Photos by Adam Ryan Morris In a spacious maintenance hangar at General Mitchell International Airport in early spring 2010, a top executive of Frontier Airlines’ parent company spoke reassuringly to a large audience of nervous local dignitaries and airline employees. Gathered with a swarm of media, they were learning of the carrier’s plans to grow […]
Photos by Adam Ryan Morris
In a spacious maintenance hangar at General Mitchell International Airport in early spring 2010, a top executive of Frontier Airlines’ parent company spoke reassuringly to a large audience of nervous local dignitaries and airline employees. Gathered with a swarm of media, they were learning of the carrier’s plans to grow its service in Milwaukee.
Frontier was about to absorb Midwest Airlines, Milwaukee’s iconic hometown carrier, which once enjoyed a market share in excess of 50 percent. It was beloved among travelers during its heyday for wide, leather seats and a host of free amenities, including wine, champagne, gourmet meals and baked-on-board chocolate chip cookies.
The merger would create a bigger and stronger airline, claimed Bryan Bedford, CEO of parent company Republic Airways Holdings. It would also provide an immense opportunity for sustainable and profitable growth in Milwaukee. He pledged to shift 800 jobs to the Milwaukee area, an effort to grow Frontier’s local hub operations as well as the Republic presence. (Republic had its own airline brand, based in Indianapolis, before buying Frontier and Midwest in separate 2009 deals.) Frontier even went so far as to decorate one of its jets with the image of a badger dubbed “Buddy,” a Wisconsin-themed addition to its group of “spokesanimals” – characters that adorn planes and star in ad campaigns. It was a sign of Frontier’s purported commitment to the Milwaukee market.
But the plan went awry. In less than two years, Frontier would go from being Mitchell’s busiest airline to holding just a tiny presence in the market.
Shortly before Frontier and Midwest began the process of merging in 2010, Southwest Airlines, the country’s largest discount airline, made a long-awaited arrival in Milwaukee. Add into the competitive mix AirTran Airways, which earlier failed in a hostile takeover attempt of Midwest but quickly grew on its own to take over the top market share at Mitchell. And don’t forget Delta Air Lines, which had purchased market stalwart Northwest Airlines. Business at Mitchell took off, and in short order, it became one of the most competitive airports in the United States.
The battle to attract passengers in the face of intense rivalries led to deeply discounted airfares, and the low prices boosted Mitchell’s passenger counts to unprecedented heights.
“We had two heady years,” says Barry Bateman, the airport’s director.
But the record-breaking run turned out to be something of a fluke. The forces that created it had never been seen in the Milwaukee market, and they’re unlikely to be seen again for a long time, if ever. A key component of this perfect storm: two airlines – Frontier and AirTran – operating hubs in Milwaukee, a highly unusual circumstance for a market this size.
“We’re not a large market, but there we were with two hubbing airlines,” Bateman says. “We had these two airlines flying to the same cities, sometimes wingtip to wingtip, competing mightily. Then Southwest entered the market and added to the competition. Inside the industry, we all realized that this could not be sustained.”
|Hear more about Mitchell Airport on WUWM’s “Lake Effect” Feb. 11 at 10 a.m.|
To be exact, Mitchell recorded 21 consecutive months of record-breaking passenger traffic. The streak ended in June 2011, and turbulence from changes in Mitchell’s competitive situation started taking hold. Five months later, Mitchell’s passenger counts began a rapid descent as Frontier reneged on promises for the Milwaukee market. Claiming it could no longer afford to fly the smaller regional jets that served many of the routes from Mitchell, Frontier shifted focus to its original Denver hub and began making dramatic service cuts in Milwaukee. Frontier’s daily Mitchell departures dipped from 91 in October 2010 to about 70 one year later, then down to a mere seven by the latter part of 2012. Frontier’s market share at Mitchell, which once stood well above 30 percent, fell to about 6 percent by early fall 2012.
The decline in Mitchell’s passenger traffic, mainly as a result of Frontier’s cuts, is glaring. In the first nine months of 2012, about 5.87 million passengers used the airport, compared with 7.41 million and 7.45 million for the same periods, respectively, in 2011 and 2010.
