get a lot of options flying out of Mitchell," Power said.


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