Competition at Mitchell softened further when Southwest bought AirTran for $1.4 billion. The deal was announced in September 2010 and closed in May 2011. That merger began to take off just as Frontier implemented its cuts. And Frontier’s fate was sealed.
“Here’s a very well-capitalized, dominant, nationwide, large-market airline competing against a very undercapitalized, very small nationwide airline that was struggling,” Bateman says. “It’s not rocket science. Somebody was going to cry uncle. Frontier had to make that decision. This was going to be tough to begin with, but when Southwest and AirTran began merging, that was really a game-changer.”
Frontier’s last hope was that prices would climb in the aftermath of the merger.
“AirTran had low fares, and they were actually lower than Southwest,” Bateman says. “Frontier was thinking that there’d be some fare rationalization, and that all ships would rise with the tide, and things would be OK. It didn’t happen. Frontier couldn’t make a profit against those fares, so they decided to put all their eggs in the Denver basket. That’s the way it goes. They didn’t dupe us. Competition has a way of doing things.”
Republic was eligible to earn up to $27 million in income and payroll tax credits as well as other incentives from Wisconsin, but only if it had met the job and workplace investment goals it laid out for the Milwaukee area. The airline initially brought new jobs to the region, including some call-center employees, but never came close to meeting its pledge.
Soon after Frontier’s cuts, Concourse D at Mitchell became a virtual ghost town. Most of Frontier’s check-in counters at the airport went dark, and restaurants and concession stand operators in the concourse experienced a crushing dip in business.
“We were bucking a trend for a while,” Brian Taffora said two months before leaving his post as director of economic development for Milwaukee County, which runs the airport. “And now, it has caught up to us.”
Still, despite cuts in service and the corresponding decrease in passenger traffic, Bateman insists that Mitchell remains a healthy, competitive airport, particularly when compared with other similar-sized airports. Service is often nonstop, prices are competitive, and plans are developing to improve Mitchell’s competitive outlook. Or at least the way it’s perceived by travelers.
For starters, Bateman says, 68 percent of passengers who board flights at Mitchell still reach their destinations via nonstop service. “Most people aren’t going to Keokuk. They are going to Los Angeles, Boston and Seattle. Most people can get on direct flights. But can you get to your plant in Bentonville, Ark.? No, not without a connection.”
Direct flights are an essential part of appeasing business travelers and bolstering economic development initiatives, Bateman says. So he’s fielded more complaints from travelers who can no longer reach smaller markets via direct flights. “I am hearing from businesspeople saying, ‘I can’t get to Akron anymore, I can’t get to Columbus anymore,’” he concedes.
It’s no surprise the local business community has voiced some of the loudest concerns about the changes. “Clearly, there has been a reduction in the quality of air service for Milwaukee,” says Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce. “Time is money to the business flyer. They will have to adjust to the realities of air service.”
But prices remain a bright side of that reality, according to the most recent figures from the U.S. Department of Transportation’s Bureau of Labor Statistics. Mitchell’s average airfare is $57 lower than the national average and $65 lower than Chicago O’Hare International Airport. Mitchell has the 16th-cheapest average airfare ($328) among the country’s top 100 airports, but that figure represents a 6.1 percent
increase from the previous year. Cincinnati/Northern Kentucky International Airport has the most expensive average airfare ($535), while Atlantic City International Airport has the cheapest ($166).
“We’re still much cheaper and much more efficient than O’Hare,” says Milwaukee County Executive Chris Abele. “I don’t think that will change anytime in the near future.”
The reduction in Mitchell’s number of direct flights hasn’t altered a long-standing marketing effort to attract more travelers from northern Illinois. Abele says that’s a key component of the airport’s future health.
“In 2009 and 2010, when we had such fabulous growth,” Bateman says, “we generated enough trial from travelers from Lake County, McHenry County and Rockford that we think usage of Mitchell will continue. That served as one of the greatest trial motivators that we could have had. We had all of that service at rock-bottom fares.”
The addition of Southwest to Mitchell’s menu of flights has also played a role in attracting northern Illinois residents. Many of them want to fly Southwest, but they don’t want to travel to Midway International Airport on Chicago’s South Side, where Southwest has a major presence.
“We had a pop in northern Illinois patronage when Southwest came to town,” Bateman says. “In the end, the airport can’t control fuel prices and other business factors, but we can do what we can to drive demand. That is what’s going to impress an airline. One of the places where we can get more demand is from the northern Illinois market.”
Mitchell has taken a multifaceted approach to attracting that market’s residents during the past 25 years. Airport spokeswoman Pat Rowe says efforts have included print advertisements, billboards, direct mail and even an athletic sponsorship.
The Lake County Fielders, which trumpeted actor Kevin Costner as a part-owner, played professional minor league baseball in 2010 and 2011. The team’s home base, Zion, Ill., is about a 40-mile drive from Mitchell, and the airport paid some $35,000 in 2010 for a sponsorship with the team. But problems with securing a proper home stadium meant the team played a 32-game road trip in 2011. Ongoing cash-flow issues continued to hamstring the club and forced it to suspend operations before the 2012 campaign.
“We had a very successful sponsorship of the Lake County Fielders,” Rowe says of the 2010 season. But when the team’s fortunes turned sour, “We moved our marketing dollars to other opportunities in Lake County.”
Those opportunities include more involvement with chambers of commerce as well as area business and visitor organizations. Mitchell is also a member and sponsor of the Chicago Business Travel Association, and the airport has contracted with a sales representative who calls on northern Illinois businesses.
To supplement Mitchell’s direct marketing efforts in northern Illinois, Milwaukee-area airline industry analyst Jay Sorensen has a bold idea. He says Mitchell could attract more travelers and become a bigger regional draw – thus prompting airlines to expand service in the market – simply by changing its name.
Sorensen offers no specific suggestions for a new moniker, but he has a general one. “I do believe the name would need to include an element of Chicago in it,” he says. “Whenever I travel the world, no one knows where Milwaukee is, but everyone knows, or thinks they know, where Chicago is. Actually, I think we are lucky to have a big neighbor like this nearby.”
Including Chicago in the name, Sorensen contends, would highlight Milwaukee as a destination for international travelers, too.
That probably won’t stop many of Milwaukee’s travelers from heading south to O’Hare, especially for their longer journeys. Yes, some airline analysts speculate whether Mitchell is ripe for international service, a nod to the region’s large number of Fortune 500 companies and international corporate headquarters. Sorensen – who runs IdeaWorksCompany, a Shorewood airline consulting firm – mentions Icelandair as a Mitchell candidate. It doesn’t serve O’Hare and can reach European markets through
Iceland’s capital of Reykjavik. But the prospect of Mitchell becoming a big international player seems unlikely.
Bateman says Mitchell has regular discussions with international carriers, and he downplays the notion of Mitchell having direct mainline international service anytime soon. “International activity is at one of three types of airports – a coast, a hub or resort,” Bateman says. “We aren’t in those three categories, so it’s not an easy sell.”
But remaining competitive and being an asset to the region’s economic development efforts is crucial. The problem is how to do it.
In October, airport operators proposed an unorthodox move: Close one of Mitchell’s three main terminal concourses. Sorensen says the plan to mothball Concourse E, where United Airlines and Delta have operated, has a variety of benefits.
The move still needs approval from the County Board, but Sorensen says it could reduce maintenance costs, shift more passengers to the two remaining concourses (which would please vendors in Concourses C and D) and free up contiguous gates. That may help Mitchell’s efforts to attract another airline, which could fill the void created by Frontier.
“It’s unusual to have a concourse that is empty and available,” Sorensen notes.
The planned revamping would place Southwest and AirTran (which eventually will operate as a single airline) in Concourse C along with American Airlines. Mitchell’s other airlines – Delta, Frontier, United, US Airways and Air Canada – would occupy Concourse D.
“I want to optimize value and have the most efficient use of the space we’ve got,” Abele says. “There’s certainly desirability to save some costs on one of the concourses.”
Abele is also big on the concourse’s bargaining-chip value in luring another airline to Mitchell.
“When an airport is growing and doing well, and you have a new airline that wants to come in, one of the problems is, they don’t just want gates. They want gates that are connected,” Abele says. “And if there’s some airline that we could convince to have a bigger presence here, there’s the capacity to have a lot of gates that are proximate to each other.”
Although the setup may be attractive, getting an airline, particularly one that doesn’t already serve Mitchell, to assume control of 10 gates has little chance of coming to fruition. Bateman puts it more bluntly: “The likelihood of a hubbing airline coming in and taking 10 gates is nil.” Mitchell is already served by the six largest airlines in North America – Delta, United, Southwest, AirTran, American and US Airways. “So the question,” Bateman says, “is who are you going to attract.”
For years, JetBlue has been mentioned as a potential target. But the airline provides extensive service to Boston and New York, two markets already served out of Mitchell. Another possibility is Alaska Airlines, but it, too, offers service for a market, Seattle, that’s already connected with Milwaukee. Nevada-based Allegiant Air doesn’t provide service at Mitchell, but its business model focuses mostly on flying to leisure destinations from airports that have limited or no service on mainline carriers.
“There’s not a lot out there, and we want to be very careful not to jeopardize the service we already have by putting another competitor in there,” Bateman says. “Everybody likes competition, but what if you lose [multiple] airlines on a route? We aren’t a large enough market that we can support two competitors offering flights to Seattle.”
Sorensen mentions Florida-based Spirit Airlines, an ultra-discount carrier, as an airline that could covet Milwaukee if airfares rise due to decreasing competition. “Spirit might come in,” Sorenson says. “They tend to go where fares are high.”
Mitchell’s already casting glances that way. “Spirit is one that’s on our list,” Bateman says. However, the airline, which tends to serve leisure markets such as Florida and the Caribbean, already serves O’Hare. And even if Mitchell were successful in luring Spirit, Bateman says the airline would probably occupy just a single gate.
Sheehy understands the quandary. “The market today has fewer players,” he says. “There just isn’t a list of airlines to recruit here. The growth of Southwest and its acquisition of AirTran, combined with [growth] by Delta, will dictate our future. Both have models that will take our travelers through their hubs. We still have decent air service, but a return to the ‘old days’ is not likely in the cards.”
Attracting a new airline to a market can be a long, arduous process. It took nearly two decades of meetings and negotiations, Sheehy notes, before Southwest finally agreed to enter the Milwaukee market.
Ultimately, expansion at Mitchell will likely be driven by airlines already serving the market. Especially Southwest, which is poised to become Mitchell’s dominant carrier once it fully absorbs AirTran. “Southwest’s business model is totally different from the other airlines,” Bateman says. “If there is a route from Milwaukee that is profitable, they will fly it. We’re very much hitched to Southwest and their potential for growth.”
Having Southwest as the dominant carrier means that airfares likely won’t go sky-high, as is often the case when competition weakens, Bateman says. But deeply discounted fares aren’t likely to be the norm either. “Southwest has become a legacy airline, so the low fares that they were once well-known for because they were a low-cost new kid on the block is not the case anymore.” In its 42nd year of service, Southwest is a “mature airline with higher employee costs,” Bateman notes. “They still are the low-fare leader, but the fares aren’t as low as they used to be.
“But they still keep fares down in a market.”
MMAC, Sheehy says, plans to work with airport operators on a strategy to maximize use of Mitchell’s available capacity and maintain enough service options to keep costs competitive. “There will be no quick fix,” he says.
Any expansion of service at Mitchell, whether by an existing airline or a newcomer, depends on many factors, including growth in the areas of population, per capita income and the local economy. “The bottom line to grow air service for Milwaukee is that you need butts,” Sheehy says. “If we can produce butts, the airlines will provide seats. This is what the airlines look for.”
And despite prospects, Bateman insists that recruiting new airlines isn’t the main motivation behind plans to close Concourse E. It’s improving experiences for passengers under the current setup. The airport would consolidate operations into two newer concourses with better facilities, and the airport would save on maintenance costs associated with the upkeep of Concourse E.
“I think it makes some sense from an economies of scale standpoint and from a passenger services standpoint,” Bateman says. “There is a totally different attitude if a place is hustling and bustling,”
Abele echoes the sentiment. “For the people that are going through the two concourses, it will give the perception that it’s a busy, thriving and efficient airport.”
Abele also expresses no regrets about Frontier, the airline whose rise and fall set so much in motion. He also notes that he’d be quick to aggressively pursue similar opportunities in the future.
“I’m focused on what can we do with what we’ve got,” Abele says. “Not everything you pursue pans out.”